Why is the government risking an asset price crash?

By Anthony Cheng

The government’s recent housing policy revisions have some worrying implications. A chart sent to me by a friend who was at a briefing on the real estate market by an acknowledged expert highlights the problem.   Let me explain.

Popn and housing

If you look at the chart above, you will see that in the last 10 years (2005-2014) of rapid population growth, Singapore’s total population soared by 1.3million. During this time, the total number of residential units completed (HDB, EC and private) increased by 151,475.

Meanwhile, according to the National Development Ministry, in the construction pipeline are 177,710 residential units which will be completed from 2015 to 2018. (See the Ministry’s chart below.)

Housing pipeline

And according to URA’s data for the second quarter of 2015, there are already more than 25,071 vacant private residence units and 2,391 vacant EC units. Put all these numbers together and we have enough homes on the market and in the pipeline to cater for an additional 1.5 million people (which, coincidentally, takes us to that 6.9 million population target) without the government having to sell any more land until 2030.

But we’re not here to discuss the Population White Paper. As we should know by now, it’s pretty much fait accompli unless we collectively stop them on 9/11.  What we need to discuss is the danger that the recent income cap revisions for ECs and BTOs will trigger an asset price crash we don’t need.

Encouraging more families to buy ECs and BTOs by raising the annual income caps to $168,000 and $144,000 respectively will surely widen the pool of buyers. Also, HDB advertises that for some families, mortgages need not be paid with cash (i.e. full CPF usage is possible). This means even more CPF money will flow in for HDB – even more of our CPF money will be locked up!

More critically, an enlarged pool of newly eligible buyers will prompt developers to tender at Government Land Sales programmes, albeit tapered from previous sales.

Question 1: Is this revision meant to move land inventory?

Bear in mind, with this enlarged pool, HDB’s infamous balloting system will cause even more grief to those already in the system and unable to get a BTO, even with the various supposedly helpful priority schemes and multiple applications.

Question 2: Why are we enlarging the EC and BTO buyer pool when, because of the cooling measures, sales of private units have already plunged 21% in the 1st half of 2015 from a year ago?

This latest revision would just force private developers to continue their price discounting. Some may be driven to the brink, and even go under. And for the  people fortunate enough to be still able to make buying decisions, this discounting will induce them to wait for even more discounts, thus precipitating a “deflationary death spiral”.

Question 3: Why risk an asset price crash now?

China is slowing down, our regional economies are suffering severely devalued currencies, and our own exports and economy won’t be able to escape these negative impacts.

Here’s the conundrum: Harakiri Khaw already knows we have this supply of built-up units with more in the pipeline – enough supply for a population of 6.9 million by 2030.

With the regional and global economic prognosis forecasting dark days ahead, why risk an asset price collapse by pushing ahead with policy revisions that could well lead to increased land sales? The implications of even more land sales in an oversupply market are not in ordinary Singaporeans’ favour. There is only one beneficiary – our National Reserves.

The Ultimate Question: Are Temasek and GIC in such deep hock that they need more reserves to cover liabilities?