Sep 20, 2009 Sunday

Are flats too pricey or buyers too choosy?

Experts advise buyers to keep an open mind in terms of location, size

By Mavis Toh

Mr Jason Zheng is getting married next month, but he and his fiancee have yet to find a place of their own.

The 27-year-old IT consultant does not want to wait three years for a new flat but has been priced out of the resale market due to the current property rally.

Sellers have been asking for cash of up to $60,000 above valuation, which he cannot afford.

He also struck out twice at the Housing Board's half-yearly sale where most of the units on offer are completed.

His dilemma is not unique. In the past month, at least 15 people have written to The Straits Times Forum, venting their frustrations over escalating prices, premiums over official valuations and a perceived undersupply of HDB flats.

But have buyers really encountered a wall when it comes to housing options? Or is it also a matter of some people being too choosy and unrealistic in their expectations?

National Development Minister Mah Bow Tan urged buyers to take a bigger view in Parliament last Monday. For a household that earns $4,000 a month, he said the options might be:

# A new five-room flat in Punggol or Woodlands;

# A resale five-room flat in Woodlands;

# A four-room flat in a popular estate like Tampines; or

# A three-room flat in a mature estate like Toa Payoh.

Those in the industry agree that buyers can be narrowly focused.

PropNex chief executive Mohamed Ismail observes that couples are often reluctant to live in the outskirts and want flats in certain good locations where they can move in immediately.

But these places - like Bukit Merah, Tiong Bahru and Clementi - command a high price.

A four-room flat in Toa Payoh can cost up to $535,000 while one in Woodlands is priced less than $250,000.

Agent D. Lim said newlyweds often insist on getting flats near their parents' homes even though the latter may live in mature, pricey estates.

MPs interviewed said they have seen cases where couples turn down new HDB flats because the location was not 'prime' or the unit was on a low floor.

East Coast GRC MP Jessica Tan explained: 'They have preferences, and since a flat is not a small investment, these people tend to be more choosy.'

MPs said newlyweds often go to them for help in getting a home, urging them to intercede with the HDB.

Certainly, housing is a hot issue, especially when prices are climbing.

Last Monday, in Parliament, Mr Mah assured the public that HDB flats remain affordable, noting that eight in 10 Singaporean households qualify for various grants. Still, prices of HDB resale flats are at a historic high, reversing from a first quarter dip of 0.8 per cent to a 1.4 per cent rise in the second quarter.

There is also the rising COV, or cash over valuation. This is the premium which sellers demand over the official valuation.

COV amounts reportedly doubled in July this year to about $10,000 to $15,000 for five-room and executive flats, from a median level of $5,000 in the second quarter.

MPs and industry experts said those most affected are first-time buyers - usually couples unsuccessful in getting build-to-order (BTO) flats and who cannot afford resale flats.

Currently, the HDB uses the BTO system, introduced in 2001. Eligible buyers can apply for flats in their preferred locations from specific projects launched.

It takes about three to four years for the units to be built. Construction will start after a majority of flats are booked.

Previously a queue system, where flats had already been tendered for construction when offered to applicants, was used. Though the system assured buyers of a flat when their turn was due, it did not provide a real gauge of demand as applicants could drop out at will.

This resulted in an oversupply of about 20,000 flats when the Asian financial crisis hit in the late 1990s. The stock was cleared only in 2007.

Now, flats not booked under BTO, surpluses from the Selective En bloc Redevelopment Scheme, surrendered flats or cancelled bookings are made available in balloting exercises as well as half-yearly sales.

To meet increasing demand, HDB said it will offer 8,000 or more BTO flats this year. This compares to 2,400, 6,000 and 8,000 in 2006, 2007 and last year respectively.

A spokesman added: 'The majority of first-time applicants have a chance to select a BTO flat within two tries.'

Given the realities today, industry experts advise buyers to keep an open mind on where to live and the size of the flat.

KF Property Network's general manager Tony Koe recommends that young couples without extra cash should look for units on the fringe of places like Woodlands and Choa Chu Kang, where prices are more in tandem with valuation.

MP Lim Biow Chuan (Marine Parade GRC) also warns couples against overstretching their finances.

'A lot of people are now living on credit; when you buy a large flat and put yourself on a long-term financial commitment, what is going to happen if you are retrenched or fall sick?' he said.

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How HDB determines the prices of flats

A new flat's equivalent market price is first determined by looking at the recent transacted prices of resale units nearby.

Adjustments are then made to account for factors like location, finishes of the flat and other attributes. The price reflects the flat's value at the point of purchase and is what people are willing to pay on the open market for such a unit.

The HDB then sells it at a significant discount, which is the subsidy given by the Government. The HDB sells flats based on market price instead of cost as this is the fairest way of pricing new flats.

A market-based pricing approach ensures that all groups of buyers enjoy similar discounts to the market and would be fair to those who are buying other HDB flats today.

It is not tenable for the HDB to price flats according to their development cost, which fluctuates depending on factors such as site conditions, material price and tendered construction price.

Married, but no place of their own

Each time after a movie or dinner date, married couple Jayce Ng and Jacelyn Yong return to separate homes.

He goes to his parents' apartment in Hume Avenue and she to Hougang.

The couple, who are both 30 and registered their marriage last year, have yet to find a home to call their own, priced out by the current property rally.

'I recently received a text message from an agent, who gave a listing of 10 Bukit Panjang flats, all asking for cash over valuation (COV) of between $40,000 and $50,000,' said Mr Ng, a process analyst. 'But we just can't fork out the cash.'

They have also participated in at least eight build-to-order (BTO) and half-yearly sale exercises, but to no avail.

Mr Ng admitted that two years ago, in their half-yearly sale attempt, they turned down a $400,000 five-room flat in Clementi, thinking the price was too high.

Their decision proved costly. A year later, the flat's valuation rose by $100,000. For the other seven exercises, they never got lucky.

'Each time our queue number would be past 1,000. We don't even get a chance to take a look or choose,' said Mr Ng. 'It gets a bit tiring.'

His hope now is to secure a four-room resale flat between $260,000 and $300,000. He does not mind the location or the floor level.

His problem is the high COV amount that owners are demanding. Together, the couple earn about $5,000 monthly.

'I want an affordable flat so in case one of us falls sick or loses a job, we'll still be able to pay for it,' he said. 'The fear of retrenchment is very real in the current market.'

His solution now is to live with his parents till an affordable flat comes along. The couple also plan to have children in three years' time.

Said Mr Ng: 'In the current market, genuine first-time home buyers like us are the most affected.'