HDB High Prices & Influx of FT

[Ramseth]

I think that the government should just do away with 1st-time buyer HDB market price subsidy and release all available new flats for sale to both citizen and PR at market price. This HDB subsidy savings should then be redistributed to all citizens (and citizens only) in forms like higher and more frequent progress packages, and higher healthcare subsidies. The HDB subsidy is one that no all citizens get to benefit from, benefit the richer instead of the poorer, and doesn't help the needy at all.

A family who's rich enough to afford a bigger flat would benefit from more subsidy than a family who could only afford a smaller flat. Anyway, many PRs could buy new and subdised flat direct already, through marriage with citizens, but without necessarily themselves converting to citizenship. In the case of sale, being widowed or divorced, or simply taking profit, they're entitled to equal and full claim on the flat and value thereof, thereby also enjoying the subsidy equally as if they're citizens.

If this is implemented, it also makes resale levy upon buying another new flat redundant, as no more subsidy is given. The only control meausure required is one flat per person, no person can hold 2 HDB flats (whether new or resale) at any one time. From the subsidy savings (or rather higher new sales profits) HDB should also build more rental flats (small 1- or 2-room) for lower income singles who're not marriageable at their age and income level and who can't afford to buy a flat.

 

[chinkangkor]

Mr Goh

Just a comment and a question:

1. The influx of foreigners only partially explains the high price of public housing. There was a large overhang of HDB flats (because of the govt's sloppy demand projections) that depressed prices for years. They have since worked through this glut of flats and the new direction is BTO = the setting for higher prices.

In the aftermath of the asian financial crises, demand for flats slumped as many were laid off and back then, there wasn't a huge influx of PRs. The prices of HDB flats dipped due to an over supply.

The current situation is an antithesis of what happened previously. HDB under supply and pent up demand couple with huge influx of PRs push up prices to astronomical level.

That begs the question of housing affordability of the average singaporeans with a median household income of $4,000 plus. With this income level, how long should the loan period be for a 4-room HDB flat?

If the international benchmark of the median income level and the loan period is 10 years, then this should be used as a guide when setting HDB prices.

 

[Internet Brigade]

Why we peg to market rates: HDB
05:55 AM Sep 25, 2009
Letter from Ignatius Lourdesamy Deputy Director (Marketing & Projects) for Director (Estate Administration & Property), Housing & Development Board

I REFER to the letter "It's not all about the numbers", (Sept 16) by Mr See Leong Kit.

It is misleading for Mr See to use the example of flats at Pinnacle@Duxton to conclude that HDB is profiteering from the sale of public housing flats. HDB is able to recover the cost for some projects, while incurring significant losses for others. Overall, in the last three years, HDB incurred an average deficit of $1,045 million a year in its home ownership programme. This cost subsidy, which has to be financed by the Government, is reported in HDB's audited financial statements.

Why does HDB benchmark its flat prices to market in spite of these huge deficits? Because this is the fairest way of pricing new HDB flats while ensuring equitable distribution of subsidies.

How is this done? HDB first determines a flat's equivalent market price by taking into account various factors such as location, finishes for the flat and other attributes. This price reflects the flat's value at the point of sale. It is what people are willing to pay in the open market. HDB then sells the flat at a significant discount, which is the subsidy given by the Government.

Market-based pricing is fairer to all buyers because it allows buyers to receive similar levels of subsidy regardless of market movements and fluctuations in development costs. Mr See states that the Pinnacle@Duxton flats were re-launched at an average selling price "which is $180,000 higher than initial launch prices (in 2004)". If HDB were to sell those flats at 2004 prices as Mr See suggests, it would be giving Pinnacle buyers today an additional subsidy of $180,000. This is not fair to those buying other HDB flats today, or indeed to all taxpayers.

A market-based pricing approach ensures that all groups of buyers at any point in time enjoy similar subsidies, and balances the demand for new and resale flats.

It is illogical for Mr See to attribute the increase in property prices to HDB, because the recent appreciation in asset and equity values is not unique to Singapore. Nonetheless, flats remain affordable - first-time flat buyers use 17 to 29 per cent of household income for their loans, below the international benchmark of 30 per cent.

HDB is ramping up new flat supply, up to 8,000 Build-To-Order (BTO) flats this year. HDB's latest BTO project, Punggol Spectra, offers smaller two- and three-room flats with affordable prices that start from $89,000 and $151,000, respectively. HDB will continue to ensure that flats remain affordable.

URL http://www.todayonline.com/Voices/EDC090925-0000010/Why-we-peg-to-market-rates--HDB
Copyright 2009 MediaCorp Pte Ltd | All Rights Reserved

 

[chinkangkor]

A market-based pricing approach ensures that all groups of buyers at any point in time enjoy similar subsidies, and balances the demand for new and resale flats.

Similar subsidies here mean you buy in year 2000 you enjoy $40k grant for a 4-room flat when the price was $200k. The same $40k grant will be given if you buy similar flat at $300k now. Shouldn't the grant be relative to the flat price?

When the prices of new HDB flats escalated in tandem with the HDB resale market, HDB POCKETS the appreciation of the new flat prices by giving absolute grant rather than relative grant.

 

[Internet Brigade]

Similar subsidies here mean you buy in year 2000 you enjoy $40k grant for a 4-room flat when the price was $200k. The same $40k grant will be given if you buy similar flat at $300k now. Shouldn't the grant be relative to the flat price?

When the prices of new HDB flats escalated in tandem with the HDB resale market, HDB POCKETS the appreciation of the new flat prices by giving absolute grant rather than relative grant.

Are you crazy? Giving out grants that are relational to purchase price will further bankrupt the HDB coffers. It will also lead to spiraling high prices.

 

[chinkangkor]

Are you crazy? Giving out grants that are relational to purchase price will further bankrupt the HDB coffers. It will also lead to spiraling high prices.

According to your logic, removing the grant will help to cool down the HDB resale market?

The current price escalation is due primarily to a housing shortage, cause by an underestimation of demand by HDB.

Housing being a basic need, it is the govt's sole responsility to meet those needs.

 

[shOUTloud]

It does not make sense to give out more grants. It is more crucial to stop the "asset inflation". It is not helping anyone and will only encourage locals to sell you and move to other countries.

Half a million for a four room flat at Bukit Batok! Wat a joke.

 

[Goh Meng Seng]

Hi Londontrader,

Nice to see you here again.

For your first question, the BTO system would be efficient if and only if the HDB is responsive to demand. The practice now is that a project will require thousand of order before they begin to build. And each project require substantial size so that there is economic of scale.

Projection of demand could be done according to demographic patterns. If Singapore's birth rate 20 or 30 years ago is about 30,000 babies, the demand would roughly be 12K plus minus. Statistically speaking, this could be simulated. However, what is puzzling to us is that HDB only release 8000 flats per year which is seriously inadequate. They are building at the lower estimate. This is the key problem.

I would suggest that for BTO, if there is 75% to 80% demand of a project, the project should kick off. A typical project will take 18 months to 24 months to complete and within this period of time, there would be more sales coming in. If PRs are allowed to buy the new flats, the demand would be more than adequate.

Your suggestion of proportionate subsidy is a workable one. It would force HDB to be responsive to prices else there would be a case of monopolistic behavior. HDB would be glad to see and even allow prices of resale flat to raise without doing anything curb it because it would mean that they would earn more. I would even suggest the percentage of subsidy to increase if prices is beyond GDP per capital growth or productivity growth. This will keep HDB in check.

Goh Meng Seng

Mr Goh

Just a comment and a question:

1. The influx of foreigners only partially explains the high price of public housing. There was a large overhang of HDB flats (because of the govt's sloppy demand projections) that depressed prices for years. They have since worked through this glut of flats and the new direction is BTO = the setting for higher prices.

2. I have a suggestion that addresses this compulsive desire to link flats with resale prices. The HDB subsidy could be expressed as a fraction of the total price paid for housing eg. the govt pays 30%? Instead of the currect situation with a lump sum which doesn't keep pace with rapidly rising prices. The subsidy (fraction) can be adjusted/capped for flat type, whether new or resale etc.....

Any Comments?

 

[scroobal]

The current building model was initiated by Dhanabalan when he took over as Min of Nat Development. This was circa 1989. This was result of an overhang that left the country with excess supply requiring HDB to mothball many blocks in Woodlands and outlying areas. Despite this prices shot up in mid 90s, when 5 room HDB flats in Clementi crossed the $550 K mark in quicktime and masionette cross $720K. To catch up, they went into overdrive and they ended up with another glut.

This would make it the third time that this has happenned and the 2nd time under the new demand projection building model. Not sure if demand projection is connected to someone's playstation.

Its appalling how these things keep recurring in a public housing program. I can understand this in the private property sector where hoardings like presently in china are quite common.

Hi Londontrader,

Nice to see you here again.

For your first question, the BTO system would be efficient if and only if the HDB is responsive to demand. The practice now is that a project will require thousand of order before they begin to build. And each project require substantial size so that there is economic of scale.

 

[Goh Meng Seng]

The PAP government has to be blamed for the various property bust and boom in the past and present.

I remember back in 1997 to 1999, private housing was climbing without any sense at all. Housing stocks was building up and yet land was still released by the government to build even more private housing. Influx of foreigners was part of the problem as it created an artificial mirage. Part of the problem was hoarding by property developers and speculators. Anyone with any statistical sense would know that such large consumption of private housing was just too unusual.

Projection of housing needs is very important in this aspect, both in terms of private as well as public housing. The 8000 new HDB flats per years is a gross underestimation of demand and naturally, it added to the problem of high resale prices. Apparently there is no coordination between PAP's ministries with regards to housing and infrastructure needs. While PAP pushes for high influx of FT, they did not coordinate or even think of how we are going to house such sudden rise in migrants into the country. Apparently, these ministers are really overpaid and over graded.

Goh Meng Seng

The current building model was initiated by Dhanabalan when he took over as Min of Nat Development. This was circa 1989. This was result of an overhang that left the country with excess supply requiring HDB to mothball many blocks in Woodlands and outlying areas. Despite this prices shot up in mid 90s, when 5 room HDB flats in Clementi crossed the $550 K mark in quicktime and masionette cross $720K. To catch up, they went into overdrive and they ended up with another glut.

This would make it the third time that this has happenned and the 2nd time under the new demand projection building model. Not sure if demand projection is connected to someone's playstation.

Its appalling how these things keep recurring in a public housing program. I can understand this in the private property sector where hoardings like presently in china are quite common.

 

[chinkangkor]

I have two former colleagues who went for the balloting for new flats and none were successful after a few tries.

In the latest BTO exercise for Pongol Aug09, for every unit of 4-room flat there are 4 applicants and for every unit of 3-room flat there are 2.83 applicants. The demand for new flats is definitely a lot higher than the 8,000 units that HDB targetted to sell every year.

 

[scroobal]

The property lobby is very influential. Its includes developers, builders, lawyers and interestingly a core group of buyers that have lived on flipping properties just going to soft launches.

At one stage, it became so bad that GCT as PM, had to step in and give a warning to all MPs, including one who was heading REDAS.

Lee & Lee is front and centre. Kwa Kim Li has taken over old man's wife in the firm as well as in property lobby. She is one of their honorary legal counsel.

I can safely tell you that soft launches are institutionalised corruption. If the govt is sincere about this abuse, they will cap soft launch releases to 5% of available apartments. It was also GCT that launched the parliamentary inquiry over Nassim Jade. At the time, I thought it was alright, but it seems to be firmly entrenced. They can always remove the cap when the prices are down.

The PAP government has to be blamed for the various property bust and boom in the past and present.

I remember back in 1997 to 1999, private housing was climbing without any sense at all. Housing stocks was building up and yet land was still released by the government to build even more private housing. Influx of foreigners was part of the problem as it created an artificial mirage. Part of the problem was hoarding by property developers and speculators. Anyone with any statistical sense would know that such large consumption of private housing was just too unusual.

Projection of housing needs is very important in this aspect, both in terms of private as well as public housing. The 8000 new HDB flats per years is a gross underestimation of demand and naturally, it added to the problem of high resale prices. Apparently there is no coordination between PAP's ministries with regards to housing and infrastructure needs. While PAP pushes for high influx of FT, they did not coordinate or even think of how we are going to house such sudden rise in migrants into the country. Apparently, these ministers are really overpaid and over graded.

Goh Meng Seng

 

[RK85]

Your ideas are good but this will still be unfair to the current owners.

Current owners will still have a hard time paying off their huge outstanding loans which many are stretching to 30 yrs. max.while the new owners will have an easier time servicing their smaller loans.

If your suggestions were to be implemented, we should push the gov. to find some ways to compensate the current owners; like reducing their loans or giving some form of cash back to them.

If they don't change the rules now, millions will be affected..future generations of Singaporeans.

Goh Meng Seng

 

[shOUTloud]

Your ideas are good but this will still be unfair to the current owners.

Current owners will still have a hard time paying off their huge outstanding loans which many are stretching to 30 yrs. max.while the new owners will have an easier time servicing their smaller loans.

If your suggestions were to be implemented, we should push the gov. to find some ways to compensate the current owners; like reducing their loans or giving some form of cash back to them.

The day this happens, I will declare my identity and chop off my dick at Hong Lim Park.

Think the govt will slowly let the market deflate by building more flats. This is the most face saving method as compared to making any policy declaration.

Otherwise, Mah Bow Tan very lose face leh. Esp after HDB and him made some many BS statements. Short pple very haolian one.

 

[Goh Meng Seng]

Dear Scroobal,

You have hit on the nail of the main problem here.

But as a known opposition member, it is not appropriate for me to mention all these things in public forum. I will have to preserve myself to fight the main battlefield.

Goh Meng Seng

The property lobby is very influential. Its includes developers, builders, lawyers and interestingly a core group of buyers that have lived on flipping properties just going to soft launches.

At one stage, it became so bad that GCT as PM, had to step in and give a warning to all MPs, including one who was heading REDAS.

Lee & Lee is front and centre. Kwa Kim Li has taken over old man's wife in the firm as well as in property lobby. She is one of their honorary legal counsel.

I can safely tell you that soft launches are institutionalised corruption. If the govt is sincere about this abuse, they will cap soft launch releases to 5% of available apartments. It was also GCT that launched the parliamentary inquiry over Nassim Jade. At the time, I thought it was alright, but it seems to be firmly entrenced. They can always remove the cap when the prices are down.

 

[Goh Meng Seng]

I have two former colleagues who went for the balloting for new flats and none were successful after a few tries.

In the latest BTO exercise for Pongol Aug09, for every unit of 4-room flat there are 4 applicants and for every unit of 3-room flat there are 2.83 applicants. The demand for new flats is definitely a lot higher than the 8,000 units that HDB targetted to sell every year.

This is actually very strange to me.

If it is BTO, any demand that comes along, will be registered and project would be initiated to supply to such demand. It is puzzling to me that there is such thing as "balloting". If you need to ballot, it means that you are not meeting the demand from the population.

Goh Meng Seng

 

[Ramseth]

This is actually very strange to me.

If it is BTO, any demand that comes along, will be registered and project would be initiated to supply to such demand. It is puzzling to me that there is such thing as "balloting". If you need to ballot, it means that you are not meeting the demand from the population.

Goh Meng Seng

You as an economist and politician being puzzled is puzzling to me. It's clear. There're vacant units withheld for various reasons like market price management, racial quota etc. Even the US also withhold or even destroy wheat and corn in times of excessive harvest or oversupply in order to maintain orderly market price. They don't teach this in NUS?

 

[scroobal]

Yes, these are dangerous grounds. Leave this to me.

Both Mukul Asher and Chua Beng Huat are 2 emminently qualified academics with a strong independent streak and a sense of social justice. Beng Huat used to work for HDB as well. I wish one day, they can show the correlation between HDB public sector, the private sector and how this country is being taken for a ride.

There is also another angle that these chaps can tackle and we talked about it before - High rental cost and not high labour cost that is driving the cost of business. If they bring down rental costs, the lobby will step in and furthermore temasek has a significant stake ie Mapletree, Vivo, ex JTC properties. So there very little choice except bring cheap labour to drive overall costs down.

There is also signs that new age religion getting to be factor in the property lobby. Lippo, OUE, Far East etc.

The govt should not be involved in business to such a large extent.

Dear Scroobal,

You have hit on the nail of the main problem here.

But as a known opposition member, it is not appropriate for me to mention all these things in public forum. I will have to preserve myself to fight the main battlefield.

Goh Meng Seng