Rising HDB resale flat prices is a giant social time bomb

Posted: August 21, 2009 by fievel in Labels: ,

I refer to the 20th August Straits Times report, "Cash upfront for HDB resale flats doubles in a month".

About 80% of Singaporeans live in HDB flats and the purchase of a HDB flat is the first step to setting up a family for many young couples.
The policy of HDB is designed such that it aims to provide public housing for Singaporeans and PRs, drawing a clear dividing line between the private home market, where international investors and speculators are also allowed to purchase properties in Singapore, and the local citizens looking to purchase purely for consumption purposes. In the process of enforcing such a policy, HDB is able to control supply of new flats via the "built-to-order" system and hence indirectly affecting the market prices of resale flats, where young Singapore couples need not wait for 3 years to set up a home.

While I am aware of the need for HDB to regulate supply such that it does not create too much volatility in HDB prices, and that there is an inevitable lag between registering demand for new flats and the actual delivery of it, I am of the opinion that the recent run up in HDB prices during the most severe recession since Singapore's gaining independence has signalled that the system requires a thorough review. Whether the run up in HDB resale prices is due to optimism in the private housing market as suggested by industry observers, or is due to the marked increase in Singapore's population size in the last 2 years as purported by many netizens, two failings comes to mind - which is that public housing has become too correlated to the private market, and that HDB has not regulated its supply in line with the immigration and demographic trends in Singapore - because this run up in prices is definitely not related to our current economic conditions, where unemployment rate has gone up and real wages have declined during the preceding boom.

As housing cost form the largest financial obligation for most Singaporeans, I fear that this will create a batch of young Singaporean couples who are too highly leveraged and tied to their mortgages. Come the next downturn, which is bound to hit Singapore's export driven economy, we will have a demographic group who is unable to deal with the loss of their jobs seeing as they will be laden with other obligations such as their kids and aging parents. Singapore is limited by her size and her lack of natural resources, hence our economy has to be flexible to adapt to changing times. As such we can expect structural unemployment to continue to plague Singaporeans when industries move away and become replaced by new industries.

Stories of graduates or even PhD holders becoming taxi drivers might be the exception today, but if our public housing prices are not kept in check more rigorously right now, we will pay a huge social cost, in the form of mass dissent and social unrest, for this mistake in years to come when it becomes the norm.

Aug 20, 2009 - The Straits Times
Jessica Cheam
THE amount of cash needed upfront to buy an HDB flat resale roughly doubled last month as the exuberant sentiment in the private homes market spilled over into public housing.

Three property agencies told The Straits Times that the median cash-over-valuation, or COV, has shot up across all flat types and has gone above $10,000 for some units.

In two of the more startling examples, a five-room flat at Depot Road sold for $70,000 above its $490,000 valuation, while an executive flat in Pasir Ris sold for $35,000 above its COV of $550,000, according to figures from PropNex and the HSR Property Group.

COV is cash that buyers pay to a seller over and above a flat's market valuation. It cannot be covered by a mortgage or CPF money, and so serves as an indicator of flat affordability.
What is surprising is the speed at which it doubled in a month, said Mr Colin Tan, Chesterton Suntec International's research and consultancy director.

Figures from the Housing Board (HDB) for the April to June quarter showed that median COV was zero for five-room and executive flats.
But data from PropNex, ERA Asia Pacific and C&H Realty for last month showed that this now ranged from $5,000 to $13,000.

The three agencies have a share of about 70 per cent of the HDB resale market between them.
There was a similar surge for three- and four-room flat types: HDB data put median COV at $5,000 in the second quarter, but the agencies said it rose to the region of $10,000 to $15,000 last month.

Based on ERA's sales, the median COV for three-room units rose from $6,000 in the second quarter to $14,000 last month. The median COV is a mid-point: Half the units were sold for a COV above that value, and half below.

Industry observers say that the COV rise was inevitable given that the optimism in the private market was bound to spread to HDB flats.
HDB flat prices have staged a surprising comeback amid the recession, reversing a first-quarter dip of 0.8 per cent to rise 1.4 per cent in the second quarter and reach a historical high.

Analysts now predict further price increases for resale flats for the third quarter on the back of climbing COVs - as long as buying momentum is sustained.
PropNex chief executive Mohamed Ismail said high demand for resale flats is supporting surging COVs, as supply remains tight.

A cascading effect in the market is driving buyers to more affordable sectors.
Chesterton's Mr Tan said some buyers who are being priced out of the rebounding private market are turning to HDB resale flats.
Private home prices have started to climb, buoyed by high buying activity that saw a stunning 2,767 units sold last month.

This, in turn, has resulted in first-time HDB buyers, hit by soaring COVs, being forced out of the resale market and into new HDB flats, said ERA associate director Eugene Lim.
This is already evident: The HDB was flooded by 5,392 applications for 769 flats at the recent launch of Punggol Residences. Applications closed last week. That is a subscription rate of seven times in a market where a typical rate is three or four times. New HDB projects, which take three years to build, have not seen such numbers since the 2007 property boom.

However, C&H Realty managing director Albert Lu observed that most of the sales are still done at reasonable COV levels of around $10,000.

'There are some unrealistic sellers asking for high COVs as in the last boom, but buyers can choose not to bite,' he said.
Ngee Ann Polytechnic real estate lecturer Nicholas Mak noted that mass market private properties have a strong link to HDB resale flats, and COVs will stop rising only when mass market buying interest dies out.

Banking executive Goh Hui Min, 25, is one HDB buyer who is glad she bought her five-room flat in Telok Blangah for $590,000 about a month ago before the latest COV rises.
'I paid $35,000 below the flat's valuation, which, given the current market, is quite a fabulous deal,' she said.


  1. Thank you for the insightful blogpost. The Singapore Democrats have featured your post in our Blogs of the Week section - http://yoursdp.org/index.php/news/blogs-of-the-week

  1. Fievel says:

    Thank you for visiting and featuring my blog.
    For what it's worth, Singaporeans are better off having SDP around, so do keep up the good work.

  1. Anonymous says:

    The valuers are the impt person in this whole show. If he doesnt value a place with 50k higher than the mid year's valuation, I believe prices wont speed so fast and stiff! Wonders who behind the show!