Khaw shares ideas to lower prices of HDB flats

The Straits Times
www.straitstimes.com
Published on Mar 11, 2013
Khaw shares ideas to lower prices of HDB flats
One suggestion for debate: insist that owners must sell homes back to HDB

By Poon Chian Hui

TWO days after signalling a critical rethink of the role and nature of public housing, Minister for National Development Khaw Boon Wan yesterday threw up a few suggestions as to how exactly policy may change.

Shortening leases, extending the minimum occupation period or even reinstating a pre-1971 rule that owners can sell HDB flats only back to the Housing Board are all solutions up for discussion, which may help to lower the prices of new flats.

The minimum occupation period, introduced to reduce speculation, is the shortest period before the whole flat can be rented out or sold. It now stands at five years.

The last suggestion would mean an HDB flat owner could sell his flat not on the market, but only to the HDB, at the price he bought it at, with perhaps some interest, said Mr Khaw.

These are "reasonable suggestions" raised by MPs and the public which he will discuss with various groups, including the public.

He said this yesterday in relation to his Parliament pledge last Friday of making new flats cheaper by some 30 per cent, with those in non-mature estates to cost about four years of one's salary, down from 5.5 years now.

In Parliament, he also said it would be good to re-examine some old assumptions, including that of HDB flats being treated as appreciating assets.

At the heart of this transition is the impact of trade-offs between distinct groups, like home owners and home buyers, who may have differing views and needs.

"How do we make sensible trade-offs which are sustainable?" Mr Khaw asked yesterday.

"Most people actually do not have a housing problem. But a minority do, and they are serious housing problems," he said.

"So we need to tackle them, but in a way that is not at the expense of home owners."

A group that will feel the sting of dipping prices are those relying on rental income. Their tenants usually comprise people who cannot afford a new flat.

This is why the Government cannot keep building new flats, Mr Khaw said. "If I keep on meeting new demand, I am actually hurting the many home owners who now rent out their own properties. And there are many."

Some 40,000 entire HDB flats are being sublet; up to another 40,000 owners rent out rooms.

Rather, what he hopes to do is to engineer a "soft landing".

Mr Chris Koh, director of property agency Chris International, said an extension of the minimum occupation period may help reduce property speculation as it discourages those who are more interested in making money from flat sales and rental income. Instead, people who intend to stay for the long haul are more likely to buy the flats.

Chesterton Suntec International director of research and consultancy Colin Tan felt shorter leases are unlikely to work. In theory, shortening the leases from 99 years for most flats means they can be sold more cheaply. "There is likely to be only a one-time lowering of prices," he said. "The problem can come back as supply is not keeping up with demand."

chpoon@sph.com.sg

Making new flats cheaper by some 30 per cent, with those in non-mature estates to cost about four years of one's salary, down from 5.5 years now.

This implies deflation. Mr Khaw has to thread carefully on this issue.

Alamak I just bought a HDB for first home and now he wants to lower the price.

All the Khaw talk appears to be mounting to some sort of "muddy waters" - want to do and don't want to do. IMO, very unPAP, certainly no more LKY style. New gen minister, own style.

Basically, he wants to engineer a soft landing by targeting new HDB Flats and hoping that it will set off a chain effect upstream. However, if he tinkles with the lease tenure, terms of lease and impose restrictions without impacting existing HDB flats, then the impact of which would be limited since it will just create another new class of assets.

The initiatives as suggested by the lecturer in LKY school of .... was a better one stroke approach. Bascially deferring the payment of land costs in HDB flatand locking up any capital gains in sale of HDB flat in CPF retirement account. It is similar to the early days of CPF Investment scheme - closing off the annual cash withdrawal loophole so that CPF holders don't fool around with their CPF savings.

However, the suggestions will further increase the transparency of land pricing in HDB flats which is a taboo and well guarded trade secret of the government.

Frankly, noone should be treating HDB Flat as an asset - whoever that started it is the father of asset inflation in Singapore that has stifled entreprenuerial spirit in modern Singapore. Why bother to be a value adding engineer when being a gutsy asset trader rewards more than honest hard work?

I for one will be the first to put up my hand for the sake of this big economic restructuring. I am against asset inflation that is damaging long term cost competitiveness. However, as it is, no economist in the world now has suggested any economic theory that will tackle asset inflation. Even central bankers continue to actively print money out of over-spending problems globally.

GG

(11-03-2013, 11:14 PM)Musicwhiz Wrote: The Straits Times
www.straitstimes.com
Published on Mar 11, 2013
Khaw shares ideas to lower prices of HDB flats
One suggestion for debate: insist that owners must sell homes back to HDB

By Poon Chian Hui

TWO days after signalling a critical rethink of the role and nature of public housing, Minister for National Development Khaw Boon Wan yesterday threw up a few suggestions as to how exactly policy may change.

Shortening leases, extending the minimum occupation period or even reinstating a pre-1971 rule that owners can sell HDB flats only back to the Housing Board are all solutions up for discussion, which may help to lower the prices of new flats.

The minimum occupation period, introduced to reduce speculation, is the shortest period before the whole flat can be rented out or sold. It now stands at five years.

The last suggestion would mean an HDB flat owner could sell his flat not on the market, but only to the HDB, at the price he bought it at, with perhaps some interest, said Mr Khaw.

These are "reasonable suggestions" raised by MPs and the public which he will discuss with various groups, including the public.

He said this yesterday in relation to his Parliament pledge last Friday of making new flats cheaper by some 30 per cent, with those in non-mature estates to cost about four years of one's salary, down from 5.5 years now.

In Parliament, he also said it would be good to re-examine some old assumptions, including that of HDB flats being treated as appreciating assets.

At the heart of this transition is the impact of trade-offs between distinct groups, like home owners and home buyers, who may have differing views and needs.

"How do we make sensible trade-offs which are sustainable?" Mr Khaw asked yesterday.

"Most people actually do not have a housing problem. But a minority do, and they are serious housing problems," he said.

"So we need to tackle them, but in a way that is not at the expense of home owners."

A group that will feel the sting of dipping prices are those relying on rental income. Their tenants usually comprise people who cannot afford a new flat.

This is why the Government cannot keep building new flats, Mr Khaw said. "If I keep on meeting new demand, I am actually hurting the many home owners who now rent out their own properties. And there are many."

Some 40,000 entire HDB flats are being sublet; up to another 40,000 owners rent out rooms.

Rather, what he hopes to do is to engineer a "soft landing".

Mr Chris Koh, director of property agency Chris International, said an extension of the minimum occupation period may help reduce property speculation as it discourages those who are more interested in making money from flat sales and rental income. Instead, people who intend to stay for the long haul are more likely to buy the flats.

Chesterton Suntec International director of research and consultancy Colin Tan felt shorter leases are unlikely to work. In theory, shortening the leases from 99 years for most flats means they can be sold more cheaply. "There is likely to be only a one-time lowering of prices," he said. "The problem can come back as supply is not keeping up with demand."

chpoon@sph.com.sg

Yes, I am also against the idea of "Asset Enhancement". Housing prices are now too elevated and many people are borrowing huge sums just to keep up their asset inflation dream. Not a good thing for the country long-term!

He meant business. They are aware of the political risk in 2016.

This is somewhat of a change from his (KBW's) stated aim back in 2011 (or 2012?) where he wanted HDB to build ahead of demand and to the point where he has a ready stock of flats to cater to new couples who want to get married and set up a family.

I think that is still something worth working towards - just that it seems financial considerations have once more reared its head in the govt's thinking. Will building that much flats to have that stock, crater the market? The reason why he sees the rental as an important pillar is because it helps to provide an avenue for families/elderly to monetise their assets and get some additional income which would otherwise have to come from the govt / their own stressed finances.

I welcome the other aim to make flats cheaper by 30%. However it should be achieved by supply measures and not administrative measures like lease reduction, resale back only to govt etc. The current drought in the resale market which is driving up HDB prices is partly caused by a lull in HDB construction from 1998-2010 - this 12 years of severe underbuilding have led to very few flats (5-10 year olds) maturing into the resale market today. Without this supply the prices and COV has been grinding higher as new owners looking for something off the shelf have to pay up for a small supply. Once there is sufficient resale supply the prices and COV will moderate on their own, and will stay stable/only rise modestly (~2-3% p.a.) as long as the market is adequately supplied. This tipping point will only start from 2018 unfortunately, after the first wave of new flats delivered in 2013 reaches MOP then.

They need to restore the cycle and not resort to another round of quick administrative fixes which will only manifest itself in some unseen ways 10 years down the road, and will then need another 10 years to fix, as we have found out from this round of HDB underbuilding.

(12-03-2013, 07:45 AM)Musicwhiz Wrote: Yes, I am also against the idea of "Asset Enhancement". Housing prices are now too elevated and many people are borrowing huge sums just to keep up their asset inflation dream. Not a good thing for the country long-term!

It is from the perspective of non house-owners or 1st timer.

There are people benefit from it, including those retirees with income (e.g. downsizing, rental or reverse mortgage) generated from the "enhanced asset". There are also people inherited their HDB from parents, and got a wind-fall.

Pegging prices of new flats to resale market price is a circular logic which I do not understand.

HDB own actions determine the overall supply of flats, which then determines the price of resale flats, which in turn is used to determine prices of new flats. Hence, new flat price is at the end of the day determined by new flat supply. A strong and guided HBD should determine the price of new flats, rather than using the warp logic of pegging it to resale price. Khaw's idea of fixing new flat price as a multiple of average income is a good start as it would then set a benchmark for resale as well. Future generations will have a fixed target to aim for and have safety in knowing than when it is their turn it to buy a flat, the benchmark multiple will not change. The HDB policy now is like a moving lighthouse, instead of guiding the ship where to go, it moves together with the waves and the ships.

If you've been following HDB annual report before the privatisation about 8 years ago, it makes sense to Mah why the tie to the reslae market. HDB been losing money on a PnL basis but strong on cashflow.

Asset enhancement is another of Goh's initiative. Like City Farmer says, some benefit some don't. Those who bought the shophouses benefited. The result was higher CPI and char kway tiao. It is no longer a plate of char kway tiao per person to feed our ministers (old political observers will know what I am alluding to) since the plate is becoming so small.

Privatisating and selling power stations benefited Temasek and the scolars who did the deal at high price. Yet we are paying for higher electricity bills and 1/3 of China IPP Huaneng power PnL.

So yes some benefit some lose out. But I always think policies make more sense when 1)majority benefit while 2) minorities are not marginalised of their livelihood.

End of the day HDB has to remember why it was created and not become another Temasek that lost its way.