<TABLE class=msgtable cellSpacing=0 cellPadding=0 width="96%"><TBODY><TR><TD class=msg vAlign=top><TABLE border=0 cellSpacing=0 cellPadding=0 width="100%"><TBODY><TR class=msghead><TD class=msgbfr1 width="1%"> </TD><TD><TABLE border=0 cellSpacing=0 cellPadding=0><TBODY><TR class=msghead><TD class=msgF width="1%" noWrap align=right>From: </TD><TD class=msgFname width="68%" noWrap>Fkapore <NOBR></NOBR> </TD><TD class=msgDate width="30%" noWrap align=right>9:09 pm </TD></TR><TR class=msghead><TD class=msgT height=20 width="1%" noWrap align=right>To: </TD><TD class=msgTname width="68%" noWrap>ALL <NOBR></NOBR></TD><TD class=msgNum noWrap align=right> </TD></TR></TBODY></TABLE></TD></TR><TR><TD class=msgleft rowSpan=4 width="1%"> </TD><TD class=wintiny noWrap align=right>23029.1 </TD></TR><TR><TD height=8></TD></TR><TR><TD class=msgtxt>The great public housing debate
October 21, 2009 by admin
Filed under Forum, Opinion
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I refer to the Straits Times report ¡§The great public housing debate¡¨ dated 17 Oct 2009.
PRs
In her report, Ms Tan concluded that the PR effect on resale flat price is not strong because only one in five resale flats are bought by PRs. There were a total of 30,928 resale flat transactions from third quarter last year to second quarter this year. One fifth of that number is 6,186 flats bought by PRs. So out of the 55,000 newly minted PRs, only 6,186 supposedly bought flats. What happened to the remaining 48,814 PRs? Did they disappear into thin air?
The remaining 48,814 PRs and many more foreigners must have either bought a condo or have been renting a flat or condo. All else being equal, this large influx of buyers or renters would have taken a huge chunk off the supply of available units from the housing market leaving less for Singaporeans.
For example, when PRs or foreigners buy condo units, they help to prop up condo prices so Singaporeans who could otherwise have bought condos would end up buying resale flats instead which tends to push up the price of resale flats in turn.
The same goes for PRs or foreigners renting flats or condos. Renting provides good income to the investor / owner who then has no need to sell his flat or condo. So all the housing units that are profitably rented out becomes unavailable for sale to the masses and with the depletion of supply comes price increases.
Therefore, we cannot isolate the HDB resale market and examine it on its own since all segments of the property market are invariably linked to one another like a jigsaw puzzle. We cannot appreciate the larger picture just by looking at one small piece of the jigsaw puzzle.
Flats heavily subsidised?
Economist Liu Yunhua from NTU reportedly said that it is fair that the capital gain from land price appreciation goes to the govt and not to individuals. But land price appreciation is not some bag of gold that drops from the sky.
It will invariably be borne by new buyers who would then have to cough out even larger sums of money for the same living space. This would have been acceptable if land price appreciates slowly over time in tandem with inflation and salary increases. But now, under the ¡§sensibly watchful eyes¡¨ of the HDB and its minister, the price of flats has gone up by $100,000 to $200,000 overnight. Where is the fairness to new buyers?
Prof Kim Kying-Hwan says that the HDB hands out real subsidies. But he is only considering a snapshot view of the price situation at any particular time while ignoring the wider price considerations over time. Because when the price of a flat goes up by $100,000 overnight while the subsidy remains at $30,000, the subsidy becomes as good as no subsidy.
Ms Tan reports that new 4-room flats in Punggol are priced between $234,000 to $293,000. This differs from figures given on the HDB website which puts the price at $264,000 to $322,000. It is easy to see that Ms Tan has generously applied the maximum $40,000 grant to all the figures listed on the HDB website.
This may not be accurate because many Punggol residents came from other estates where their parents stayed and so did not have qualify for the maximum grant that is meant for couples staying near parents. So it¡¦s better to leave out housing grant and focus on the sale price instead.
HDB has chosen to compare the sale price of new 4-room Punggol flats with their 7-year old resale counterparts that range from $310,000 to $357,000. With this comparison, there appears to be a 10% to 15% discount on the sale price of new flats compared to old flats. But as mentioned earlier, such a snapshot comparison fails to capture significant price increases over time.
Consider instead that from the second quarter of 2007 to the second quarter of 2009, the median price of a 4-room resale flat in Punggol increased from $252,500 to $334,500, an increase of 33%. So even though the HDB gives a 10% to 15% discount on new flats sold, this discount is based on the price of old flats that are now 33% higher than two years ago. So on the whole, the buyer of a new flat doesn¡¦t get a discount but a net price increase of 13% to 20% instead. This is the good old business trick of increasing the price first and then giving a discount to make people feel good about buying a discounted product that is actually more expensive than before.
Income ceiling distorts buying decisions
Ms Tan also says that raising the income ceiling now will introduce even more competition for subsidised home seekers. But Mr Mah has been proudly proclaiming that 8 in 10 applicants for BTO flats are successful first time round. With such good performance, I see no reason why a little bit more competition in the BTO market would hurt.
NUS professors Fu Yiming and Lum Sau Kim reportedly found that households nearing the $8,000 income ceiling ¡§over consumed¡¨ by buying bigger flats directly from the govt compared to similar households that bought from the resale market. But think about it, is a household that earns $7,500 and buys a 5-room flat directly from the HDB for $300,000 ¡§over consuming¡¨ compared to another household that also earns $7,500 but buys a 4-room flat from the resale market for $400,000?
It is obvious who is ¡§consuming more¡¨ and it isn¡¦t the couple who bought directly from the HDB. So what the professors found does not seem out of the ordinary. It simply refects the exhorbitant prices charged by the HDB resale market that needs reining in.
Ms Tan also sounded alarm bells by pointing out that while only 20% of first time resale flat buyers bought 5-room flats in 2007, that percentage has increased to 30% by 2009. Similarly, first time buyers of resale executive flats increased from 13% to 21%. But does that necessary show that first time buyers are throwing caution to the wind and ¡§over consuming¡¨?
We first note from the HDB website that demand for 4-room flats is much higher than 5-room or executive flats. Even demand for 3-room flats is higher than that for 5-room flats. The greater demand for smaller flats is understandable given the steep rise in HDB prices since 2007. This greater demand for smaller flats has led to steeper price increases for smaller flats resulting in bigger flats becoming more ¡¥worthwhile¡¦ compared to smaller flats. So it¡¦s no surprise that first time buyers who can afford it would go for the more ¡¥worthwhile¡¦ flats.
So once again, what we see is rational consumer behaviour, not irrational ¡§over consumption¡¨ to the steep rise in resale flat prices caused by inadequate HDB supply.
Thank you
Ng Kok Lim
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October 21, 2009 by admin
Filed under Forum, Opinion
Leave a comment
I refer to the Straits Times report ¡§The great public housing debate¡¨ dated 17 Oct 2009.
PRs
In her report, Ms Tan concluded that the PR effect on resale flat price is not strong because only one in five resale flats are bought by PRs. There were a total of 30,928 resale flat transactions from third quarter last year to second quarter this year. One fifth of that number is 6,186 flats bought by PRs. So out of the 55,000 newly minted PRs, only 6,186 supposedly bought flats. What happened to the remaining 48,814 PRs? Did they disappear into thin air?
The remaining 48,814 PRs and many more foreigners must have either bought a condo or have been renting a flat or condo. All else being equal, this large influx of buyers or renters would have taken a huge chunk off the supply of available units from the housing market leaving less for Singaporeans.
For example, when PRs or foreigners buy condo units, they help to prop up condo prices so Singaporeans who could otherwise have bought condos would end up buying resale flats instead which tends to push up the price of resale flats in turn.
The same goes for PRs or foreigners renting flats or condos. Renting provides good income to the investor / owner who then has no need to sell his flat or condo. So all the housing units that are profitably rented out becomes unavailable for sale to the masses and with the depletion of supply comes price increases.
Therefore, we cannot isolate the HDB resale market and examine it on its own since all segments of the property market are invariably linked to one another like a jigsaw puzzle. We cannot appreciate the larger picture just by looking at one small piece of the jigsaw puzzle.
Flats heavily subsidised?
Economist Liu Yunhua from NTU reportedly said that it is fair that the capital gain from land price appreciation goes to the govt and not to individuals. But land price appreciation is not some bag of gold that drops from the sky.
It will invariably be borne by new buyers who would then have to cough out even larger sums of money for the same living space. This would have been acceptable if land price appreciates slowly over time in tandem with inflation and salary increases. But now, under the ¡§sensibly watchful eyes¡¨ of the HDB and its minister, the price of flats has gone up by $100,000 to $200,000 overnight. Where is the fairness to new buyers?
Prof Kim Kying-Hwan says that the HDB hands out real subsidies. But he is only considering a snapshot view of the price situation at any particular time while ignoring the wider price considerations over time. Because when the price of a flat goes up by $100,000 overnight while the subsidy remains at $30,000, the subsidy becomes as good as no subsidy.
Ms Tan reports that new 4-room flats in Punggol are priced between $234,000 to $293,000. This differs from figures given on the HDB website which puts the price at $264,000 to $322,000. It is easy to see that Ms Tan has generously applied the maximum $40,000 grant to all the figures listed on the HDB website.
This may not be accurate because many Punggol residents came from other estates where their parents stayed and so did not have qualify for the maximum grant that is meant for couples staying near parents. So it¡¦s better to leave out housing grant and focus on the sale price instead.
HDB has chosen to compare the sale price of new 4-room Punggol flats with their 7-year old resale counterparts that range from $310,000 to $357,000. With this comparison, there appears to be a 10% to 15% discount on the sale price of new flats compared to old flats. But as mentioned earlier, such a snapshot comparison fails to capture significant price increases over time.
Consider instead that from the second quarter of 2007 to the second quarter of 2009, the median price of a 4-room resale flat in Punggol increased from $252,500 to $334,500, an increase of 33%. So even though the HDB gives a 10% to 15% discount on new flats sold, this discount is based on the price of old flats that are now 33% higher than two years ago. So on the whole, the buyer of a new flat doesn¡¦t get a discount but a net price increase of 13% to 20% instead. This is the good old business trick of increasing the price first and then giving a discount to make people feel good about buying a discounted product that is actually more expensive than before.
Income ceiling distorts buying decisions
Ms Tan also says that raising the income ceiling now will introduce even more competition for subsidised home seekers. But Mr Mah has been proudly proclaiming that 8 in 10 applicants for BTO flats are successful first time round. With such good performance, I see no reason why a little bit more competition in the BTO market would hurt.
NUS professors Fu Yiming and Lum Sau Kim reportedly found that households nearing the $8,000 income ceiling ¡§over consumed¡¨ by buying bigger flats directly from the govt compared to similar households that bought from the resale market. But think about it, is a household that earns $7,500 and buys a 5-room flat directly from the HDB for $300,000 ¡§over consuming¡¨ compared to another household that also earns $7,500 but buys a 4-room flat from the resale market for $400,000?
It is obvious who is ¡§consuming more¡¨ and it isn¡¦t the couple who bought directly from the HDB. So what the professors found does not seem out of the ordinary. It simply refects the exhorbitant prices charged by the HDB resale market that needs reining in.
Ms Tan also sounded alarm bells by pointing out that while only 20% of first time resale flat buyers bought 5-room flats in 2007, that percentage has increased to 30% by 2009. Similarly, first time buyers of resale executive flats increased from 13% to 21%. But does that necessary show that first time buyers are throwing caution to the wind and ¡§over consuming¡¨?
We first note from the HDB website that demand for 4-room flats is much higher than 5-room or executive flats. Even demand for 3-room flats is higher than that for 5-room flats. The greater demand for smaller flats is understandable given the steep rise in HDB prices since 2007. This greater demand for smaller flats has led to steeper price increases for smaller flats resulting in bigger flats becoming more ¡¥worthwhile¡¦ compared to smaller flats. So it¡¦s no surprise that first time buyers who can afford it would go for the more ¡¥worthwhile¡¦ flats.
So once again, what we see is rational consumer behaviour, not irrational ¡§over consumption¡¨ to the steep rise in resale flat prices caused by inadequate HDB supply.
Thank you
Ng Kok Lim
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