Pls clarify Yeoh Lam Keong's reasoning about resale HDB prices. [HDB lease extension proposal]

[bic_cherry]

Pls clarify Yeoh Lam Keong's reasoning about resale HDB prices. [HDB lease extension proposal]

Did ex-GIC economist Yeoh Lam Keong apply faulty logic and quote an example unhelpful to his own argument?

"Resale flats also currently already enjoy up to a $160,000 grant discount from listed prices and have an MOP of only five years. If Prof Theseira's arguments were correct, resale prices should already be in the process of being pulled down to this significantly subsidised BTO price."


Prima facie, I AGREE with Prof Theseira that resale HDB price will DECREASE if BTO is priced without the land costs component but Mr Yeoh seems to be illogically alleging that the up to $160,000 HDB resale flat subsidy would have already DECREASED resale HDB prices without even having to decrease BTO sale prices. If any, this subsidy will INCREASE the resale flat prices since buyers now have up to $160,000 free cash handouts from HDB to increase their spending power. How can Mr Yeoh say that the $160,000 will lower resale flat prices? By what logic/ mechanism will this ever happen?

I can understand that Mr Yeoh is keen to help poorer Singaporeans, however his lapse in logic wrt the effect of the up to $160,000 subsidy needs to be clarified first.



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Forum: HDB reform proposals will further separate resale and BTO markets
Resale flats currently already enjoy up to a $160,000 grant discount from listed prices and have an MOP of only five years.*
PUBLISHED: DEC 23, 2019, 5:00 AM SGT

I thank Associate Professor Walter Theseira and Mr Nicholas Mak for their comments on some of our HDB reform proposals (HDB lease top-up proposal has drawbacks: Observers, Dec 17).

Mr Mak argued that our proposed lease extension in Future of Singapore, presented by Mr Ku Swee Yong, Mr Tay Kheng Soon and me, would face popular outcry if it were ever stopped after introduction. But isn't this true of all good and necessary public social policies? Imagine the outcry if Singapore stopped selling subsidised flats or closed polyclinics. Is this a good argument for not introducing them?

He also argued that the provision of more cheap rental flats might prevent people from working harder. The relevant empirical research shows that lowering the cost of living for the poor to affordable levels has negligible effect on their incentive to work.

Following this argument, we should also not lower the prices of Build-To-Order (BTO) flats with grants or subsidise healthcare, or education either, as it might make citizens lazy.

Prof Theseira also commented that resale flat prices could in the end come down to construction costs if BTO flats were to be sold at construction costs.

However, our proposals are also to raise the minimum occupancy period (MOP) to 15 years. This would insulate the resale market from the cheaper BTO flats by extending the MOP well beyond the normal property cycle.

Resale flat values would also likely be boosted as they would now become a residential leasehold asset with an affordable means of leasehold extension.

Resale flats also possess a premium over BTO flats because buyers can choose their location as well as enjoy immediate purchase and sale.

Resale flats also currently already enjoy up to a $160,000 grant discount from listed prices and have an MOP of only five years. If Prof Theseira's arguments were correct, resale prices should already be in the process of being pulled down to this significantly subsidised BTO price.

Yet this is clearly not the case, as the BTO market is effectively still segmented from the resale market. This separation between HDB resale and BTO markets will be even more pronounced with our proposals.

Yeoh Lam Keong
https://www.straitstimes.com/forum/...-will-further-separate-resale-and-bto-markets

 

[bic_cherry]

No I think the professor logic is incorrect. Yeoh Lam Keong logic is right.

A grant is not the price of an asset.

A grant is money given by someone else to help u buy the asset which has a market price. Meaning the grant can be 100% of the market price yet it has no effect on the market price at all.

Because market price is decided by buyers and sellers not your pocket or bank balance.

Or if say, u received the asset as a gift..this act has no impact on the market price of other similar assets in the market.

Say even if every seller in the market received their HDB as a gift (100% grant) from government, it will not impact the price because the market price still has to b determined by the demand of the buyers in the cirrent market whether they are willing to pay the market price.

Please ask the professor go back campus to revise his/her works.

Of course the grant will make a big difference, at least to demand. After the doctors at American heart association said butter was healthy oil (as opposed to trans fat containing margarine), prices of butter went up because overnight demand increased. This is a form of grant: granting the people's wish to eat butter by confirming that the fats contained are not as harmful as previously thought.

Ditto resale HDB prices. More people would be willing to squeeze into a HDB flat rather than fly the coop etc and buy new or resale HDB flat due to the grant.

Thus, increasing the grant will only INCREASE demand for resale HDB flats, especially since the resale HDB grant is TWICE the BTO HDB grant.

It is thus Mr Yeoh Lam Keong who is trying too hard to reason by half. Prof Walter Theseira logic is correct in this case.

While I support Yeoh Lam Keong efforts to reduce wealth inequality in Singapore, I must give credit where credit is due and Prof Walter Theseira logic is the correct one in this case.

 

[bic_cherry]

Forum: Unwarranted optimism for lease top-ups turns home-buying into gamble
HDB flats in Toa Payoh, on Dec 16, 2019.
HDB flats in Toa Payoh, on Dec 16, 2019.ST PHOTO: LIM YAOHUI
Published: 28 December 2019.
The proposal to provide a feasible solution to older Housing Board flats that face an undetermined fate when their 99-year lease expiry approaches is certainly well-intentioned (HDB reform proposals will further separate resale and BTO markets, Dec 23).

If all these ageing flats are granted amnesty from lease constraints and have their leases topped up - which is easy enough to do but just kicks the can down the road - then similar top-ups must be equitably extended to private housing on leasehold land for the same nominal amount of extension levies.

Otherwise giving one segment of the populace repeated bites of the cherry may be seen as being prejudicial.


It may seem a sham, then, to continue selling HDB properties on a contractual 99-year lease when this number is known to be extendable to the length that citizens can pressure the Government for.

We make informed decisions on investments based on prevailing information and must accept the natural consequences of our calculations. This is so in particular with our biggest investment - the house.

That leasehold properties have a finite shelf-life and whose values must drop beyond 30 or 40 years into the lease is not privileged information, and there is no reason to plead ignorance.


Unwarranted optimism for lease top-ups and wishful punting on the Selective En bloc Redevelopment Scheme cloud decisions, turn home-buying calculations into opportunistic gambles that will sour should the authorities stick to the contractual letter of the law and allow the 99-year leases to lapse.

China, which parcels out land in 20-or 70-year leases, has no clear policy on lease top-ups.

Obviously its problem is far more pressing than ours and there will be a lot to learn and adapt from the strategies it devises.

Yik Keng Yeong (Dr)


https://www.straitstimes.com/forum/...r-lease-top-ups-turns-home-buying-into-gamble