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Housing supply: Maintaining a fine balance

(2010-09-17 03:04:12) 下一個

Recently, I received an appeal from a young couple who had applied for the first waterfront BTO project at Punggol Waterway Terraces. Seeing the high application rates, they were worried that the Housing and Development Board (HDB) was not building enough new flats and that prices would shoot up beyond their reach.

The couple commented: “We read in the papers that the number of new flats completed each year by the HDB has been lower than the number of marriages in recent years. This means that the HDB is not building enough flats for the new households.”

This couple’s concern may be shared by many Singaporeans. Let me explain why things are not so straightforward, and how the HDB plans its housing supply to fulfil both short- and long-term needs of the people.

PROVIDING AFFORDABLE HOUSING TO THE MASSES

Meeting first-timer needs. The Government’s commitment remains clear and constant – to provide affordable housing to the masses. Today, eight in 10 Singaporeans stay in HDB flats.

To keep our commitment to future generations, the HDB must focus on helping young couples buy their first flats.

Supporting resale flat purchases. But this does not mean that we need to build a new flat for every new household. Why?

Because some households may buy resale flats instead of new flats for various reasons, such as location and flat type. The HDB supports them by providing a CPF grant of $30,000 to $40,000 and a loan subsidy. Those with lower income can also qualify for an additional grant of up to $40,000. Among first-timers, 30 to 55 per cent of them took up resale rather than new flats each year over the past decade.

Supplying new flats. After accounting for what is met through the resale market, the HDB then builds new flats to meet the housing needs, with more flats set aside for first-timers. In planning the housing supply, the HDB takes a comprehensive approach. It examines not just the marriage rate, but also factors like the inflow of permanent residents and foreigners, flats released into the resale market through deaths or emigration, and upgrading or downgrading by existing home owners.

Over the past 10 years, the HDB built and sold more than 100,000 new flats. This was equivalent to adding three new Toa Payoh towns. The resale market was even more active in the same period, supplying over 300,000 or three times more flats. Together, new and resale flats have met the long-term housing needs of Singaporeans.

MANAGING DEMAND FLUCTUATIONS

Fluctuating short-term demand. However, things are never so simple. While supply over the medium term is roughly aligned with projections, housing demand in the short term can be much more volatile. Home buyers will adjust their purchases, depending on the economic outlook and market sentiments. When prices are low, buyers hold back, hoping it will go down further. Conversely, when prices are high, more buyers may come forward, worried that they may miss the boat.

So, while marriages among Singaporeans eligible for public housing stayed largely unchanged over the past decade at about 16,000 per year, demand for subsidised housing from first timers fluctuated between 12,000 and 19,000 per year over the last decade. Total transactions in the HDB market varied even more sharply during this period, ranging from about 37,000 to 58,000 transactions annually.

Avoiding an over-supply. If the HDB were to fly on auto-pilot and supply a fixed number of flats every year, regardless of market conditions, there would be the risk of an over-supply in some years. For example, between 2002 and 2006, resale flat prices had remained largely flat.

If the HDB had pressed on with housing supply based on long term projections, then flat prices for the over-800,000 existing home owners could have been depressed further.

RESPONDING TO RISING VOLATILITY

Managing unprecedented changes. The market changes over the past year or so have been especially challenging to anticipate. As late as May last year, the International Monetary Fund was predicting a “long, severe recession” for Asia.

Surprisingly, the number of new immigrants to Singapore actually increased during the downturn, as economic activities recovered quickly.

Equally important was the impact of sentiment. Property prices tapered off in the first half of last year, even though there were many foreigners here. But prices picked up sharply not only in Singapore but also in the region, when the outlook improved dramatically in the second half of last year amid low interest rates globally.

Responding swiftly. In response to the sharp recovery, the HDB rapidly increased the offer of new flats from the earlier plan of 6,000 to 9,000 in the second half of last year.

For 2010, the HDB recently raised its planned output by more than 30 per cent, from 12,000 to more than 16,000 new flats. It is also prepared to launch up to 22,000 next year. At this rate, in just two years, we will offer more flats than what is currently available in Toa Payoh.

MAINTAINING A BALANCE

Determining the right housing supply for the short term will always be a difficult call, and we have to strike a delicate balance. Economic conditions and sentiments can change much faster than any building plan.

So, while we plan our housing supply to broadly meet longer term needs, we also build in some buffer to deal with short-term fluctuations.

Some might suggest that the HDB could go further and build a much larger buffer or build ahead of demand to deal with market fluctuations.

But this would then create the problems of high holding costs and a potential supply-demand mismatch, which I will deal with in my next article.

Ultimately, whatever the system of flat application, trade-offs have to be made between supplying too little to meet home buyers’ needs and supplying too much to the detriment of existing home owners or taxpayers. These are trade-offs that we must balance carefully in the overall interests of all Singaporeans.

By Mah Bow Tan, Minister for National Development.

When will private housing prices correct?

Not for the time being, but the expected decline in HDB resale prices may cause investors to think twice

Since the announcement of the property market cooling measures late last month, I have been frequently asked the question: When can we expect private housing prices to correct?

We have had two weekends and at least one major developers’ preview of a condominium project in Pasir Ris to gauge the effectiveness of the new measures.

New ownership rules for the purchase of Housing and Development Board resale flats and the penalties for breaching them have also been pretty much fleshed out, providing more clarity to investors.

The penalties include jail terms of up to six months, fines of up to as much as $5,000, as well as the compulsory acquisition of the flat if the breach is discovered after the sale.

To recap, anyone who buys an HDB resale flat on or after Aug 30 must sell their private property – owned here or offshore – within six months. And they will not be allowed to buy a private property here or overseas until they have met the minimum occupation period of five years.

Overall, the cooling measures have been well received although one might have thought differently, given the amount of media space devoted to a very vocal and rightfully aggrieved minority. But the rules are meant to protect the system as well as to solve an acute shortage of HDB resale flats for deserving households. Fairness has got nothing to do with it. You cannot possibly be fair to everyone when rules are changed mid-stream.

The 70-per-cent loan cap on second mortgages and the increase in the cash downpayment to 10 per cent have significantly reduced the impact of speculators and the most daring of investors.

Most ordinary investors are actually happy as they now have more than a reasonable chance of getting a piece of the action. The unusually high launch prices achieved for some projects such as The Scala may be a thing of the past, at least for the current phase.

This is because we cannot assume that the quantum of liquidity in the system is constant. It is a global problem and the market dynamics may yet change when fresh funds flow into Singapore.

The only major condominium project on sale following the announcement of the cooling measures, NV Residences, was well received. Many attributed the response to the project’s good location and reasonable pricing.

Although the average pricing of about $830 per sq ft appears reasonable compared to projects elsewhere, it actually sets a new benchmark for the Pasir Ris area. One can argue that prices could have been higher if not for the measures. I agree.

The good take-up showed that there was still lots of liquidity in the market. It was reported that 80 per cent of buyers were locals. Some visitors present at the showflat assessed the overwhelming majority of buyers to be investors. Quite a few were multiple home owners. This is a worry.

A fourth set of cooling measures or possibly even a fifth, given the calibrated approach taken, may be needed to tame the liquidity problem.

The unfolding events indicate there is still a market out there for the taking so long as projects can show or are perceived to give value for money. Investors remain keen but need a reason to buy. These are not signs of a weakening market. It will be wishful thinking on anyone’s part to think prices will correct anytime soon.

But the penalties for breaching HDB resale ownership rules are pretty draconian. Any investment product which sees its triple A rating downgraded to Bs will experience that inevitable price correction. The HDB resale flat is no different.

How much of an impact the new rules have will depend on how large the investment demand for resale flats was or how weak the fresh supply over the next few years will be.

A declining HDB resale market, if it happens, will strike an important psychological blow to the private housing market. At the moment, most investors find it inconceivable or unimaginable for private property prices to decline.

It may cause some buyers to think twice – price corrections can and do happen, however impossible it may seem. No lesson is better learnt than when the value of a property starts to decline before your eyes, even if it is just a paper loss.

By Colin Tan, Head of Research and Consultancy at Chesterton Suntec International.

Improved economy, one of the factors for property prices?

The recent property-cooling measures are not likely to have a significant long-term impact on the overall real estate market in Singapore, with global economic issues playing a larger role, property experts speaking at an industry seminar said yesterday.

“Generally, the property price is affected by external factors or the growth of the Singapore property prices is because of the improved economy. People’s incomes increase, people’s wealth increase, that’s why they are buying,” said Mr Alfred Chia, chief executive of SingCapital, at a forum organized by Propertyguru.com.

However, the Aug 30 property cooling measures are expected to reduce the cash-over-valuation (COV) of HDB resale flats and they will put a damper on demand for the rest of the year.

Market-watchers at the event expect COVs to decline by 10-per-cent this year from current levels, with a further 10 per cent drop next year.

Meanwhile, smaller properties are expected to be at a relative advantage.

“For people with a housing loan and on a tighter budget, they will have to lower their budget to buy another property,” said Ms Chua Chor Hoon, head of Research, South East Asia at DTZ.

“That means if originally they were looking at a $1 million house, now they will have to look at something between $500,000 and $750,000 so you will see a shift in demand to smaller units,” she added.

While the market adjusts to the new measures, the volume of mass market property sold is expected to decline by 10 per cent from now until the end of the year, according to some analysts’ estimates.

No impact is expected in the high-end property market.

Source : Today – 17 Oct 2010

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