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Singapore’s high home prices pose risks ahead of elections

(2011-03-26 22:51:45) 下一個

March 27, 2011 

Wendy Cheng, 32, has been trying to buy a home for over two years but without success.

Cheng and her American teacher husband cannot afford property on the open market where a government-built apartment can fetch as much as $700,000, and they have been unsuccessful in balloting for flats available from the state at a cheaper price.

At her last attempt to buy an apartment directly from Singapore’s Housing Development Board (HDB), she was given a queue number of 1,983 for the 200 units offered, which meant she could get a unit only if 1,783 of the people before her dropped%out.

“It’s like trying to win the lottery,” she said of her efforts to buy her own place, a predicament shared by an%increasing number of young Singaporeans who feel they can no longer afford homes, unlike their parents’ generation.

With general elections likely to be called soon, soaring property prices in Singapore pose not just an economic risk but a political issue that could erode support for Prime Minister Lee Hsien Loong’s ruling People’s Action Party (PAP).

Singapore private home prices rose 17.6% last year despite government attempts to cool the market in February and August. Resale prices of HDB apartments that house over 80% of the population gained 14%.

The city-state’s median household income rose a much smaller 3.1%, or 0.3% after adjusting for inflation, to $5,000 a month last year.

Singapore, Asia’s second-largest financial centre after Hong Kong, has one of the world’s highest rate of home ownership at 87%, thanks to a home-building programme to provide cheap housing for its citizens that began in the late 1960s.

But the HDB is building fewer flats and charging more for them. Prices of both resale HDB apartments and private property have also soared due to an influx of foreigners in recent years.

“The high property prices, especially for private homes, is a festering source of disappointment, unhappiness and perhaps anger among voters,” said Eugene Tan, a law lecturer at%Singapore Management University.

“Parents are also concerned with how their children are going to afford comparable homes in the future. The angst and anxieties are made worse by the view that foreigners are pushing up property prices.”

Foreigners now make up 36% of Singapore’s population of 5.1 million, up from around 20% of 4 million people a decade earlier, after the government made it easier for foreigners to work in the Southeast Asian city-state.

Besides the large foreign influx, many Singaporeans also blame higher property prices on the sharp drop in HDB construction after the government agency moved to a build-to-order policy several years ago.

Singapore’s lively Internet community, more critical of the government than the city-state’s newspapers, note the sharp rise in immigration coincided with a drop in new dwelling units built by HDB.
According to HDB data, the government agency completed an average of 3,600 units a year in 2006-2008 compared with over 11,000 units per annum in 2001-2005.

“Our pay hasn’t doubled but the prices of flats have more than doubled, even for new HDB flats,” said Cheng, a former teacher who switched to part-time work after she had a baby last year. Her family is currently living with her parents.

ECONOMIC RISKS

Singapore, like Hong Kong and China, has found it difficult to keep a lid on property prices due to the surge in global liquidity that has pushed mortgage rates to near record lows and an influx of foreign money.

Kelvin Tay, chief investment strategist for Singapore at UBS’s private bank, said property prices are supported by low interest rates and the market could correct sharply if borrowing costs rise to more normal levels of around 3.5%.

The city-state’s banks currently pay less than 0.2% annual interest on deposits, while home buyers can get housing loans for as little as 0.8% per annum for the first year and about 1.5% thereafter. Inflation, meanwhile, is running at 5%.

The low mortgage rates have made prices affordable.

For example, after paying a minimum downpayment of 20% for a $1 million apartment in the suburbs, the going price for many newly launched units, a person can borrow $800,000 over 30 years and pay around $2,500 a month assuming an housing loan rate of 1% per annum.

The monthly payments soars to around S$3,600 a month if the rate rises to 3.5% per annum, according to interest rate table provided by propertyguru.com.sg, a popular internet housing site.

The government is aware that Singaporeans are concerned about high home prices, and has stepped up construction of HDB apartments and increased subsidies for first-time home buyers in the lower-income groups.

It also introduced tough new measures on Jan 13 that included tougher borrowing limits and a hefty stamp duty of 16 percent of the selling price for those who buy and sell within 12 months, aiming to clamp down on speculators.

Despite that and the Chinese New Year holiday, new private homes sales remained high at 1,101 units in February compared with 1,209 in January.

Developers such as CapitaLand (CATL.SI), 40-percent owned by the government’s Temasek Holdings (TEM.UL), have also bid aggressively at land sales, buying sites at prices that require a further increase in home prices for them to break even.

Prices of HDB resale apartments and low-end condominiums have stabilised since the government’s January measures but luxury homes continue to be in demand.

Earlier this month, a Chinese national-turned-Singaporean paid $33 million for a bungalow in a prime district, setting a record price for landed property at $2,038 per square foot.

At Sentosa Cove, a popular enclave for Asia’s super-rich, a son of Chinese billionaire Shen Wenrong bought a bungalow that came with a berth for yachts for $36 million, setting a record for homes in the area.

Analysts said there is spillover demand from cash-rich mainland Chinese investors who last year overtook Indonesians to become the largest group of foreign buyers of Singapore residential property.

UNEQUAL SINGAPORE

Singapore must hold general elections by February next year and Prime Minister Lee is expected to call one as early as next month. Both the ruling PAP and tiny opposition have already started campaigning.

The PAP has never lost an election and has ruled Singapore since independence in 1965.

Analysts say the problem of high home prices is compounded by the country’s rising income inequality, which is the worst in the developed world after Hong Kong, based on GINI coefficients calculated by the United Nations.

Singapore’s bottom 10% of households with at least one working member had an average monthly income of $1,400 last year, versus $23,684 for households in the top 10%, according to the city-state’s Department of Statistics.

Analysts do not recommend buying Singapore residential property at the low-end of the market, citing the upcoming supply of HDB and private homes as well as fears of further government intervention. Prices are, however, supported by rising rents and low interest rates.

But they are more sanguine about luxury apartments, citing increased demand from the rising number of wealthy foreigners moving to Singapore, in particular Chinese nationals who pay for their property purchases in cash.

“With regard to Singapore residential property, the government is very intent on keeping the low-end stable or even slightly down… The mid- to high-end is another story,” said Damien Ng, head of investment consulting at Bank Sarasin, a Swiss private bank.

Source : The Edge – 25 Mar 2011

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