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Sunday, July 1, 2012

Singapore HDB Public Housing is getting expensive

Something is not right with the housing system in Singapore.

Last I check, our HDB has risen 32% in value in just 2.5 years. That’s not normal right? 10-15% increase, I can still understand. But 32%? I mean, we ARE talking about public housing here.
I shudder to think what would happen if we did not buy our flat back then. We would have to fork out extra $90k if we bought that same flat today.
Yes, I get that HDB flat prices moves in tandem to the economy. But do you know that during the most recent economic crisis, private housing took a tumble, and most expected HDB flats prices to follow suit. But during this whole crisis, HDB flat prices DID NOT fall at allIn fact, it just continued going up and up.
Amazing huh?
What Happened
How did this happen? Demand and supply. The newly weds, new citizens and PRs, great influx of foreigners, all of them need a roof over their head. Some bought, some rented. Only, HDB didn’t build enough new flats, so the pool of available flats remained small and thus the prices of flats went up.
Now, HDB has decided to ramp up the total supply of flats, by releasing more BTO for the public. Apparently about 22,000 flats are going to be released within a year. This releases the pressure put on the resale market, but as these flats will not be ready till 3 years later, there is still a demand for resale flats now. So prices are still going up!
Another reason for why flat prices are going up – VALUATION. The crazy system on how valuation is determined is a big part of the problem.

The Opposition’s Proposed Solution

The opposition parties have varying views on how to make sure housing is affordable for us all. WP proposes new HDB flats be pegged to median income of Singaporean households. NSP proposes HDB flats be sold at slightly above cost of building flat plus discounted land price. Pretty much all the opposition parties are pushing for uninflated flat prices.
PAP stands by the current system of being pegged to market prices. They argue that if HDB releases new flats at low prices like the Opposition proposes, this will affect all HDB owners, and their flats will decrease in value.
Yes that is true. Flat prices will go down. However, as I have stated earlier in this post, 2.5 years ago, flats cost about 30% less. If HDB were to sell flats at 30% less, the only people whose will be adversely affected are those who bought their flats within the last 2 years. Anyone who bought their flats before that will still have a positive value.
But even at 2008 prices, flats were still considered pricey. Most believe that the government is still making a hefty profit, even after selling new flats at approximately $50k below prevailing market value.
If flat prices were to be halved, an even greater pool of people will have loans costing more than their flats are worth. But this pool of people will still be a small percentage of all the flat owners in Singapore. Don’t forget, when 3 room flats were first built, they cost only $7k. Now, 3-room flats cost over $200k. Flat prices only ballooned in recent years.
The Opposition argues that these hypothetical low cost flats will take a long time to filter into the market (about 8 years), and thus will not adversely affect property prices in the short term. But they will affect property prices eventually. Property prices may dip, or maybe they will just stagnate.
Actually, even without the Opposition’s hypothetical flats, flat prices are still going to be affected down the road. I mean, these 22,000 flats being built are going to enter the resale market 8 years down the road. That’s a lot of flats at one go.
So there obviously is a problem, and the current proposed solutions need plugging.
Ref:singaporewatch

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