Valuation the culprit in artificially inflating HDB flat prices

http://www.straitstimes.com/ST%2BFor...ry_248674.html

June 17, 2008

Valuation the culprit in artificially inflating HDB flat prices


OVER the past 18 to 24 months, HDB resale property prices have shot through the roof and many lower-income families have been priced out of the market. Although this is partly driven by the shortage of HDB flats and increased demand, what is not apparent to many people is the manner in which valuations have artificially fuelled inflation.

Take the three-room flat, for example. This is the smallest HDB flat and is targeted at the lower-income group.

Between March and May, prices of a three-room flat in Yishun, in the same block and with the same floor area, have shot up by between $18,000 and $30,000. The price of a similar three-room flat in Ang Mo Kio ranges from $184,000 to $300,000 in the same period. Similar trends are observed in almost every estate and in almost every flat type.

I accept that several factors may account for the differential in the value of a property, but is it realistic to expect the valuation of the same type of flat in the same block to have risen by 10 to 50 per cent over a short three-month period? Even if the interior renovation of a unit is particularly good, could it account for such a difference? And why does the trend keep increasing? A check with several properties in the weekend classifieds shows that the valuation of similar properties in these locations has gone up by at least another $10,000 since the last transacted prices last month. What can justify the drastic increases?

A three-room flat in a choice location, such as Bishan and Ang Mo Kio, now costs more than $300,000. A two-bedroom private apartment in an older development costs only slightly more - a clear sign that HDB flats are over-priced and out of reach for some lower-income families.

It seems that, in valuing a property, the valuer takes the last transacted price as a benchmark. Since the last transacted price includes the cash top-up sellers usually demand from buyers, the value of the property is artificially inflated.

Past experience in Singapore and Britain shows that when property prices are artificially inflated by valuation, sooner or later, prices will crash and many people will suffer.

The HDB should bar inclusion of the cash top-up in valuations.

Patrick Tan

What a loser!

Price increase is determined by market forces. HDB prices hv been left so much far behind the private ones for the last two years. So, any price increase in this sector is more than welcome and justifiable.

Moreover, who has to guarantee that housing prices hv to remain affordable to the lowest income group. Even in HK up to 30% of the population are rental and do not afford to buy their own house. So, if you can't afford to buy then rent, don't complain. No country in the world can guarantee a 100% home ownership to it people. It's a worldwide phenomena, which Singaporean has taken it for granted all this while.

I believe our govt intention are always for the people. They will never betray the people and our trust in them. So, as long as they continue to increase the HDB new flat price, that means ppty in general will continue to go higher and higher.
Can you imagine, thousand of low income family who hv spend time and money to get their balloted subsidised flat. They pay their whole life saving money for a hard-get balloted price, just hoping to sell it later with a profit. What happen if in a later days the price of the subsidised flat is going below the price they hv paid to the govt. For sure, they will be disappointed and feel betrayed by the govt. This should not be happening. And I believe our govt will never betray their own ppl, but continue to create a condusive environment to improve housing prices over time.

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June 28, 2008

What determines market value of property


I REFER to Mr Patrick Tan's letter, 'Valuation the culprit in artificially inflating HDB flat prices' (June 17).

The market value of a property is the estimated amount for which it should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing where both parties acted knowledgably, prudently and without compulsion. It is not a situation of a willing buyer and an unwilling seller where the terms of purchase are favourable to the buyer. Nor is it a situation of an unwilling buyer and a willing seller where the terms of sale are favourable to the seller.

The transacted prices of comparable properties are generally the best evidence of the market value for standard properties like HDB flats. In the case of HDB flats, cash top-up is part of the price of the property sold and the transaction price is therefore a legitimate piece of evidence to rely on when valuing a property. The valuer's job is to interpret the market, not make the market. The market is the final arbiter of what is an appropriate valuation. It is neutral as to affordability issues. The market itself will eventually adjust downwards if buyers deem the cash top-up excessive and refrain from transacting.

Valuers have to examine the micro and macro factors of the particular segment of the real estate market, together with the economy sentiment. Such factors will include demand and supply of the various micro residential markets, and legislation and policies pertaining to the particular real estate segment.

Factors affecting the private and the HDB residential market may be slightly different, and thus the property market cycle of each real estate segment is never identical.

This also accounts for the difference in values of a property in different timeframes and different values for similar properties in different locations.

Janet Han (Ms)
Secretariat
Singapore Institute of Surveyors and Valuers