Avoid feast and famine in housing

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#1
The Straits Times
www.straitstimes.com
Published on Nov 04, 2012
Avoid feast and famine in housing

Better to have stable supply of new homes every year than try to predict property cycle

By Han Fook Kwang Managing Editor

When I bought my first property, I didn't know I would still be living in it 27 years later. I had bought it soon after getting married after a year of house-hunting.

I don't remember it as being an eventful year for property then and I don't recall being particularly anxious about whether we were buying it at the right time in the property cycle. We needed a place to call home, we liked what we found and the price was within our budget.

As it turned out, it was not a bad buy. The house has appreciated in value about 10 times since, which works out to an increase of about 9 per cent every year compounded over 27 years. I can't think of anything I have bought or owned which has risen as much in value or as rapidly.

As an individual, this must count as a good thing and a source of some satisfaction. In fact, my experience is not untypical of many in my generation and I would think those who bought around the time I did would have seen similar appreciation in values, some more, others perhaps less, depending on location.

Singaporeans have generally felt good about how property prices have moved over the years, barring the occasional dips in every economic cycle.

Until quite recently, that is.

There has been a discernible shift in public attitude towards ever-rising property prices over the last few years and it is important to understand why this is taking place and what can be done about it.

For a flavour of the negative views being expressed, here is a recent sampling from the Internet:

Low property prices favour citizens as they help everyone have a roof over their head. High property prices favour only developers and rich people as they can make super normal profits and collect rent instead of working hard and creating value.
The Australian government takes care of citizens and imposes strict restrictions on property purchases by foreigners, for example, when they leave, they have to sell, when they sell, they have to sell only to locals, etc. Why doesn't the Singapore Government take effective steps and also contribute to raising property prices?
The property owners of today are only raiding the future earnings of the next generation. How? Well, all these gains in property prices must come from somewhere. It will come mostly from the next generation. But this will net the wealthy much more as they own many more and higher-value properties.


These online comments are in response to recent news that some executive condominium units had been sold for more than $1 million. As with many Net postings, they are often not logically argued and are laced with an extra dose of negativism. But the sentiments they represent are real and shared by an increasing number of people here.

Indeed, rising property prices were an issue at the general election last year. In response, the Government introduced several measures, mostly increasing the supply in both the public and private housing markets.

Prices, however, have yet to come down.

According to the latest data reported last week, private home prices rose by 0.6 per cent in the third quarter, while the Housing Board resale price index climbed 1.3 per cent.

This public sourness over property prices is a relatively recent phenomenon given the history of rising prices here, which has been generally welcomed by the public.

It shows there is a point beyond which resentment sets in, even if the majority see the value of their homes going up.

They worry whether their children will be able to afford these prices in the future, and whether they themselves will be able to upgrade.

Worse, they perceive it as largely favouring one class of people over another.

It used to be said that property prices cannot rise by too much, otherwise who would be able to afford them? In other words, prices cannot run too far ahead of income levels.

This link between prices and incomes is, however, broken when the market is open to foreigners whose salaries have no connection to those of Singaporeans.

When rich Chinese, Indians, Indonesians and Malaysians account for a significant number of the purchases here, prices can run away from the local population's ability to pay.

The Government's recent measure to make it more expensive for foreigners to buy property through the additional stamp duty was aimed at cooling the market.

But the Government has never made clear if this will be a permanent feature of its policy on foreign purchases and the extent it will allow them to influence prices.

There is clearly a tension between wanting Singapore to be a global city attractive to foreigners (which includes how open it is to them buying homes here), and preserving the link between home prices and Singaporeans' income levels.

Getting this balance right is critical to having a successful property policy which is politically acceptable.

How much should the Government protect local buyers from the purchasing power of foreigners?

This is an especially important issue with so much surplus money flowing round the world after so many rounds of loose monetary policies, with central banks printing money to stimulate their domestic economies.

Should Singapore go the way of Australia, for example, and force foreigners to sell property back only to citizens?

One word of caution though about the Government's ability to get the property market right. Its track record of trying to match supply to demand has in fact been patchy.

In the early 2000s, it was saddled with a record surplus of 25,000 unsold HDB flats when it overbuilt and demand collapsed following the Asian financial crisis in 1997.

And the sizzling market of the last two to three years in both the public and private sectors was clearly the result of it underestimating demand, which rebounded after the slump of the 2008 financial crisis.

Governments, and not just in Singapore, are often behind the curve when trying to read the market.

This being the case, the better approach is to aim for a stable supply of new homes every year and to not try to predict too closely the ups and downs of the property cycle.

There is a steady underlying demand for homes from new households being formed every year, and even when it falls because of an economic downturn, the pent-up demand will likely return in subsequent years.

Better to aim for a predictable and transparent policy on how many homes to build so as to avoid a feast-and-famine situation.

Fortunately, public housing is available for the large majority of Singaporeans in a market that is largely protected from foreign funds.

These estates today enjoy some of the best facilities - markets, hawker centres, MRT stations, bus interchanges, sports stadiums and shopping malls, and most have been upgraded to high standards.

Because of the convenience of having these facilities nearby, Singaporeans are prepared to pay relatively high prices in the resale market for these flats.

We take this for granted but it could have turned out completely differently, with few takers, had they become urban slums.

And because the resale market is open to all Singaporeans regardless of income levels, the prices these flats command reflect their true market worth.

But there is one tweak to this market which may be needed to make sure it remains affordable to Singaporeans.

At present, permanent residents are allowed to buy resale HDB flats - this door was opened to them in 1989, presumably to make the country more attractive for PRs.

But it might have inadvertently caused prices to move up and, more critically, weakened the link between local wages and resale prices.

The PR numbers are in fact not insignificant - it was reported last year that they accounted for 20 per cent of all resale transactions in 2010.

That's one fifth of all sales, enough to move prices significantly.

Making the HDB market - both for new and resale flats - exclusively for citizens is the best safeguard for the future to ensure that public housing prices will always remain within reach of the majority of Singaporeans.

hanfk@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Quote:Making the HDB market - both for new and resale flats - exclusively for citizens is the best safeguard for the future to ensure that public housing prices will always remain within reach of the majority of Singaporeans.

Ha! Ha!
It's too late Baby. It's too late. This is the river of no return. The floodgate has opened too wide for the market not to be flooded. And you know who are the people benefited the most. Of course the people who open the floodgate as wide open as possible benefited first.TongueBig Grin
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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#3
Quote:In the early 2000s, it was saddled with a record surplus of 25,000 unsold HDB flats when it overbuilt and demand collapsed following the Asian financial crisis in 1997.

Till date, I still could not figure out what so big deal about having 25,000 unsold flats to the government.
No one was going after gov for loan redemption.
It did not affect the revenue of government nor its cashflow.
The land was already zoned for residential.
Probably some opportunity cost due to diversion of gov resources but the flats surplus was the most potent weapons against property inflation.

The only negative point is that the unoccupied flats probably would breed mosquitoes.
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#4
(05-11-2012, 07:00 AM)yeokiwi Wrote:
Quote:In the early 2000s, it was saddled with a record surplus of 25,000 unsold HDB flats when it overbuilt and demand collapsed following the Asian financial crisis in 1997.

Till date, I still could not figure out what so big deal about having 25,000 unsold flats to the government.
No one was going after gov for loan redemption.
It did not affect the revenue of government nor its cashflow.
The land was already zoned for residential.
Probably some opportunity cost due to diversion of gov resources but the flats surplus was the most potent weapons against property inflation.

The only negative point is that the unoccupied flats probably would breed mosquitoes.

it matters to the government. The money spent on those hdbs could be used to build expess way, mrt lines.


A bad budget is a bad budget.
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#5
Money, like all other nice things in life, is addictive.
The largest land owner and developer in Singapore, Singapore Limited, is addicted to the money made from property.
Land sales, HDB sales, Stamp duties, Property taxes, income tax from properties developers/banks and etc.
'It is money, idiots"
Smile
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#6
(05-11-2012, 07:00 AM)yeokiwi Wrote:
Quote:In the early 2000s, it was saddled with a record surplus of 25,000 unsold HDB flats when it overbuilt and demand collapsed following the Asian financial crisis in 1997.

Till date, I still could not figure out what so big deal about having 25,000 unsold flats to the government.
No one was going after gov for loan redemption.
It did not affect the revenue of government nor its cashflow.
The land was already zoned for residential.
Probably some opportunity cost due to diversion of gov resources but the flats surplus was the most potent weapons against property inflation.

The only negative point is that the unoccupied flats probably would breed mosquitoes.

It does not affect us but it does affect the minister who oversees the housing portfolio as it reflects very badly on him for building an oversupply. perhaps to the extent that his year-end bonus is affected...

Anyway, i think they like to use the 25000 as an excuse for any backfired decision making
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#7
In theory capitalism will always benifit the rich and powerful. The poor will slave for loan and job security. The so call increase in productivity is how the rich & powerful exploit the poor. In the end landlords always win.
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#8
(05-11-2012, 10:23 AM)xis Wrote: In theory capitalism will always benifit the rich and powerful. The poor will slave for loan and job security. The so call increase in productivity is how the rich & powerful exploit the poor. In the end landlords always win.

IIRC, the statement sound like the key argument for communism over capitalism.

We all know capitalism is not perfect, but we also know that communism does not work, at least to human being on earth. Tongue

It is win-win for the rich (more skillful persons) and the poor in capitalism, the rich get their reward to create a bigger cake, while the poor enjoy part of the enlarged cake.
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#9
I like the part on raiding future generation monies comment. I thought this is a lot more serious than raiding national land reserve due to it being inflated in the first place.

Just my Diary
corylogics.blogspot.com/


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#10
(05-11-2012, 11:06 AM)corydorus Wrote: I like the part on raiding future generation monies comment. I thought this is a lot more serious than raiding national land reserve due to it being inflated in the first place.

By reducing the interest rate to almost 0%, the current generation is also raiding the past generation monies especially those who have retired.
Ultimately, there must be a balance to all generations.The savers' asset have to be protected to a certain extent while the young generation should not be penalized with unrealistic housing debts.
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