Prices of Singapore’s public flats to continue increasing: MM Lee

By Khalil Adis

Singapore´s founding father, Minister Mentor Lee Kuan Yew, said public flats will appreciate in value as long as the country´s economy continues to grow, reported Channel News Asia.

He was speaking at the launch of The Pinnacle@Duxton yesterday.

Standing at 50 storeys high, this development is the tallest Housing Development Board (HDB) public housing project in Singapore.

The issue on public housing affordability is a hotly debated topic that has divided Singaporeans.

Data from the HDB shows that the Resale Price Index (RPI) has continued to climb even further, posting a record 145.2 points for the third quarter.

This is a growth of 3.6 percent over the previous quarter.

While the record rise has benefitted HDB upgraders, young couples and singles trying to get their first leg into the property market, are finding HDB resale flats far too expensive.

The property boom means HDB upgraders made at least S$200, 000 in profit when selling their flats this year.

This has enabled them to upgrade to mass market condominiums.

Young couples and singles, however, have to deal with rising resale prices and increasing cash-over-valuations (COVs), which have resulted in many deciding to defer their purchase.

PropNex notes that the overall median COV for the third quarter is $12, 000.

This is a 300 percent increase compared to the $3, 000 figure in the second quarter.

The rise in the RPI and COV are due to the lack of supply and increased demand from both Singaporeans and permanent residents.

This has prompted the HDB to ramp up supply of its Build to Order (BTO) flats from 8, 000 to 9, 000 units.

According to government data, Singapore´s population has grown to almost 5 million.

Of this, approximately a quarter of that is foreign workers.

The number of foreigners getting permanent residency status also surged more than 11 percent in 2009.

MP Dr Muhammad Faisal, an assistant professor of real estate at the National University of Singapore (NUS), recently said young couples who were unable to get an HDB flat should plan ahead.

However, some say the onus remains with the HDB as the increase in demand is due partly to the government´s liberal immigration policy. 

 

EDITORS’ NOTE:

The above article was first published on 13 December 2009 on property reportand is republished here with kind permission from the author.

An analysis of Singapore’s property market this year

By Khalil Adis

[Khalil Adis a former editor of Property Report. He now writes for Property Report, Property Guru and Temasek Review]

2009 has been a roller-coaster ride for Singapore’s private property market and 2010 will be an equally challenging year for the HDB resale market.

A topsy-turvy year

2009 has so far been a year of paradox for Singapore’s private property market which first recorded the worst fall in history in property price index in the first quarter of 2009 followed by a stunning V-shaped recovery with the sharpest increase in a decade in the third quarter.

The first quarter witnessed the price index dropping 14.1 percent quarter-on-quarter.

However, just two quarters later, the private residential market posted a 15.8 percent increase, data from the Urban Redevelopment Authority’s (URA) showed.

According to the URA’s data, prices of non-landed private residential properties increased by 15.2 percent in the core central region, 18.5 percent in the rest of central region and 16.1 percent in the outside central region in the third quarter.

In comparison, prices of non-landed private homes decreased by 5.2 percent, 4.4 percent and 2.3 percent in the core central region, rest of central region and outside central region respectively in the second quarter.

This sharp V-shaped recovery has prompted fears that a property bubble was forming and that property prices in Singapore have become too inflated driven by low interest rates.

So in September, the Singapore government took measures to cool down the property market by making it harder for homebuyers to defer payments by removing the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL) and releasing more land.

Before the intervention, property showrooms were filled with agents armed with blank cheques acting on behalf of speculators.

This has resulted in escalating property prices, which has put genuine homeowners at a disadvantage.

Property firm DTZ notes that the price hikes since the second quarter of 2009 has resulted in diminishing buying power of Housing Development Board (HDB) upgraders.

The proportion of purchasers with HDB addresses has declined to 37 percent in the third quarter of 2009, from the recent peak of 56 percent in the first quarter.

Anti-speculative measures have worked

The escalating prices, driven by speculators, are a cause for concern as recent data from the Ministry for Trade and Industry (MTI) shows that Singapore is just fresh out of a recession.

Analysts say removing the IAS and IOL schemes will bring stability to the property market, in line with the country’s economic growth.

“The measures are aimed at stabilising the market and not letting prices runaway from the reality of an economic downturn. Any rise in prices should commensurate with the rate of economic expansion,” says Donald Han, managing director for Cushman & Wakefield Singapore.

Two months later, analysts agree that the government’s anti-speculative measures have worked to some extent.

“The government’s strong stand on the need for anti-speculation, coupled with its prompt and immediate response to the rapidly heating market (IAS removal and land release), is what has brought sanity to the property market by weeding out speculators and cautioning would-be private home owners,” says chief executive officer for PropNex, Mohamed Ismail.

“The effect of the anti-speculation measures is targeted more at the buyers in the non-prime market who typically rely more financing to own a private residential property. The removal of Interest Absorption Scheme and Interest Only Loans also forced these buyers to be more prudent in their purchases as they are no longer allowed to defer their loan repayment. The reassurance of ample supply as provided by the government’s injection of sites into the first half of 2010 confirmed list, under the government land sales programme, has also softened the run-up effect,” says Dr Chua Yang Liang, head of research for Jones Lang LaSalle for Southeast Asia.

Subsales down

According to Jones Lang LaSalle, the overall monthly volume of purchases for October 2009 has declined by 29 percent from 1, 143 units in September to 811 units.

This is the third contraction since August 09 and also the second lowest sales volume achieved for the first ten months of 2009 since January 09 when 108 units were sold.

Jones Lang LaSalle also notes that this measure has resulted in a decrease in subsales – a measure of how much speculation there is in the property market.

“ The recent announcement of measures to curb speculative behaviour seems to have taken effect as seen in the subsales market. Proportion of subsales level has fallen to 7.9 percent in October from the 12 percent recorded in September,” says Dr Chua.

However, analysts say it is too early to tell if some measures, such as the interest-absorption scheme (IAS), should be restored,

“The IAS removal only played a small part of the government measures. But even as such, we do not think it is necessary for IAS restoration within the next one year,” says Mohamed Ismail.

Falling rentals

While property prices were escalating in the third quarter, rentals continued to decline in the same period.

According to the URA, the rental price index for private property has dropped 2.2 percent in the third quarter.

“The rental price index has dropped 20.4 percent to its current third quarter level of 129.3, and its recent decline of 2.2 percent is actually its lowest decline in four quarters,” says Mohamed Ismail.

Analysts note that rentals were declining, as landlords were willing to drop their rents during the recession.

“Rentals for private properties could be explained by the fact that in the bad economy, landlords were willing to lease out their property for lower prices. Given that rental agreements last for an extended period of time, we should see a lag in the recovery of the rental price index behind the more visible recovery of the property price index,” says Mohamed Ismail.

Therefore, the fourth quarter could see rentals going up in tandem with the recovering economy.

2010 and beyond

Going forward, analysts expect sales volume for private homes to ease, as there are fewer mass-market projects in the pipeline plus the government’s measures to cool the property market.

“Transaction volume in the non-landed segment is likely to contract by a further 10 to 20 percent due in part to the seasonal slow down and also the effect from the recent government announcements,” says Dr Chua.

Home prices are also likely to see some level of stabilisation with more moderate increase to more sustainable levels with less volatility.

This is because about 70 percent of the current buyers in recent residential launches choose the normal progress payment while the rest opted for the IAS.

However, analysts warned that the Singapore government could impose more measures to cool the property market should price continue escalating.

“Should housing price growth continue to surge ahead of economic fundamental despite these recent moral persuasion by the government to cool residential demand, further anti-speculative measures with a bigger bite could be introduced such as capital gains tax say for those who flip within a two year period of the first purchase,” says Dr Chua.

In October, the Monetary Authority of Singapore’s (MAS) expressed concern that a speculative bubble could form, prompting them to take possible further measures, on top of the release of land announced recently for mass-market developments.

Although the government has yet to announce such possible measures, prospective homeowners should assess their financial position before taking a plunge in the private property market.

The HDB market outlook

Following public criticism that there was not enough supply of HDB flats in the market, Minister for National Development Mah Bow Tan announced in parliament recently that the HDB will release 10, 000 to 12, 000 new flats every year for the next five years.

By releasing more supply however, the HDB is caught between the devil and the deep blue sea.

While releasing more flats will help quell the public’s frustration with the HDB, such measure will also bring down the value of HDB flats due to its market based pricing approach.

“Although HDB is slated to release a total of 13, 500 Build-To-Order (BTO) flats this year (by the end of 2009), an oversupply would only serve to dampen the asset value of a majority of Singaporeans who are dwelling in HDB flats,” says Mohamed Ismail.

Meanwhile, the HDB resale market will likely witness more transactions this year.

Acording to Propnex, there is a continual supply of resale flats which could potentially see 40, 000 transactions this year alone.

It adds that should the economy recover well, this could lead to greater demand in the HDB resale market due to a a greater number of Singaporeans being able to hold well-paying or stable jobs, or if there is a greater number of permanent residents in the market.

Such news mean Singaporeans should brace themselves for escalating prices in the resale market next year – just at a time when elections are coming.

The latest HDB Price Index (RPI) is now at a record high of 145.2 points – a growth of 3.6 percent over the previous quarter.

About the Author:

Khalil Adis was a former editor for Property Report magazine covering Singapore, Malaysia and Indonesia. During his course of work he has travelled to all three countries to cover their property markets extensively. He has also interviewed politicians like Singapore’s Minister for National Development Mah Bow Tan, Kuala Lumpur’s Mayor Dato’ Ahmad Fuad Ismail and Malaysia’s Energy, Green Technology and Water Minister Datuk Peter Chin. He now writes for Property Report, Property Guru and Temasek Review.

You can read more of Khalil’s articles on:

www.property-report.com and www.propertyguru.com.sg

Other articles by Khalil Adis:

>> Demand vs supply: so many applicants, but so few flats

>> Home affordability: HDB versus the public

Defending your country? Then pay for your own insurance

By Khalil Adis

While the premium for Group Personal Accident Insurance Scheme is affordable, the government should cover the cost since national servicemen are defending the country

I have been serving my national service faithfully for a full two-and-a-half-years and will soon complete my reservist this year, at the end of my ten-year cycle.

At this time of writing, I have just finished doing my duty for the 20th Asia-Pacific Economic Cooperation (APEC) forum held in Singapore.

Throughout my service with the Singapore Police Force, I have kept our streets safe, assisted my commander and senior officers in writing reports, managed the staff suggestion scheme, came up with newsletter for fellow national servicemen and guarded key installations across the island.

I have also endeavoured to pass my physical fitness test (IPPT) with a Silver award almost every year.

However, before I take a final bow from my national service duty, there is one burning question my troop mates and myself have been left wondering – why do we need to pay for our own insurance when we are in fact taking time from our work and family to risk our lives for our country?

Terms of insurance coverage

The Police National Service (PNS) Department last year sent us a letter saying that with effect from 1 April 2008, Home Team NSmen will be automatically covered under the Group Personal Accident Insurance Scheme.

This insurance scheme only covers reservist personnel like myself and not full-time national servicemen

So, unless we choose to opt out, the premiums are deducted from our make-up pay or service allowance.

Most of us have left it as it is as we are just too unaware of its implications or too busy with our duties to even question it.

The insurance is underwritten by American Home Assurance Company Singapore (AIG) and managed by Zuellig Insurance Singapore.

Police national servicemen are covered during their In-Camp Training (ICT) and pre-ICT assessment, mobilisation, IPPT and remedial test, course and other NS activities where the Order to Report for Service has been served.

The sum is not a lot, amounting to $4.85 (inclusive of GST).

The insurance provides coverage of up to 30 days of call-up per work year.

It covers each individual a sum assured of $100, 000 in the event of death and a scale of benefits of up to $150, 000 for permanent disablement arising from an accident.

In addition, there are other benefits, such as claims for accidental partial disability and child education lump sum benefit.

Insurance experts agree that the insurance coverage national servicemen are getting is a good deal.

“If you compare this with a normal personal accident plan, for the same risk level, it costs $360 with $50, 000 sum assured in the event of accidental death and total and permanent disablement. As the insurance for national servicemen covers higher risks, it is value-for-money,” says Hakim Halim, a financial advisor with Promiseland Independent Pte Ltd.

Cost is not the issue

However, the cost and coverage of the insurance is not the issue.

The issue is, despite our service to our country where we constantly have to put our life at risk, the government still makes us pay for our own insurance coverage.

Even the companies that we work for do pay for our insurance in the event any accident happens to us during our course of employment.

So, on behalf of my troop mates, I wrote an email to the Police National Service (PNS) Department early this year, asking them to explain why we have to foot the bill.

It is almost the end of the year and the PNS Department has yet to reply to our query.

Our political leaders have always questioned if Singaporeans would defend the country in times of war.

However, the government’s penny-pinching attitude will only sow the seeds of apathy and discord among existing national service men who have continued putting their lives at risk.

Should future generations feel less than patriotic, the government have only themselves to be blamed for their “money-as a-means-to-an-end” approach.

If the government can allocate $10 million of taxpayers’ money to make permanent residents feel more welcomed and foot the bill to host APEC, surely paying the insurance cost for national servicemen is not too much to ask for, right?

After all, we have paid our dues by helping to keep the country safe and secure.

Despite our grievances, we are grateful for the excellent welfare provided for us at APEC and the senior officers who took time to sit down to listen to the sentiments among national servicemen.

In the meantime, we are waiting with bated breath for the PNS Department’s official reply.

About the Author:

Khalil Adis graduated from Monash University with a Bachelors of Arts (Communications) and was a former editor for Property Report magazine covering Singapore, Malaysia and Indonesia.

Media content analysis: Signs that elections are coming

By Khalil Adis, Social Correspondent

One has to read in between the lines to decipher news from propaganda

Is it just my imagination or has the state media been orchestrating “feel good” news to prepare Singaporeans for the upcoming elections to be held by 2011?

From the Housing Development Board (HDB) recording a deficit of S$2.119 billion to companies fighting for higher wages for low-skilled workers, the news are almost too good to be true.

The average man on the streets may not be able to understand media content analysis.

With elections looming, it would be to Singaporeans’ advantage to understand Singapore’s press system and that media ownership does affect news reporting.

Understanding media content analysis will then help Singaporeans read news more critically so that they can make an informed decision when they go to the polls (assuming there are no walkovers in readers’ ward).

Singapore’s press system

While western democracies such as the United States sees the media as a “market place of ideas” and a watchdog of the government, Singapore practices a “nation building” press system.

Minister Mentor Lee Kuan Yew has maintained that this was needed for Singapore’s development when he first took over as the first Prime Minister of Singapore.

A free wheeling press, he argued, will eventually lead to the collapse of a nation as evidenced by the liberal press of the Philippines.

“The Philippines, before martial law, was an Asian version of the US system. The Philippine press enjoyed all the freedom but they failed the Filipino people,” said Lee in an address to the American Society of Newspaper Editors on 14 April 1988.

Lee does have his point as a nation building press was crucial for Singapore’s development due to the racial conflicts and religious fault lines that the Singapore government had to tackle post independence.

Media ownership

Let’s take a look at MediaCorp which publishes Today newspaper. MediaCorp is 100 percent owned by Temasek Holdings – the Singapore government’s wholly owned investment arm.

Its chief executive officer is Ho Ching, daughter-in-law of Minister Mentor Lee Kuan Yew and wife of Prime Minister Lee Hsien Loong.

The government, thus, has a monopoly on television broadcasting and directly holds most of the radio channels in Singapore.

As a media entity that is owned by Temasek Holdings, MediaCorp has to report on stories that support the ruling party’s ideologies.

Any other news that is critical of the Singapore government is generally not tolerated. Remember Mr Brown anyone?

Media content analysis

Fast-forward 43 years later, Singapore still practices the “nation building” press system as evidenced by an analysis of Today’s media content on 3 November 2009.

The first page itself screamed a mini headline called “HDB turns community builders”.

In it, the HDB said it had set up a new Community Relations Department two months ago to tackle the problems of squabbles among neighbours and the assimilating immigrants in the heartlands.

HDB’s news appeared amid rising concerns among frustrated netizens over the government’s open doors policy towards immigrants which has priced Singaporeans out from the HDB resale market, as cash rich immigrants are able to offer higher cash-over-valuations (COVs)

Flyers from property agents, acting on behalf of permanent residents, have been flooding the heartlands, promising high COVs to prospective sellers.

Another “feel good” news is the “Drop in arrears despite recession”

HDB said it was partly due to the introduction of trained counselors to help distressed families.

However, it is worth noting that the Resale Price Index (RPI) is now at its record high, which means distressed owners were able to sell off their properties at a good profit and downgrade to a smaller flat.

This is something that was affirmed by Nicholas Mak, formerly from Knight Frank, and now a lecturer in real estate at Ngee Ann Polytechnic.

One only needs to go down to the grassroots and see the genuine hardship cases at the Meet-the-MP session, to see for oneself, how many Singaporeans are facing problems in servicing their HDB mortgage loan either through genuine hardship cases or their own folly.

Another big shocker was HDB’s $2.119 billion deficit this financial year.

However, this has already been discussed by fellow contributor Damon Yeo, in his well-researched piece.

While the HDB feels the need to engage the public via the traditional press like Today, it has continued to ignore netizens as evidenced by its refusal to respond to Temasek Review’s press query.

It is worth noting that the People’s Action Party (PAP) just last week said it was using online media to win the hearts and minds of Singaporeans – a media popular among opposition parties and those who are critical of the Singapore government.

HDB on the other hand has refused to engage with Temasek Review’s readers.
Its continued silence will only create more questions.

Other social news include “On better terms” which cites companies like the National University Hospital (NUH) fighting for higher wages for its low-wage staff alongside comments by Senior Parliamentary Secretary (Manpower) Hawazi Daipi.

This is in contrast to MM Lee’s comments on the widening gap between the rich and the poor.

In response to a question by a SMU student on what Singapore could do to help its bottom 20 per cent, MM Lee answered that Singapore’s approach has been to create as many jobs as possible, while leaving the market to decide the right type of pay.

“Never mind your Gini coefficient. If you don’t have a job you get zero against those with jobs. So our first priority is jobs for everybody,” Lee said.

Another news piece, aimed at opposition held Hougang, had headlines that read “In Hougang, help in now closer at hand”.

It mentioned that Community Development Council (CDC) officers are now stationed in their community to better help residents in distress.

Bread and butter issues are important to heartlanders and announcing this news can be seen one way for the PAP to win voters in the opposition held ward.

However, one has to remember that going through the welfare process and asking for help is a different thing altogether.

Welfare is a dirty word in Singapore.

For those who have fallen on hard times and seek CDC’s help, they have been subjected to CDC officers who can be rude and unsympathetic to their concerns.

The CDC officers are just merely going through the motion, as it is their jobs to do so.

One also has to show how pathetic one’s bank account is plus credit card spending to lament a “scolding” from CDC officers.

In the meantime, Singaporeans can expect more “feel good” news until election times are over.

The only consolation is that they are now better equipped to decipher news from propaganda.

About the Author:

Khalil Adis graduated from Monash University with a Bachelors of Arts (Communications). He helps out at the Taman Jurong Constituency Meet the MP session whenever time permits and has seen genuine hardship cases from fellow Singaporeans.

Demand vs Supply: So many applicants, so few flats

By Khalil Adis, Social Correspondent

[Khalil Adis a former editor of Property Report. He now writes for Property Report, Property Guru and Temasek Review]

Flats sold under the Sales of Balance Flat (SBF) scheme were more than ten times oversubscribed further confirming that demand has exceeded supply.

Analysts say the number of applications for the 2, 132 HDB flats put up for sale under the Sales of Balance Flat (SBF) scheme were actually much higher than what was earlier reported in the local media, putting the figures at 20, 691 applicants instead of 12, 700.

“Actually, there were 20, 691 applications for the 2, 132 HDB flats. There is definitely a greater demand for these flats due to various reasons, besides the perennial reason that there is a longer waiting time of three to four years for a Build To Order (BTO) or Design Build & Sell Scheme (DBSS flat) and the fact that HDB has run out of readily available flats in their stock,” says PropNex chief executive officer Mohamed Ismail.

In comparison, figures from HDB show that the number of applications received as at midnight on 14 October 2009 stood at 21, 452 – – more than ten times oversubscribed.

Whatever the final figures are, they have provided further confirmation that demand has indeed exceeded supply which is sure to raise public fury following the increasing cash-over-valuations (COVs) and a record rise in the Resale Price Index (RPI).

The latest RPI data shows that the index has continued to climb even higher, posting a record 145.2 for the third quarter of 2009 – a growth of 3.6 percent over the previous quarter.

“This is evidently the result of the greater demand for resale flats in recent months,” says Mohamed Ismail, referring also to the 11, 649 resale transactions posted for third quarter of 2009, up 14.9 percent from the second quarter.

HDB had in the past, constantly maintained that its flats are affordable and there is adequate supply of flats to meet demand.

However, in October this year, HDB made an about U-turn. It hastily announced that it was ramping up supply of its BTO flats from 8, 000 to 9, 000 units this year following public criticism that HDB resale flats have become less affordable due to increased demand from both Singaporeans and permanent residents and the lack of supply which has pushed property prices upwards.

HDB had also announced that it was releasing more supply in the market via the SBF scheme.

The 2, 132 flats sold under the SBF scheme are flats that remained unsold from the previous balloting or were taken back by HDB.

They are located in various parts of Singapore such as Ang Mo Kio, Central and Clementi – just to name a few.

As such, some of them could have been built more than ten years ago with a price that are almost comparable to flats in the resale market.

For instance, three-room HDB flats in Bukit Merah range from $262, 000 to $488, 000.

The closest price comparison ten years ago was two resale transactions that took place in 2002 where two three-room units were sold for $371, 000 and $390, 000 respectively.

Data mined from HDB’s website on the resale price for three-room flats between January to October this year shows that it was transacted between  $185, 000 to $452, 000.

Still, analysts say the prices of flats under the SBF scheme are much cheaper than market prices.

“The prices offered are actually about 20 percent cheaper than similar resale flats in the vicinity,” says Mohamed Ismail.

Citing examples of four-room flats in Bukit Merah and Punggol, Ismail said in the last one month, both areas have seen their resale prices exceeding $550, 000 and $360, 000 respectively.

“The price range of the offered flats for these flat types in these areas was up to $488, 000 and $311, 000 respectively. These prices are between 10 to 15 percent cheaper, while the median prices could be up to 20 percent cheaper for the flats offered under the SBF exercise,” says Mohamed Ismail.

Mohamed Ismail further notes that buying flats under the SBF scheme also mean buyers are not subjected to paying COVs, as they would if they had bought a resale flat.

Analysts also say pegging the flats with the current market values are fair.

“In our opinion, it is fair to sell such flats based on current market values, with a discount, and not on previous prices when the flats were built. This is because doing so would create a greater imbalance to HDB’s value and asset appreciation,” says Mohamed Ismail.

PropNex is unable to provide figures on how many of these applicants are first-time Singaporean and permanent residents buyers.

Attempts have been made to contact HDB via email to provide a breakdown on the applicants under the SBF scheme but HDB did not respond – the second time that it did not respond to our query.

 

About the Author:

Khalil Adis was a former editor for Property Report magazine covering Singapore, Malaysia and Indonesia. During his course of work he has travelled to all three countries to cover their property markets extensively. He has also interviewed politicians like Singapore’s Minister for National Development Mah Bow Tan, Kuala Lumpur’s Mayor Dato’ Ahmad Fuad Ismail and Malaysia’s Energy, Green Technology and Water Minister Datuk Peter Chin. He now writes for Property Report, Property Guru and Temasek Review.

You can read more of Khalil’s articles on:

www.property-report.com and www.propertyguru.com.sg

 

Other articles by Khalil Adis:

>> Home affordability: HDB versus the public 

Related articles:

>> Number of applicants exceed number of flats

>> HDB to increase supply of flats

>> Mah: don’t compare with prices in the past

>> ERA: 40 per cent of HDB flat buyers are PRs

Public housing affordability: HDB versus Singaporeans

By Khalil Adis, Social Correspondent

[Khalil Adis a former editor of Property Report. He now writes for Property Report, Property Guru and Temasek Review]

The rising number of cash rich immigrants to Singapore is pricing out first time Singaporean homeowners from the HDB resale market. Meanwhile, the HDB has been slow to react in releasing new supply in the market.

Can the average Singaporean really afford public housing in Singapore? Has the Housing Development Board (HDB) lost sight of its purpose? A recent news report that the cash-over-valuation (COV) for a three-room HDB flat in Toa Payoh which was transacted for a record S$70, 000, has had Singapore’s online community debating just that, with some concluding that HDB flats have indeed become far too expensive for the first time home buyers.

Although figures on the median COVs on the resale market for the third quarter of 2009 are not yet available on HDB’s website, this $70, 000 COV is the highest so far (for a three-room flat) since the HDB started tracking median COVs in the resale market since the second quarter of 2007.

However, that is just the tip of the iceberg. Property analysts are expecting COVs for the rest of 2009 to continue increasing due to strong demand and a lack of supply.

“Increasing cash-over-valuation is a reflection of greater demand than supply. The recovering economy and the fact that private properties are also on the rise, has resulted in this greater demand,” says PropNex chief executive officer, Mohamed Ismail.

The rising COVs are a cause of concern among Singaporeans, especially since the prices for HDB resale prices are now at a new peak.

Data from real estate firm PropNex shows that the HDB’s resale price index (RPI) for the second quarter of 2009 has climbed by 1.4 percent to an all-time high of 140.2 points.

Compared to the first quarter of 2007, the index has now risen by 35.3 percent.

The HDB’s flash estimate for the Resale Price Index (RPI) for the third quarter of this year confirmed Mohamed Ismail’s prediction.

It is now at 144.7 percent and an increase of 3.2 percent from the previous quarter – the highest level of the index since its conception in 1998. Mohamed Ismail now expects the RPI to rise by 4–5 points over the next two quarters to reach about 145 by the year’s end.

So on top of a record in resale prices, Singaporeans now have to deal with rising COV which has to be paid upfront in cash. According to recent reports, COVs for three and four-room HDB flats have doubled over the last two months averaging more than $20, 000.

 

Causes of rising COVs

According to government data, Singapore’s population has grown to almost 5 million. Of this, approximately a quarter of that is foreign workers. The number of foreigners getting permanent residency status also surged more than 11 percent in 2009.

It is no rocket science that the reasons COVs are rising are due partly to the influx of foreigners to our shores. PropNex notes that permanent residents in Singapore were taking advantage of the initially low COV to buy flats which has now escalated.

In fact, property agents acting on behalf of permanent residents have been busy dropping flyers in the heartlands promising high COVs. Even in far-flung areas like Jurong West, COVs are between $20, 000 to $35, 000.

Whilst foreigners and permanent residents are eligible to buy private properties, the HDB resale market is only open to permanent residents and Singaporeans.

Data from real estate firm ERA shows that about 40 percent of the buyers in the resale market are permanent residents.

The increase in demand for HDB resale flats versus the lack of supply is also helping to fuel the high COVs with the highest bidder having a distinct advantage.

Usually when the COV is higher, first time homebuyers would look instead to Build to Order (BTO) and Design, Build and Sell Scheme (DBSS) projects. However, buyers will have to wait three to four years before they can move in.

For the cash strapped singles or young couples who cannot wait for three years for a new flat, they will have no choice but to defer their purchase, resulting in deferred marriage for couples. Could this perhaps explain the nation’s low fertility rate?

Otherwise, as Minister for National Development Mah Bow Tan had advised, their other option is to look for HDB flats that offer no COVs in far-flung areas like Woodlands.

But how realistic is this?

 

Case study one: Singles buying from the resale market

Dean Shams, a first time homebuyer, recently found out that it wasn’t as easy as Minister Mah had suggested.

The 37-year-old publicist started house hunting early this year. As he is a bachelor, Shams is only eligible to buy resale flats from the HDB. He looked at four resale three-room flats in the Bedok area. Being a mature estate, all the prospective sellers were asking for COVs.

In July, Shams was lucky enough to land his dream home for $221, 000 just at a time when the resale price index was on its record rise.

The seller had initially asked for $9, 000 but agreed to lower it to $3, 000 as they were desperate to offload their property as they were no longer able to afford their monthly mortgage.

The trade off, however, is a run down flat in which Shams had to spend a further $20, 000 on for a basic renovation. The total upfront cost came up to $23, 000.

In another scenario, Bob Boon, a 36-year-old human resource officer in a bank, bought his three-room flat in Serangoon for $255, 000 with a COV of $25, 000. On top of taking a housing loan, Boon also had to take a bank loan to cover the COV as well as a $30,000 renovation loan.

Despite the hefty loan amounting to $55,000, Boon says a resale HDB flat is still affordable by his standards.

 

Case study 2: Young couples buying from the resale and/or direct from HDB

Luqman Hakim Abdul Khir and his wife have been trying to get a flat this year. Being a sole breadwinner with a gross salary of $1, 488, he is eligible for an HDB loan of $120, 300 with $482 in monthly installments.

He has two options: Buying from a resale market or buying direct from the HDB via a balloting system.

 

Option 1: Buying from a resale market.

As Minister Mah had suggested, Abdul Khir had looked at over 30 three-room flats in Woodlands, Sembawang, Yishun, Ang Mo Kio, Toa Payoh, Hougang, Serangoon, Ubi and Bukit Batok. He could not afford option one as agents were asking for $2, 000 in agent fees with $5,000 COV minimum.

 

OPTION 2: Buying direct from HDB by balloting

Abdul Khir found this option cheaper than the resale market price as it depends on the queue system. The first time he went for balloting, his queue was the last two numbers at 148. This means he will be given cheaper priced flats. However, the only available three-room flat left was one in Queenstown priced at $250,000 – way beyond his HDB loan eligibility.

He tried the second time where the subsequent queue numbers were higher than the number of allocated flats. His queue was 632 during the second ballot, pricing him out from the primary market.

“I grew fed up and decided to give up on buying a new flat. I am now applying for a rental flat in Bedok and Tampines area,” says the 27-year-old technical specialist.

 

Profit before public service?

The HDB has served the nation well when it first started by providing affordable homes for all. This has generated wealth for Singaporean homeowners to upgrade to bigger houses as their properties increased in value.

Malaysian urban planners and authorities recently cited this wealth creation system as a role model for public housing which has enabled low-income families to move up the wealth ladder.

However, the system in the current climate, has shown that it does have its limitations. For the first time genuine homeowner trying to move up the wealth ladder, the barriers to entry are now higher. One cannot help but feel that the HDB is now acting like a private developer by offering flats at market prices.

HDB has defended itself by saying this is the fairest way of pricing new HDB flats while ensuring equitable distribution of subsidies. But the fact remains.

HDB flats have become too correlated to the private property market with the highest bidder having a distinct advantage.

The price gap between an HDB flat and private home prices have now narrowed. Currently, a five-room HDB flat in a mature estate fetches between $500, 000 to $600, 000, while some two to three bedroom condo units in the heartlands are going for $600,000 to $700,000.

In a recent reply to the Straits Times Forum, HDB also said a five-room resale flat in a non-mature estate is priced at an average of $364,000. (read letter here)

However, statistics from HDB’s website show that the only areas having a price close to what it mentioned are Woodlands ($340, 000), Sembawang ($362, 000) Choa Chu Kang ($360, 000), and Yishun ($365, 000). Even five-room flats in non-mature estate like Jurong West are priced at $372, 000.

The HDB has also defended its track record saying public housing is still “affordable” by spewing data on “affordability”. However, these data mean nothing for the average man on the streets, who feels that HDB flats are no longer affordable.

If the current trend were to continue, would our future generation then be able to afford a roof over their head? If HDB flats are indeed affordable, why do Singaporeans feel the pinch?

In addition, the HDB has failed to increase supply to keep up with the influx of foreigners, pushing property prices upwards.

Perhaps, in their bid to soothe frayed nerves and improve public opinion, Minister Mah recently announced that more flats would be built to keep up with increased demand. However, this measure has come a tad bit too late as COVs are set to continue rising.

Did the HDB not envisage this problem in the beginning? The fact that COVs for HDB resale flats has doubled in a month amid the most severe recession in Singapore suggests that there are anomalies in our public housing system that needs to be fixed.

Minister Mah had also said that Singaporeans are choosey by wanting to live in certain places that are near to their parents’. But isn’t this in line with the government’s pro family public housing policy?

Perhaps the real issue runs deeper.

“Maybe what Singaporeans are telling the government is that they are unhappy that permanent residents are pushing the COV prices beyond the affordability range, not because HDB prices have become less affordable per se,” says Shams.

What say you?

Note: Attempts have been made to contact the HDB on the average cost on building a unit of HDB flat. HDB responded asking for the reasons for this request which we subsequently replied. Since then, we have not heard from them.

 

About the Author:

Khalil Adis was a former editor for Property Report magazine covering Singapore, Malaysia and Indonesia. During his course of work he has travelled to all three countries to cover their property markets extensively. He has also interviewed politicians like Singapore’s Minister for National Development Mah Bow Tan, Kuala Lumpur’s Mayor Dato’ Ahmad Fuad Ismail and Malaysia’s Energy, Green Technology and Water Minister Datuk Peter Chin. He now writes for Property Report, Property Guru and Temasek Review.

You can read more of Khalil’s articles on:

www.property-report.com and www.propertyguru.com.sg

 

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