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http://www.todayonline.com/Voices/EDC111124-0000071/An-eventual-correction-in-HDB-resale-prices?
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An eventual correction in HDB resale prices?
Letter from Chua Soo Kiat 04:46 AM Nov 24, 2011
AS RESALE prices of Housing and Development Board flats rise, the authorities are tackling the immediate problem of a shortage in public housing.
We must also not lose sight of longer-term dangers should prices continue to rise, especially ahead of income growth.
The main concern is if resale prices instead fall for a sustained period. This is highly possible because of a rarely discussed trait of our uniquely Singapore public housing market: The 99-year lease.
As an investor, I am keenly aware of the intrinsic value of any instrument, relative to its market price. For any instrument with a finite usage period, such as a COE-registered car or machinery in a factory, its value (and thus market value) should fall with every passing year.
The same cannot be said, though, of our HDB flats, especially in mature estates, which have enjoyed huge price appreciation in recent years despite a dwindling lease period.
There are many explanations for this, which I can relate to, such as a supply shortage, increased demand in recent years and an ultra-low interest rate environment. Still, when a flat crosses the halfway mark of its lease, wouldn't its price fall at some point?
Critics may argue that HDB could carry out en-bloc programmes to restart the lease. I can subscribe to this argument, to an extent, but we must appreciate that the scope of such projects covers a small percentage of existing towns.
For a mature town such as Bedok, which is 30 to 40 years old, I doubt it is technically or economically feasible to en-bloc the entire estate.
Together with an ongoing slowdown in our immigration intake, an aggressive housing supply and interest rates that will not remain low permanently, it is reasonable to assume that our HDB property prices will eventually start to fall.
Those with the shortest remaining lease period, especially in mature towns, could be the hardest hit.
The Prime Minister cautioned last month that we should be prepared for "a period of several years of difficulty in the global economy".
The next question is, whether we are prepared for an eventual correction in property prices, especially if it ends up as bad as that in the West.
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An eventual correction in HDB resale prices?
Letter from Chua Soo Kiat 04:46 AM Nov 24, 2011
AS RESALE prices of Housing and Development Board flats rise, the authorities are tackling the immediate problem of a shortage in public housing.
We must also not lose sight of longer-term dangers should prices continue to rise, especially ahead of income growth.
The main concern is if resale prices instead fall for a sustained period. This is highly possible because of a rarely discussed trait of our uniquely Singapore public housing market: The 99-year lease.
As an investor, I am keenly aware of the intrinsic value of any instrument, relative to its market price. For any instrument with a finite usage period, such as a COE-registered car or machinery in a factory, its value (and thus market value) should fall with every passing year.
The same cannot be said, though, of our HDB flats, especially in mature estates, which have enjoyed huge price appreciation in recent years despite a dwindling lease period.
There are many explanations for this, which I can relate to, such as a supply shortage, increased demand in recent years and an ultra-low interest rate environment. Still, when a flat crosses the halfway mark of its lease, wouldn't its price fall at some point?
Critics may argue that HDB could carry out en-bloc programmes to restart the lease. I can subscribe to this argument, to an extent, but we must appreciate that the scope of such projects covers a small percentage of existing towns.
For a mature town such as Bedok, which is 30 to 40 years old, I doubt it is technically or economically feasible to en-bloc the entire estate.
Together with an ongoing slowdown in our immigration intake, an aggressive housing supply and interest rates that will not remain low permanently, it is reasonable to assume that our HDB property prices will eventually start to fall.
Those with the shortest remaining lease period, especially in mature towns, could be the hardest hit.
The Prime Minister cautioned last month that we should be prepared for "a period of several years of difficulty in the global economy".
The next question is, whether we are prepared for an eventual correction in property prices, especially if it ends up as bad as that in the West.
