Published September 15, 2009


More options for property buyers, owners please

Reviewing some of the rules would help to rein in runaway prices in the private property market


HALF-a-million dollars is a lot of money for the average young couple, but even this was not sufficient for a new five-room Design, Build and Sell flat at a recent launch. And if one aspires to a private condominium, the amount is easily doubled, resulting in a monthly loan repayment of several thousand dollars for a long time.

Along with the rising tide, prices of resale private and HDB apartments have gone up too. And new entrants hoping to get into the market via the resale route face larger cash-over-valuation demands.

Those who have a roof over their heads are at a slight advantage, as price rises may increase their ability to move if they wish. But even this is not without risk - moving up to a more expensive home could mean a steep drop should times change.

In Parliament yesterday, Minister for National Development Mah Bow Tan mentioned that we are currently seeing signs of heightened speculative activity though not extreme. The proportion of sub-sellers has increased and developers sold 10,000 units in the first seven months of this year against 4,300 for the whole of 2008. Private housing prices have also significantly increased since June.

He added that it is in everyone's interest to have a steady property market where prices move in line with economic fundamentals. If a property bubble develops, a severe correction must take place with serious consequences for the economy and the property market.

Prices are largely a result of supply and demand, tempered by economic indicators and rules and regulations. The recent surge in prices probably has much to do with anticipated recovery from the recession and very low interest rates. Cash and loans tend to follow where there is money to be made. And right now, many see real estate as a good hedge against inflation, capital appreciation, a producer of recurrent income - as well as a nice place to come home to.

But some who aspire to buy their first home may feel the government could do more to cool the market.

In an ideal situation, there should be minimal constraints, so prices can follow the supply-demand curve freely. At present, there are various incentives and entry barriers to the HDB market - all designed to ensure "equalisation" across the social spectrum and promote pro-family values and the national interest. The rises in private property prices may perhaps be due to some of these regulations that give little alternative options for home buyers or investors.

For new entrants, buying direct from HDB is still probably the best option, so as to benefit from various incentives. But perhaps more can be done to allow home buyers and home owners wider choices. Relaxing certain rules could result in many more options, and spell good news for the financial industry.

Probably more than 80 per cent of Singaporeans live in HDB apartments, the sale and resale of which are subject to fairly tight regulations. Broadly, these fall into a few categories - time barriers, financial standing and pro-family incentives. For example, first-time buyers must stay in their apartment for at least five years before selling, and owners of private property who buy resale HDB apartments must stay in them.

Perhaps there is scope to gradually relax some of these rules, while retaining those that encourage pro-family values and social balance.

A shorter minimum time bar would allow for lateral or upward mobility, and open up more buying options for new entrants who cannot wait and therefore wish to consider the resale market. They could consider buying a near-new HDB apartment, albeit at a premium, but still at a much lower price than a private condominium.

Allowing owners of HDB and private properties to buy resale HDB apartments as an investment, subject to certain restrictions, could make for more efficient supply-demand dynamics. To minimise speculation, such purchases could be restricted to, say, one unit per family, of a certain minimum value, with a holding period of, say, at least four years. This lends long-term support to overall prices of resale HDB apartments, while at the same time opening up a lot more for rental, which should eventually moderate rents. This would benefit the many resident foreigners. Some investors in the private property market may also redo their sums if they find it hard to lease their apartments out at a reasonable return down the road.

While it can be argued that opening the resale HDB market as an investment option can cause prices to creep up, this will benefit the majority of current HDB owners and open up more options for many others - either to have a nicer place to call home if they choose, or to plan for recurring income for old age.

In any event, the large supply of existing HDB apartments and future supply should moderate any temporary price rise. After all, for every willing seller, there must be a willing buyer or investor.

But perhaps the greatest benefit of reviewing some of the rules would be to help rein in runaway prices in the private property market, as buyers and those wishing to rent would have more options.