Housing for PRs – nobody in charge

Leaps in resale flat prices have been making the headlines in the last few months. I will demonstrate in this article what is the most likely chief reason for this: the rise in the number of Permanent Residents, coupled with the fact that no government agency is responsible for catering to their housing needs.

For non-Singaporean readers, I should explain some context: 82 percent of Singaporeans live in flats built by the Housing and Development Board (HDB), our public housing authority (Source: HDB Annual Report 2008/9). Citizens can either buy newly-built apartments directly from the HDB (provided they meet certain criteria) or from the resale market. Permanent Residents can only buy from the resale market. The HDB sells new flats at fixed prices, but in the resale market, prices move according to supply and demand.

As reported by Today newspaper,

HDB resale flat prices have hit record highs again. Prices rose by 4.1 per cent in the second quarter of this year, compared with the previous quarter, making it the fifth straight quarter of increase.

Analysts say the demand is driven by those who don’t qualify for a new flat or want a flat quickly.

High prices in the private property market have also made resale flats an appealing choice, said Dennis Wee Group director Chris Koh.

— Today, 24 July 2010, Resale prices still rising

Siew Kum Hong, in his blogpost Deus ex machina, contests the Minister of National Development’s claim that the government is powerless to influence prices for resale flats. He set out five reasons why prices have been going up strongly, the second and third of which related to foreigner population.

I think we need to distinguish between Permanent Residents (PRs) and other foreigners on work and employment passes. When it comes to purchasing resale flats, only PRs can do so, other than citizens.

Prior to seeing Siew Kum Hong’s blogpost, I came across a post in Temasek Review that pointed the finger at the HDB for the red hot prices in the resale market. It had some numbers from HDB’s annual report that showed the body drastically scaling down its building program during the last few years. I decided to take a look at the source myself. This is what I found:

The numbers for the above were from HDB’s Annual Reports for 2005/6 and 2008/9 (the latest available).

Demand for newly-built flats averages about 10,000 units a year, but HDB’s building program has indeed swung like a roller-coaster. In the early part of the decade, it was building far more than needed, but over the entire nine-year period, the numbers are almost exactly the same. Demand totalled 93,793 units, while 93,763 units were built.

Thus, I don’t see that as any immediate  explanation for the rapid increases in resale prices. On the face of those numbers, it is not as if unmet demand for new flats is spilling over into the resale market.

That said, we may have to think beyond numbers. It is more than possible that there is unmet demand, except that it is not captured in the “bookings” data that HDB collects. This can happen when home-buyers, even though they qualify for new flats, don’t feel like waiting, and go straight into the resale market to look for one.

Siew Kum Hong  mentioned too the problem posed by HDB’s Build-to-order policy. They don’t actually start building until 70 percent of planned flats have found buyers, so nobody can be sure when exactly the flat will be built, if at all. This uncertainty then puts people off signing up for a Build-to-order flat, which cumulatively means fewer people want to sign up, which then means it takes longer to reach the 70-percent threshold! So people may just give up and turn to the resale market.

Unfortunately, there isn’t much data in the annual reports on the resale market. What I could see was that in a typical year, there would be about 30,000 resale transactions — the sales have to be registered with the HDB; that’s how they capture the numbers. But there are no numbers about demand and supply.

However, we can get an indirect feel of demand and supply by looking at population and the total stock of HDB flats in Singapore.

The population figures were obtained from the website of the Department of Statistics. They show that between 2005 and 2008, our total resident population increased 5.0 percent. More importantly, the number of PRs increased 23.6 percent. You might recall from above that PRs can only buy from the resale market, so this is an important angle. Hence, although we cannot put a figure to it, it does suggest that demand for resale flats has been increasing strongly.

Where would the supply of resale flats come from? From the existing stock of HDB flats, of course. At any given time, a certain percentage of flat-owners would be looking to sell. Yet, from HDB annual reports, I see that between 2005 and 2008, the total stock of HDB flats increased only 0.6 percent, which suggests that the available resale units on the market would not have increased by much.

I don’t have equivalent figures for 2009 and 2010, and without them I cannot get any closer to understanding the price rises in the first half of this year, but one can guess that this trend from 2005 to 2008 is continuing.

There seems to be a policy hole with regard to resale flats. Nobody in government is in charge of  matching supply and demand on a macro level. The HDB needs only to consider citizen population in its forward planning, since new flats that it builds can only be sold to citizens. It is not in the business of building flats for PRs.

Yet, most PRs find prices of private condominiums out of reach, so they can only look to resale HDB flats for housing, but if the total stock of HDB flats hardly increases, one could assume that the resale units available would hardly budge too. And all this while, more and more PRs make Singapore their home.

At some point, the HDB needs to expands its scope, and cater to PRs as well. It needs to take into account their increasing population numbers and think about how to provide for them in its building program.

* * * * *

It is very dangerous for the government to allow home prices to rise like this. Although it has been argued that rising prices benefit existing home owners who see their asset values rise, I think this is an extremely short-sighted view.

For most people, when they sell one home, they usually need to buy another, so rising asset values mean very little. Your exchangeable value is what matters, i.e. how much of the present flat you need to exchange for the next flat. Say, in one year, your present flat is worth S$180,000 and your next flat costs $180,000. Six years on, you need to move again. Your second flat has risen in value to S$300,000, but to buy your third flat, it also costs $300,000. You’re no better off.

But at a macro level, we’re worse off. This especially if property prices rise faster than income, for then it means that a greater and greater proportion of disposable income is devoted to housing, whether in the form of rent payments or in the form of mortgage payments. This has a depressing effect on other parts of the economy.

Then there is a “lock-in” trap. By this, I mean that as people purchase flats at ever-higher prices and take a loan to do so, which most do, they find themselves unable to sell at anything below the price at which they had bought. The bank will demand that they pay up the difference in cash. If people can’t, then banks will suffer bad loans. We create the conditions for extreme fragility. The knock-on effects on our financial system, on people’s stress and worry level is magnified every time we hit an economic downturn.

Yet, even though this is a serious economy-wide threat, nobody seems to be in charge of planning. We seem to think that the HDB is the major player, but when resale transactions (at about 30,000 a year) outnumber new flat sales (at about 10,000 a year) by three to one, it is resale prices and their lock-in effects that have greater significance than HDB’s new-flat prices.

(Not that HDB’s new-flat prices are that attractive. The HDB themselves appear to be pushing up their selling prices, which in turn pushes up resale prices.)

We’re on this turbulent ride, bumping and yawing, but nobody’s at the wheel.

41 Responses to “Housing for PRs – nobody in charge”


  1. 1 Rain 2 August 2010 at 08:44

    Well written article! You have dissected a topic where our highly paid Minister failed to see (or chose not to see) the problem.

    Rising property prices have mostly a detrimental effect on the majority of the population. This would only be beneficial to people who have already owned more than 1 property where they can flipped their property for ever increasing prices.

    For majority of the population where the only property they have is their primary residence, every increasing property means nothing.

    Worst, most people are saddled with huge monthly repayments with their new properties and are teething at the edge of financial hardship. Imagine having to make regular monthly payments to the CPF or banks for the housing loans for 30 years – every single month!

    We have the highest property prices since 1996 and the lowest interest rates currently. Most people are maxing out their home loan just to be able to secure a home. Any upward movement in interest rates or a major financial calamity would bring the house of cards tumbling down with untold family suffering.

    The worst part, te government are still talking up the property prices.

  2. 2 anony 2 August 2010 at 09:57

    “This especially if property prices rise faster than income, for then it means that a greater and greater proportion of disposable income is devoted to housing, whether in the form of rent payments or in the form of mortgage payments. ”

    This is what is so troubling about the HDB property market. In addition to the Indian PRs flooding the market in recent yeas, has anyone noticed of late that there are a lot of Filipino PRs in our midst who are white collar employees. Not only in retail but in IT, banking, architecture etc sectors.

    They are willing to go for lower wages than Spore born & bred citizens. Our professional wages facing competition from these lower paid Filipino professionals suffer a major setback. Not only have we to compete on lower wages with Indian professional PRs, we now have the additional problem of Filipinos dumping down the professional wage market.

    Employers will only go for the lower paid foreigners given the same skills set.

    But you won’t see this kind of sheningans happening to our ASEAN neighbours, Thailand or Malaysia, would you? They have much protective measures to ensure that their citizens have a larger economic pie to enjoy & better housing than us.

    Sometimes I wonder why Spore citizens subject themselves to such abuse by the ruling party when the going gets tough. Can they not think logically?

    • 3 rojakgirl 2 August 2010 at 16:43

      It’s not “can they not think logically?” but “can they even think for themselves, first?” If they can’t develop any type of “real” thinking skills, in regards to personal development and so on, how are they going to realize that abuse is not “love from a parent”?

      To add on to the topic being discussed: Btw, my block(among others) was scheduled for the SERS scheme and we’re probably going to move out in 2011.

      The PAP is really cunning. In 1 fell swoop via the SERS scheme, it’s probably reinforced the citizens’ support for them while making sure that Singaporeans are going to be placed into even more debt that will likely be passed on to their children. That way, it ensures that the people are enslaved to the system and will have less opportunities to pave the future for themselves. In Singapore, money is almost everything.

      Even if your old flat is worth of some value, it’s certainly not going to cover much of the new pricing. And you can be damn sure the HDB is going to renovate the block and resell everything for a few million dollars each. Or if the block is too old, they can simply sell the land for loads of money.

      I’ve also noticed a lot of pamphlets over the past few months from property agents, looking to buy resale units for PRs/other Singaporeans. And isn’t that illegal or something, to purchase flat units scheduled for SERS? I know that some of those who lived in this block, actually sold off their units because they either have multiple properties or are looking to move into a flat in some other location.

      Also, I just do not understand something. Everywhere, on many blogs and forums, it is generally hinted/noted that discontentment among much of the population is rising.

      Yet at the same time, it is still written in many places that a lot of Singaporeans are still going to support the PAP. I don’t understand: if people are REALLY discontented with something, won’t they speak out? Or am I being misleaded into thinking that Singaporeans can’t be bought and sold? After all, Singapore government = Singapore Inc and Singaporeans = disposable merchandise that can be obtained at a variable price.

  3. 4 Beast 2 August 2010 at 10:11

    Actually, Alex, you forgot to mention one salient point.

    When you pay for the flat, the flat isn’t yours……its on a 99 year lease, and, if you do anything to upset HDB, they have the power to kick your ass out of the very flat you pay for. Is this ownership?

  4. 5 prettyplace 2 August 2010 at 13:42

    Good article Alex.

    Firstly, I am surprised by the change in total population, only 5%. Are that many Singaporeans leaving or dying.

    Public housing has taken a diffrent dimension since 1992, after GCT’s upgrading came about. Asset appreciation and value enhancement has all pushed up prices to an unaffordable level today.

    Before it was only a 20 year loan, now it is 30. Years ago,
    buyers can only use, if I am not wrong, only 60% of their ordinary CPF to pay for a HDB flat. The rest was kept for retirement. Today, it is 100%.

    This easing of ‘locked money’ made people upgrade.
    Thus the rise in property prices from 1992 to 1997.
    Till we all know what. of course interest rates were low, as usual.

    Now this sudden increase in poplulation, how can the prices not go up. If HDB wants to keep prices at decent levels and be a public housing provider,

    My suggestion is this,
    they should get all those private property owners who are owning a HDB flat to sell off the HDB flat within a stipulated time period.

    That way, we will have enough flats for PRs and locals who want to buy a flat or just move to different neighbourhoods.
    Prices will remain decent as well.

    However, the way the govt is going, I think these guys are planning for a good falling down floor party.

  5. 6 cy 2 August 2010 at 14:18

    i am sure they are aware of the increasing demand from PRs buying or renting flats and foreigners renting flats. However, as a monopoly, HDB is insensitive to this inelastic demand. thus,this explains the lag in response.

    now,they are caught in dilemma,if they overbuilt,HDB will face a pop in the bubble in a few years time, but if they don’t do anything,they risk a political backlash and a larger bubble.

  6. 7 yawningbread 2 August 2010 at 14:33

    cy – exactly as you said, letting property prices rise just magnifies the lock-in trap. From whatever level prices have reached, any fall in prices creates pain, which translates to political backlash. A prudent government would not let prices rise like that, it reduces their own room for manoeuver.

    But this government seems to have taken its eye off the ball, perhaps through keeping it on the wrong ball, thinking that rising asset values boosts its vote share.

    I also argued in the article that the HDB measured its own success with wrong KPIs (restricting itself to serving only citizens even when PRs became a larger and larger proportion of residents here). . . another instance of watching the wrong ball.

  7. 8 francis 2 August 2010 at 15:35

    Build-to-order (BTO) policy is no different from the old anticipate-and-build policy except for buyer have to wait 3 to 4 years wait for the flat to be build, even under the current BTO program, HDB still find it hard to sell their current stock of studio and flat smaller than 4rm in their recent sale (if you check HDB website, you will notice a large portion of the unsold flat are 3rm or smaller). MBT even said very optimistically said that it will take 1 year for the housing market to stabilize even thou the problem was observed since last year. My question to MBT would be, how in the hell you can stabilize the HDB resale housing market when there are so little flats build over the last 5 years and even the recent increase in supply (BTO) would not be in the market till 8 years later.

  8. 9 Roy Tan 2 August 2010 at 16:44

    Hi Alex, you have overlooked the demand from Singaporeans who live in private property but who want to buy HDB flats either for investment (capital appreciation and rental income) or just to leave empty and have as a second holiday home, like myself.
    Assuming that everyone in the rounded-off percentage of 20% of the population who live in private property wants to buy a HDB flat, this would translate into a demand for 800,000 flats!
    This dwarfs the PR demand by a huge margin.

    • 10 serendib 2 August 2010 at 18:45

      legally, you’re breaking the law if you own both an HDB flat and private property(ies), and do not reside in your HDB flat. Of course there’s a number of ways that this can be sidestepped legally.

    • 11 Anonymous 3 August 2010 at 03:31

      Hi Roy, it would seem that you are financially well-off to be able to afford both a private property to live in, and a HDB flat to use as a holiday home at pleasure.

      Perhaps you may, at some like, like to consider the possibility of not holding onto the HDB flat. Perhaps you may help another family obtain the housing that they need at a price that they can reasonably afford.

      I’m sure a savvy investor like you can easily re-deploy the funds from selling the HDB flat in other opportunities with higher returns.

    • 12 fish 'n' chips 7 August 2010 at 08:55

      I know what you are trying to illustrate. I know that is hypothetical. But your argument is flawed. Please re-examine it again. Thank you!

  9. 13 jeisilan 2 August 2010 at 16:44

    Has HDB thought about the impact of the 99 year lease on the HDB flat resale value in say, 15 to 20 years from now?? Quite a large no of our flats in Mature estates are already reaching 30 to 40 years of age..eg.Marine Parade,bedok, ang mo kio,etc. I don’t have the statistics but i wonder what is the mean age of the average HDB flat? or the mean age of flats in large mature estates where most singaporeans reside? Surely, the current values of these flats cannot be sustained in the future.

    Also, I don’t think HDB buildings will stand for 99 years. A HDB engineer friend of mine actually said that 50 years is the normal ‘lifetime’ for these flats. Assuming this is true, i wonder how HDB is going to compensate hdb home owners when it relocates them to newly built hdb flats in the future..I wonder if all these issues are factored into HDB’s current policy direction..

    • 14 Beast 2 August 2010 at 17:08

      The lifespan of the flat literally has something to do with the lifespan of concrete.

      My HDB flats are constructed mainly as framed RC concrete buildings, with bricks as walls. Since concrete usually has a lifespan of 60 years (Before failure starts creeping in), yup, a 50 yr last span is a good gauge for the flat.

    • 15 prettyplace 4 August 2010 at 22:56

      Very good point made, especially in terms of HDB structural strength. This is something nobody is commenting on.
      There might be SERS, another debt trap.

      And one more, while building your BTO flat, if a co-owner dies, there goes the flat. (Like how, I am stuck, hope HDB can assist, since I am the one who is going to be paying for it.)

      Like what Alex have pointed out, looks like the idea was to keep increasing the asset value and make people FEEL rich.
      Somehow, the plan is back firing. It might be a trap to keep Singaporeans hostage, especially those in HDB flats.

  10. 16 rojakgirl 2 August 2010 at 16:52

    Are you serious? So the “99 years” thing is a trick used to seduce people into thinking their flats will last for many years?

    This seems like a really dishonest stunt.

    • 17 prettyplace 4 August 2010 at 23:00

      You only own the air space(strata title), thus if concrete gives way. You are homeless because the land is govt land.

      Of course, if contrete gives way, the govt will sure do something for the tenants, unless they want to shoot themselves in the foot.

  11. 18 Beast 2 August 2010 at 17:05

    Many in politics seem to forget that the original aim of the HDB scheme was to provide cheap housing for the masses.

    On the surface, it does seem logical for market forces to take control, unless, of course, people really DO OWN HDB flats. You don’t. You sign up for a flat, pay something like 500K bucks, and, really, you don’t own that flat. 99 year lease is never ownership, any property agent can tell you. And, if you breach HDB rules, they kick you out of your flat. You don’t see the same thing in condominiums, and that’s because people who live in condos do own the condos.

    Which brings forth the question: Should governments interfere with the market forces pertaining to the sale of HDB flats? It sounds like doublespeak, but yes, I think they should, simply because this is a form of convoluted ownership.

    I may be right or I may be wrong. Feel free to critique my thoughts here. Thank you.

    • 19 rojakgirl 2 August 2010 at 17:16

      And many people seem to think that they actually own their flats. I wonder if they remember the “99 year” rule or that it is a lease and not an ownership.

      Anyways, you make a lot of very good and sound points. Great food for thought.

    • 21 prettyplace 4 August 2010 at 23:09

      You are right.
      HDB is public housing. They should assist Singaporeans to pick up themselves and gradually move to private housing, like what happens in developed countries.

      This way people own their homes and lives. They can take risk and in the event of failure, can still fall back on public housing. This cn still be done, if the govt privatises HDB flats.

      The problem is that people must have financial maturity, so that they don’t fall back on the govt all the time and fail in casinos.

  12. 22 T 2 August 2010 at 17:20

    /// Beast 2 August 2010 at 10:11

    Actually, Alex, you forgot to mention one salient point.

    When you pay for the flat, the flat isn’t yours……its on a 99 year lease, and, if you do anything to upset HDB, they have the power to kick your ass out of the very flat you pay for. Is this ownership? ///

    I don’t think this is relevant here. And that FACT is not that earth shattering. The same can be said of any 99-year condo, private properties or any commercial properties.

  13. 23 Beast 2 August 2010 at 17:26

    I may be mistaken here…….but private bungalows and semi detached homes are usually on 999 yr leases. I am not sure about condos. Any info?

    • 24 prettyplace 4 August 2010 at 23:14

      Condos & landed property, there are;

      freehold-you own it forever and ever. fairy tale but true.
      999 years-leasehold till the 999 years expire.we would by then.
      99 years-leasehold, only for 99 years lah.

      HDB is 99yrs, private properties got a mix of all three.

      Currently govt land sales are all 99yrs only.

  14. 25 T 2 August 2010 at 18:07

    Any private properties built on land tendered by the URA or HDB are now 99-years. Most private condos are now on 99-year leasehold. The only freehold condos are old ones, or new ones built on old properties.

    Private landed properties used to be largely 999-year leasehold, freehold or estate in perpetuity. But recent bungalows and semi-Ds are also on leasehold.

    A classic example is The Shore along East Coast Road by Far East Organisation. The old freehold property (Rose Garden) was en-blocked and bought by FEO and converted into 99-leasehold. FEO holds the freehold land, and technically can kick out the “buyers” after 99 years.

  15. 28 Alan Wong 2 August 2010 at 19:35

    Correct me if I am wrong, I was told that some of our public housing flats are also currently leased out by HDB or private individual owners to GLCs, private companies or management agencies which in turn are leased out as accommodation for eligible foreign employees.

    I do know of one GLC shipyard company which has leased out HDB flat accommodation through their employees in a private arrangement. As to whether they are breaking the laws, I suppose they have a very valid excuse to do so ?

  16. 30 Mat Alamak 2 August 2010 at 20:20

    “…It is very dangerous for the government to allow home prices to rise like this…”
    – Yawningbread

    Dangerous in what way? Politically of course not or else the govt (under MM Lee’s wise mentoring) won’t allow this to happen. Right or not?

    Once politics in favour of PAP is well taken care of, everything else will take care of themselves.

    On this aspect, all govts should learn from the PAP. Of course they need to modify on the specifics based on the situation in their own countries.

    • 31 KiWeTO 2 August 2010 at 21:17

      paraphrased to?

      “trust us. We’re the good guys”.

      Hmmm, what did the saying about “good intentions …”go again?

      E.o.M.
      [yup! LEASEHOLD. our land is precious. home “Ownership”. Ahh… the obfuscation continues.]

    • 32 yawningbread 3 August 2010 at 00:31

      Mat Alamak – dangerous from a macro-economic point of view. Price bubbles can seriously undermine an economy.

      • 33 Beast 3 August 2010 at 01:20

        Hi Alex

        I think it has to do with how we think about HDB. Are they landlords, or simply developers? I find the situation muddled somewhat.

        If prices of HDB flats keeps rising, my question is, are they going to be cheap housing in Singapore? I doubt so.

  17. 34 r 2 August 2010 at 22:21

    well written article. we should also note that the sky rocketing non-resident population is another major, though indirect cause of rising HDB prices. with more people seeking to rent apartments in sg, rental yields rise which makes owning property a very appealing form of investment.

    also, with rentals rising significantly over the past few years, many PRs who might have been satisfied with renting a place, are now looking at buying HDB properties since the difference between renting and monthly housing installments is becoming negligible.

    it doesnt take a genius to figure out that a rapidly increasing population due to influx of foreigners is causing a strain on all classes of properties given that the foreigners working in singapore now come from a wide spectrum of skill levels.

    the flipside is that this foreign population, including PRs are but subject to the wild swings in global economic outlook. if a downturn does hit us next year and cause a sharp reduction in foreign population, the bubble could start unraveling. so much for a responsible government

  18. 35 anon 2 August 2010 at 23:05

    Roy Tan 2 August 2010 at 16:44
    Hi Alex, you have overlooked the demand from Singaporeans who live in private property but who want to buy HDB flats either for investment (capital appreciation and rental income) or just to leave empty and have as a second holiday home, like myself.

    My Reply:
    Hi Roy, you have no idea how private property owner (e.g. myself) thinks. A holiday home in the heartland? Hahahaha!
    When one is able to afford private properties one would not even look at HDBs anymore. Because HDB ownership means 1,001 rules and regulations and the propensity for such rules to change overnight. The private market offers far greater flexibility from investment point of view.

    However I do see many HDB owners venturing into the private property market for their second home. Not the other way round.

  19. 36 Old Communist Times 3 August 2010 at 06:13

    The story of long waiting times to get new flats reminds me of Communist days in the Soviet Union. One would put in a request for a new flat (only if one had proper qualifications and a proper family unit), then wait years and years and years until the flat was ready. If you were influential, your housing block would be renovated more often too.

  20. 37 Stressed Sinky 5 August 2010 at 00:25

    PAP has obviously not learned from America housing bubble. The reckless increase in Housing price is like a passenger airplane trying to reach the moon forgetting its capable limit. I fear for the passenger. Is Singapore really bankrupt that we must recoup at all cost, even when the risk of failing is extreme. May be someone is “vanishing” as he grows older and wouldn’t care less the survival of next generation.

  21. 38 KT 7 August 2010 at 12:07

    ‘It is very dangerous for the government to allow home prices to rise like this.’

    Alex

    The government does not and indeed cannot control the HDB market. It controls the primary supply – but even this takes time to effect – but that’s puny compared to the secondary supply. The market has a mind of its own. Let’s not think the government is god almighty and blame it for everything, though it’s not entirely blameless.

  22. 39 T 12 August 2010 at 10:28

    /// KT 7 August 2010 at 12:07

    ‘It is very dangerous for the government to allow home prices to rise like this.’

    Alex

    The government does not and indeed cannot control the HDB market. It controls the primary supply – but even this takes time to effect – but that’s puny compared to the secondary supply. The market has a mind of its own. Let’s not think the government is god almighty and blame it for everything, though it’s not entirely blameless. ///

    KT – yes and no. The government control both the primary and secondary markets. For the primary market, they control the number of units built per year and the timing of the launches. For the resale market, if I am not wrong, they control the valuations. In other words, for S&P in the secondary market, the valuation of the HDB flat has to be be “approved” by HDB. This allows the HDB to somewhat control the prices. Which is why we have this absurd concept of “Cash over valuation” (COV).

    In a free market, as in the private property market, there is no COV. What you pay is market rate. Willing buyer and willing seller. If the valuation is low, it just mean the valuer is kiasu and conservative. In any case, valuations based on comparables are always lagging behind. In a rising market, the valuations tend to be lower than market as transacted prices are always historical and lower. OTOH, in a falling market, the valuations are sticky and remain high for a while.

    Bottom line – in a really free market – the buyer call the shot. What he is willing to pay is the market price. The valuer may value the property lower, but it is what the buyer is willing to pay that is the true mark of market price.

    P/S – I had to arm-twist my valuer 10 years ago to value higher for my S/D because I wanted that property and was willing to pay that price. I paid $300k more. A month later, my neighbour paid higher for the identical S/D next door – I had set the benchmark and that was the comparable used plus a premium.

    • 40 KT 12 August 2010 at 21:26

      ‘In a free market, as in the private property market, there is no COV.’

      Of course there is! It’s the difference between the valuation and the transacted price! It’s not called ‘COV’ but it is the COV in spirit. The difference is: HDB COV has to be financed with non-CPF funds whereas private COV can be financed with CPF funds (I believe).

      ‘Bottom line – in a really free market – the buyer call the shot. What he is willing to pay is the market price. The valuer may value the property lower, but it is what the buyer is willing to pay that is the true mark of market price.’

      How does the buyer ‘call the shot’ if the seller refuses to accept his price? In a really free market, both buyer and seller can walk away from negotiations. Which is the case for the HDB secondary market (restrictions on race and ownership period notwithstanding). How is the secondary HDB market not free? If you don’t like the price, you don’t have to buy/sell!

      ‘In other words, for S&P in the secondary market, the valuation of the HDB flat has to be be “approved” by HDB. This allows the HDB to somewhat control the prices. Which is why we have this absurd concept of “Cash over valuation” (COV).’

      The fact that there is a COV (which can sometimes be negative, i.e. transacted price is below valuation) shows that the valuation ‘approved’ by HDB does NOT control the market!

      ‘P/S – I had to arm-twist my valuer 10 years ago to value higher for my S/D because I wanted that property and was willing to pay that price. I paid $300k more. A month later, my neighbour paid higher for the identical S/D next door – I had set the benchmark and that was the comparable used plus a premium.’

      I presume you ‘paid’ S$300,000 more only on paper and not in actual fact? In any case, it is foolhardy to assume that subsequent sales in your neighbourhood would necessarily follow your ‘valuation’. ‘Yours’ obviously deviated from previous transactions/valuations, didn’t it?

      The government’s only ‘control’ over HDB secondary properties is through its rules and regulations, such as financing terms and ownership eligibility. But these are crude tools. The government cannot predict exactly what the outcome is when it changes the rules of the game. Which was the case in the nineties before the Asian financial crisis. And primary prices can’t be totally divorced from secondary prices because one is a substitute for the other, to some extent. This just shows that even the HDB cannot control the market.

      The government is not god. There is no ISA or ISD for HBD flats.

  23. 41 yawningbread 8 September 2010 at 00:51

    QUOTE

    7 Sept 2010
    Straits Times

    Take rational approach to problems: SM Goh

    On housing, Mr Goh acknowledged that the surge of immigrants in 2007 and 2008 caught the Government by surprise. But the Government had not stopped them from coming because the booming economy needed workers.

    Mr Goh also acknowledged the National Development Ministry ‘did not provide for the sudden surge’ in its housing plans.

    ENQUOTE.

    They probably realised this only after they read this very post on Yawning Bread. My key point had been this:

    There seems to be a policy hole with regard to resale flats. Nobody in government is in charge of matching supply and demand on a macro level. The HDB needs only to consider citizen population in its forward planning, since new flats that it builds can only be sold to citizens. It is not in the business of building flats for PRs.

    Yet, most PRs find prices of private condominiums out of reach, so they can only look to resale HDB flats for housing, but if the total stock of HDB flats hardly increases, one could assume that the resale units available would hardly budge too. And all this while, more and more PRs make Singapore their home.

    At some point, the HDB needs to expands its scope, and cater to PRs as well. It needs to take into account their increasing population numbers and think about how to provide for them in its building program.


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