Property: Do something drastic or do nothing?

[mr funny]

http://www.straitstimes.com/PrimeNew...ry_516648.html

Apr 20, 2010

Property: Do something drastic or do nothing?

There is no free market in housing; Govt must do something selectively

By Chua Mui Hoong, Senior Writer


HOUSING markets everywhere are fraught with market failures and there is no housing market in the world devoid of government intervention.

I am stating the obvious, of course, but it bears repetition, especially in the light of the growing frenzy in the residential property market in Singapore. There are two schools of thought, diametrically opposed, on what should be done.

Would-be home buyers, especially first-timers, want the Government to 'Do Something Drastic' to control runaway prices. Depending on their aspirations, they want prices kept down for: new Housing Board (HDB) flats, resale HDB flats, executive condominiums or private condos.

The other camp wants the Government to 'Do Nothing' about rising property prices. This point of view was best articulated by developer Simon Cheong, who argued that private property served just 16.5 per cent of the population and should be left free of government intervention. In other words, the state should keep its hands off, and developers should be able to price condo units as high as the market can accept, never mind if the only ones who can afford the units are New York bankers or celebrities who want an apartment here so they have somewhere to sleep in between their board meetings or botox treatments.

Both points of view are disingenuous and limited. If the Government panders to either, you and I - the rest of Singaporeans who are neither first-time home-owners nor the super rich - will be worse off.

The majority would be better off if the Government judiciously steps in to 'Do Something Selectively' now and then to keep the market on a relatively even keel.

The Government has to consider the public interest in managing the property market. And so far, its handling has been a lot more right than wrong.

True, there is currently a mismatch between supply and demand, with queues for new HDB flats and at popular condo launches. This is likely to be a short-term glitch.

Critics also point to the last big property boom of 1996 before the Asian financial crisis hit, which was sparked in part by credit loosening for HDB resale flats, spurring a boom in demand for private property. Anti-speculation measures were slow in coming then. Since then, the Government has stated that it favours small incremental dampeners as the temperature rises, rather than wait for a blazing fire before trying to douse the flames.

But if you take a long view, a lot is going right in housing, thanks to the Government's refusal to treat housing as a free market. Anyway, Housing Economics 101 tells us the housing market is rife with market failures.

Housing is heterogeneous - units are diverse and can't be substituted. As a result, what constitutes an economically competitive price is often not transpa-rent, leading to information asymmetry.

The average unit takes about three years to build, so the time to market is long and the price is always prone to short-term swings while supply catches up with demand. So buying a housing unit is a lot more complex than buying, say, a cellphone.

Instead of pretending that the housing market is like any other market, the Government has explicitly turned housing into an object of social policy, making home ownership a national objective and tailoring policies accordingly.

A Housing Board flat is not just a home; it is an important component of the social safety net and an asset which can be monetised for retirement or in bad times. (Rent out a room for $500 a month, say.)

Pandering to those complaining of being priced out of the market, and 'Doing Something Drastic' to chill the housing market, will be a great disservice to existing home owners. Simple arithmetics tell us the issue of rising housing prices cannot be one that disgruntles the majority. The 30,000 young couples who set up home each year may be vexed, but the 900,000 who already own their homes are probably not.

On the other hand, 'Doing Nothing' is also not a good idea as it could lead to an asset bubble.

Every government in the world intervenes in the housing market for social objectives. In the United States, subsidised mortgages help low-income households own homes. Tax exemptions for imputed rent for owner-occupied homes and mortgage interest deduction make it attractive for people to buy their own homes, rather than rent.

An interesting paper by Ms Rebecca L.H. Chiu of the University of Hong Kong in 2008 looked at government intervention in housing in Singapore, Hong Kong, Taiwan, South Korea and China before and after the Asian financial crisis of 1997.

The paper found that every government intervened. Taiwan subsidised housing loans liberally. The South Korean state monopolised land supply, introduced price caps at different points of the cycle and used capital gains tax and property tax to dampen demand. Hong Kong slowed down land sales to mitigate supply. In contrast, the paper found Singapore's intervention in the years immediately after 1997 'mild'.

Singapore has got the big picture on housing right with its hybrid system, which combines socialist-style provision of mass housing with elements of free market competition and market-driven pricing in both the resale HDB market and the private property market.

The result is an underlay of housing security benefiting almost all households, with 90 per cent being able to afford to own homes. New HDB flat prices are not allowed to soar freely in tandem with a bullish market, but are priced with an eye on affordability and pegged to median income levels, ensuring the median income-earner can always afford a home.

Market forces are allowed some free play to allow home-owners to realise the value of their assets - but with the Government retaining a watchful eye in case of wide swings.

Instead of 'Doing Nothing' or 'Doing Something Drastic', the best policy in an overheating market is precisely what the Government is doing now: Stay cool, watch the market and be prepared to 'Do Something Judiciously'.

[email protected]

[jlrx]

The Government can only implement measures that affect the short term fluctuations of the property market, but it has no control over the market's destiny.

Only Goh Chok Tong, a trained economist, seems to understand this.

In 1994, Goh Chok Tong said "Private property prices are now very high but there's not much the government can do".



At any point in time, there were always people screaming and yelling and kicking that property prices were very high and reaching ridiculous levels.



Yet whenever we look back at these so-called "ridiculous prices" below, in what sense is $900,000 for a 9,000 sq ft district 11 bungalow "ridiculous"?



Is it possible today for a 9,000 sq ft bungalow in district 11 to be priced at $900,000?

How many 9,000 sq ft bungalows are there?

How many Singaporeans are there today who can afford a $900,000 property?

Only Goh Chok Tong, a trained economist, seems to understand this.

[chho]

I think to judge the point of "ridiculous pricing" for any market depends largely on yield, or Return on Investment. In Singapore, with a growing economy, competent goverment and low interest rate environment means property generally becomes attractive with a yield of above 5% and unattractive below 3%.

A yield of 2% in China may be attractive due to desirabilty, supply and demand, explosive growth potential, etc but a yield of 10% maybe unattractive in Baghdad due to risk of war and unstable political environment, etc.

This is of course subjective but as prudent investors, we are all trying to grow our investments at the fastest rate with a constant eye on all the above mentioned factors. It is more an art than a science, or math professors will be billionaires.

The Government can only implement measures that affect the short term fluctuations of the property market, but it has no control over the market's destiny.

Only Goh Chok Tong, a trained economist, seems to understand this.

In 1994, Goh Chok Tong said "Private property prices are now very high but there's not much the government can do".



At any point in time, there were always people screaming and yelling and kicking that property prices were very high and reaching ridiculous levels.



Yet whenever we look back at these so-called "ridiculous prices" below, in what sense is $900,000 for a 9,000 sq ft district 11 bungalow "ridiculous"?





Is it possible today for a 9,000 sq ft bungalow in district 11 to be priced at $900,000?

How many 9,000 sq ft bungalows are there?

How many Singaporeans are there today who can afford a $900,000 property?

Only Goh Chok Tong, a trained economist, seems to understand this.

[PN]

These opposite camps always exists.

It depends on which stage of life you're in. In general, if somebody just started working life & wanted to start a family and has his own home will want to buy a HDB at the lowest cost possible. It's perfectly ok for one to think that way. Who don't want to buy low? I also want to buy low.

The problem is - has alternative option been considered? Can live with parents first? Cannot? Why? Cannot tahan parents life style. want to have a sweet home for 2 pax only. What's wrong with living with parents before you are financially ready to buy your own? Living together with parents will definitely have some conflicts. There is always a solution to conflicts. I went through this myself and both myself & wife but also learnt a lot from our parents.

The other camp. Already bought a hdb cheap cheap from hdb. Of course want to sell high and earn some profit mah. They made their investment some years ago & definitely deserve to enjoy their fruits if they think it's the right time. This is especially so if childrens are married with own home. They may want to sell and get a smaller unit instead.

So how to satisfy everyone? Of course cannot lah. You help one camp, the other camp not happy. You swing the other side, the other camp make noise.

That's life.

[august]

chua mui hoong? hahahaha! enough said




is a brown nosing article, not meant to give any solutions

[Wild Falcon]

I think this time she made a valid observation. Either way, the guys in the middle - the middle class got hurt the most. If the government pander to the demanding "wants" of the newlyweds, they will implement policies to ensure "mass market homes" come down to an affordable level for the newlyweds. Unless you are the super-rich which the SG government don't dare to touch in all its policies - you're unlikely to gain either way - be it drastic measures or not. Unlike China which usually target its cooling measures on people who own more than 2 properties and is strict on foreigners buying up their land, Singapore govt generally implement measure to hurt the poor middle class, while the rich and foreigners keeps flipping property to become richer.

[august]

I think this time she made a valid observation. Either way, the guys in the middle - the middle class got hurt the most. If the government pander to the demanding "wants" of the newlyweds, they will implement policies to ensure "mass market homes" come down to an affordable level for the newlyweds. Unless you are the super-rich which the SG government don't dare to touch in all its policies - you're unlikely to gain either way - be it drastic measures or not. Unlike China which usually target its cooling measures on people who own more than 2 properties and is strict on foreigners buying up their land, Singapore govt generally implement measure to hurt the poor middle class, while the rich and foreigners keeps flipping property to become richer.

u see hor, she is being fallacious..
'do something drastic' means wat? everyone knows the govt wont be so stupid to do anything drastic. And her opposite is 'do nothing', and of cos no one is 'doing nothing'. you write an article to paint two unlikely extremes therefore claiming wat the govt has done is very good, this is not brown nosing then is wat? hahaha!

[mcmlxxvi]

It doesn't have to be complicated.

Just like our voting system, majority wins.

Who is the majority today? The property owners - who only want the prices to go UP UP UP.

Enough said.

[Regulators]

if an average household has 5 members and only two are owners and 5 can vote, who is the majority?

[Antz621]

u see hor, she is being fallacious..
'do something drastic' means wat? everyone knows the govt wont be so stupid to do anything drastic. And her opposite is 'do nothing', and of cos no one is 'doing nothing'. you write an article to paint two unlikely extremes therefore claiming wat the govt has done is very good, this is not brown nosing then is wat? hahaha!

She has been known to be very pro-cheng hu. When I saw the heading and start reading the article in the papers I was still giving her some benefit of doubt to come out with something of reasonable substance. However at the end of the day, ya like you said and always part of her style, its all that "feel good" preaching again... Come to think of it, I don't blame her for coming out with articles that talks about how hard it is to find a partner and tie the knot .

[jlrx]

if an average household has 5 members and only two are owners and 5 can vote, who is the majority?

A very simple way to overcome their dilemma is that any household which votes for "property price to go down", their specific unit's value will be made to go down.

e.g. Mr. Tan and Mrs. Tan both in their 50's own an HDB 5 room flat #12-34 they bought for $80,000 but now worth $500,000. They have three children A Tan, B Tan and C Tan.

Their whole family will vote as one unit. If the majority in their family vote for "property price to go down", then their unit #12-34 will be assigned under a "Young Buyers' Quota", i.e. only buyers below 30 can buy.

It's like the racial quota.

If enough families in Singapore participate in this "Young Buyers' Quota" scheme, then there will be a substantial pool of such flats which are out of bounds to private property downgraders (because most of them will be in their 40's or above) or rich PRs who have already exceeded 30 years old.

Once this unit #12-34 has been assigned under the "Young Buyer's Quota" scheme, next time whoever bought it wants to sell it, must sell it to "Young Buyers" below the age of 30 (both couple must be below 30).

[august]

SC strikes baack ~~








Apr 24, 2010
Redas chief: Media misconstrued speech

IN HER commentary on Tuesday, ('Property: Do something drastic or do nothing?'), Ms Chua Mui Hoong had categorised me under the school of thought that 'wants the Government to 'do nothing' about rising property prices' on the basis that 'private property served just 16.5 per cent of the population and should be left free of government intervention'. That was not what I said.
At the launch of the NUS Singapore Residential Price Index on March 24, I had highlighted in my speech that Singapore's residential market is unique in having a very dominant and successful public housing sector which provides a roof over 83.5 per cent of the population.
The strong public housing resale market has helped to realise wealth for many Singaporeans and helped the ongoing upgrading process.
The private housing segment of the market serves only 16.5 per cent of the demography. In this regard, and given the academic forum, I had merely raised an academic question whether the state should be so concerned with intervention in the private residential market.
Nowhere in the speech did I state the view that 'the state should keep its hands off, and developers should be able to price condo units as high as the market can accept'.
Having a free market does not mean having an unregulated market, which many in the media have incorrectly ascribed to my comments. I had in fact observed that the Government is the custodian of state land and it has a range of measures it can use to rein in the market.


Simon Cheong
President
Real Estate Developers' Association of Singapore (Redas)