Advice for newly-formed households

 

  August 26, 2011  

Go for subsidised new HDB flats – it is your entitlement

 

In a weekend feature article, prospective buyers of homes – both for own occupation and for investment – got a huge dose of advice from property experts, consultants and even developers. Much of the advice was not new but there were many good reminders amid the volatile and uncertain economic environment – both locally and globally.

 

However, the needs of newly-formed households were not addressed as most had assumed that the majority in this group do not really have a choice but to apply for new public housing flats.

 

But in case you are one of those new households in a dilemma as to what you should do because you have a choice, I would say: Go for new public housing flats if you qualify, even if you can afford better. After all, it is every citizen’s entitlement to subsidised housing. Why buy a private unit that is not subsidised?

 

And unless your housing needs leave you with no choice, avoid buying HDB resale flats as prices today are determined by a very unusual set of market circumstances – a combination of a severe supply crunch and a wayward price spiral in the private housing market. With sounder housing policies being put in place, such a scenario would not likely happen again for a very long time.

 

For all households, affordability should be a top concern. You do not want to spend your whole life working to pay off your mortgage or have your chances of upgrading minimised. Remember, HDB resale flat prices are at their highest now. Yes, they may continue to rise for a bit more due to the current supply crunch – but what after that?

 

Also in my opinion, the current prices are unsustainable. The majority of new households just cannot afford them, which is why the HDB is selling a lot more new flats – 25,000 units this year and another 25,000 in the next. Leave the market to those who do not have a choice. The premium factor for resale flats today may also negate whatever CPF housing grant you may be receiving.

 

With the recent raising of the household income ceiling to S$12,000 per month for Executive Condominium (EC) units, more households now qualify for them. If you are one of those thinking of EC apartments as your first buy, do remember that the units are priced to achieve a profit and at a level that the market can bear. Under the current market conditions, who do you think has the upper hand? Moreover, you are competing with the sandwiched class who have no choice but to apply for ECs.

 

If you are thinking of the investment potential of your first buy and you want to buy something other than new HDB flats, you would be wise to set this thought aside in the current economic environment. It is already difficult to arrive at a “correct” choice in a stable market, what more when the present environment is in such a turmoil.

 

Nobody can predict the future. When you consider the investment potential of a purchase, you are actually gambling. You are taking a position on the market – that it will continue to rise in the future. It was less of a gamble in the past as Singapore – or the world for that matter – was a lot less complex than it is today.

 

Most new households are not sophisticated in that they do not follow the developments in the housing market closely. But those who do may be worried about the oversupply of HDB resale flats some seven to eight years down the road. This is because the 50,000 HDB flats sold this year and the next will mature then. Will resale prices be depressed then?

 

Anything can happen between now and then to drastically alter the market scenario. Nevertheless, with more selling their units, you can expect prices to be softer. And if there is no support from HDB upgraders, mass market private prices will have to come down to link the two markets again.

 

If you think about it, it is not really a negative situation to sell low and buy low when upgrading. In fact, it is the ideal situation. The loan quantum needed is actually smaller to sell lower and buy lower by, say 10 per cent, than to sell higher and buy higher by 10 per cent. Work it out yourself.

 

By Colin Tan – head of research & consultancy at Chesterton Suntec International.