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Thread: Property booms, anxiety looms?

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    Default Property booms, anxiety looms?

    Jan 27, 2007

    Property booms, anxiety looms?

    Back in the 1990s, the dream was home sweet private home and then the nightmare was a bubble that burst with attendant political fallout. As the property market gathers steam once again, Lydia Lim finds out if it will return to being a political hot potato

    an IT systems analyst, with wife Bernice Koh
    and daughter Cherie, five. The family, now living
    in a four-room HDB flat, will soon move to a
    bigger flat as they plan to have one more child.
    But buying a condo is out with prices of private
    homes rising faster than HDB flats.

    WHENEVER mechanical engineer Matthew Ang, 27, walks past new 99-year condominium Kovan Melody, he does not sing but sighs.

    He longs to buy a home there as it is a five-minute walk from his parents' Hougang flat.

    But he sees his dream of owning one of the 778 units melting away since its launch in September 2004.

    Prices at the development near Kovan MRT station have risen some 12 to 15 per cent. A three-bedroom apartment now costs around $700,000.

    For half that amount, he could get a five-room resale Housing Board flat in the area. Prices in this sector have inched up just 1 to 2 per cent over the last two years.

    Mr Ang and his sales executive fiancee plan to marry next year, but it looks like the condo dream will be out of reach given their combined income of $4,800 a month.

    'Now it seems my fiancee and I would have to double our current income before we can dream of owning one of these units,' he says.

    The Kovan story is a microcosm of property price movements islandwide.

    Last year, private home prices shot up 10.2 per cent, the biggest jump since 1999. But this growth took place in a market that is fast becoming stratified.

    While prices of luxury apartments raced upwards at a frenetic pace of about 30 per cent last year, those of resale HDB flats inched up by about 2 per cent.

    Asset appreciation is likely to continue down this split-track, highway versus byway route for the foreseeable future.

    Senior Parliamentary Secretary (Environment and Water Resources) Amy Khor, a former executive director at property company Knight Frank, says this phenomenon is affecting asset markets across Asia, including Hong Kong, China and India.

    'Luxury housing prices are skyrocketing and running ahead in countries with good growth prospects, fuelled by vast sums of money flowing this way,'' she says, adding:

    'That's globalisation for you.'

    But Associate Professor Ong Seow Eng of the National University of Singapore's department of real estate, warns that such divergent price trends lead to 'a reduction in upgradability', that is, it makes it more difficult for people to upgrade from HDB to private homes.

    'There could be attendant sociopolitical implications,' he says.

    Might it lead to a return of the anxiety and angst seen in the 1990s, when soaring prices sent many people, especially the young, into a state of panic that private property ownership was slipping from their grasp?

    How are the majority of home buyers likely to respond this time? Will there be a need for the Government to step in?

    The short answer to these questions is, it depends.

    Here's why.

    Triggering the mass market

    AS SINGAPOREANS watch private property prices head north, excitement is building up in some quarters. More people are wondering if they should snap up property or risk losing out.

    What began as an investment rush at the top-end - with the super-rich buying up penthouses and waterfront units worth millions of dollars - is now trickling down to the mass-market end of the private home market.

    Just two weeks ago, property analyst Ku Swee Yong was astonished to see one family snap up five units at the launch of ClementiWoods, a 99-year leasehold condominium project in West Coast Road.

    Anecdotal evidence suggests that a small number of young people are trying to cash in. They max out their credit cards to pay the deposit on apartments they hope to flip - that is, sell before completion.

    But such frenzied buying is still confined to a small minority.

    Mr Reiss Poh of Inter-state Realty says there is another important difference between the speculative activity taking place now and in the 1990s.

    Back then, he says, ordinary folk pooled their money to buy units at soft launches, paid high prices and suffered for it.

    Today, most of the speculators are cash-rich, older people unlikely to go bankrupt even if the property price falls.

    The key question is whether such investment buying will trigger price increases so steep that upgraders are eventually priced out of the entry-level condo sector altogether.

    If that were to happen, the asset price gap could fester into a major source of discontent among young people.

    Dr Khor expects no such problem, for now.

    'The upswing has still not filtered fully into the mass market where most upgraders from the HDB market will head,' she says.

    'There is still ample supply in this segment of the market and price increases have remained relatively muted, unlike the luxury end.'

    Still, with queues at new launches now the norm, Mr Ku, who is director (marketing and business development) at Savills Singapore, predicts a return of the 'hello kitty' mentality in the coming months that will drive buying premised on the belief that 'got queue, must be good'.

    Such a herd instinct will push prices up further, as will demand from beneficiaries of new collective sales.

    Mr Ku says that as more estates located outside the prime districts come up for collective sale, the demand for cheaper condos will also go up.

    The reason: owners from these collective sale properties will typically buy a cheaper replacement home in order to set aside cash for retirement.

    This churn will also lift prices of mass-market condos.

    Property analysts and economists now expect prices of these condos to rise some 10 per cent this year, fuelled also by increasing rental yields in this segment.

    So the next critical question is, will HDB resale prices follow suit?

    If they do, private property will stay within the reach of HDB upgraders.

    Citigroup economist Chua Hak Bin says that while he expects a 'more buoyant' HDB resale market this year, the price divergence between private and HDB homes 'will continue'.

    This sentiment is shared by ERA Realty assistant vice-president Eugene Lim, whose firm handles about 40 per cent of all HDB resale transactions.

    He says the private property boom is unlikely to spill over into the HDB market because of the over-supply of flats, both new and resale.

    'Also, young people today are getting married later, and this has reduced the group of people forming families and buying HDB flats,'' he adds.

    So one key indicator to watch is any widening gap between entry-level private and HDB home prices.

    But even if this widens significantly, disgruntlement will depend on what the new generation of home buyers actually aspire to own.

    How much do they hanker to go private? If they cannot, will they get disillusioned or just shrug it off as a small setback?

    Singapore upgrader: Take 2

    BACK in 1996, then-Nominated MP Lee Tsao Yuan coined the phrase the Singapore Dream to capture how young people's hopes of owning landed property were fading away as property price rises outstripped income growth.

    Since then, the economic landscape has changed dramatically.

    From non-stop double-digit growth to slower economic expansion, interspersed with years of recession.

    From lifetime and full employment to retrenchment and joblessness.

    From income growth year on year to CPF cuts and other wage changes that have chipped away at the buying power of many.

    It would appear that this new Singapore reality has sunk in with many young people who have refashioned their Singapore Dream accordingly.

    Take IT systems analyst Lim Chang Jing, 30, who lives in a four-room HDB flat in Bishan with his wife and five-year-old daughter. They plan to have one more child and upgrade to a five-room flat, on their combined income of $5,500 a month.

    'I will be happy to continue staying in HDB flats. It's convenient with shops and parks nearby,'' he says.

    Compared to the 1990s' hyper-exuberance, MP Charles Chong, who chairs the Government Parliamentary Committee on National Development, describes this new-found moderation towards buying property as 'going back to sanity'.

    As Mr Lim of ERA sees it, while aspirations to upgrade are 'still very strong', home buyers are no longer driven by herd instinct but are more careful in their calculations.

    This is borne out by URA data which show that only a small share of private home purchases are now by HDB upgraders, both for new projects and on the secondary market.

    More of these upgraders seem to be moving up within the HDB market itself.

    Over the past year, ERA Realty logged an increasing number of resale transactions involving larger flats. Sales of five-room flats now account for 23 per cent of all transactions, up from 18 per cent a year ago.

    This downward adjustment is not surprising, as recent CPF changes have made it more difficult for many middle class HDB owners to go private.

    Dr Chua of Citigroup found that those earning between $5,000 and $10,000 a month - who are also those most likely to aspire to upgrade to private property - were the worst hit by CPF changes.

    These included cuts in employers' CPF contributions and the lowering of the CPF salary ceiling from $6,000 to $4,500.

    He estimated that the cumulative effect of these changes, over the last three years, was a 6 per cent fall in wages for the upper middle class.

    Employers' CPF contributions are now set to go up by 1 to 2 percentage points, but it remains unclear whether this restoration will be channelled to workers' Special Account for retirement needs or into the Ordinary Account that most tap to pay their home loans.

    Mr Nicholas Mak, Knight Frank director (research and consultancy), says that at the same time, upgrading within the HDB segment has become more attractive as the HDB is 'building better and better flats'.

    So given the current trends in the property sector, is there a need for the Government to do anything?

    What now for Govt?

    NOT just yet, say property analysts, economists and MPs.

    While there is speculation, it remains under control and is largely confined to the high-end private residential market.

    Speculative activity is neither pricing genuine buyers out of the market nor straining the financial system, unlike in the mid-90s boom when mortgage debt rose significantly.

    Indeed, this was the main reason for the Government stepping in with sweeping anti-speculative measures in May 1996.

    To put the current boom in perspective, Mr Mak cites some comparative figures.

    The number of sub-sales soared to 27.6 per cent of all private, non-landed transactions in the 12 months up to May 1996. This refers to people buying and re-selling a property while it is being built, a key measure of speculative activity. Compare that to just 5.5 per cent for the whole of last year.

    Overall, private property prices have also risen at a far more measured pace than in the early 1990s.

    Given that the dominant trend this time is the divergence between prices in the high-end, mass-market condo and HDB market, Dr Khor says the Government's move to release more price information in the different tiers is a good move.

    'It will give consumers a better picture of fundamental supply and demand conditions, for them to judge if they should let envy lead them into an unwise purchase just to 'keep up' with the Joneses,' she says.

    Apart from helping people better understand what is going on in the property market, property analysts also note that since 1996, the Government has put in place measures to ensure that the housing supply is more responsive to shifting demand.

    These measures include a reserve list for land parcels, under which land is put on the market only when developers want to bid for these sites, and a new Build-to-Order scheme so Housing Board flats are constructed only if there is sufficient demand.

    They are loath for the Government to step in unless absolutely necessary because intervention to address one set of concerns often creates other problems.

    Policy changes have also tended to come too late in the day because the Government tends to take longer to react to the market. By the time changes are made, they may no longer be needed or even appropriate.

    Right now, the broad economic outlook has improved, due in no small part to unrelenting efforts to enhance Singapore's attractiveness to investors and visitors alike.

    This has in turn breathed new life into the property market.

    For now, it seems that the Government ought to do no better than watch - and leave well enough alone.

    [email protected]


    Last edited by mr funny; 29-01-07 at 00:34.

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