I think minister Khaw has got it all wrong in his last statement. He mentioned that it was not the permanent residents (PRs) who caused the cash over valuation (COV) for HDB flats to sky rocket. Instead, it was the private property purchasers who are primarily the cause for such a phenomenon.
Dear Mr Khaw, despite all the good you have done since taking over as minister for national development, you have failed to grasp the basic economic principles that govern how a market should and will behave. It is not only in 2010 and 2011 that we have Singaporean private property owners coming in to compete with HDB dwellers for their next HDB flats. Singaporean private property owners have been doing it since the day they could. They have been doing it for the last decade and the previous one as well. So why then the big jump in COV? The answer is plain and simple minister Khaw.
1) Lack of supply.
There is simply not enough flats built in the last few years to match demand. I believe this will cause multiple buyers to target the same few flats especially if the flats are in good, prime locations. Look at what is happening in the build to order (BTO) scene. Before, there were too few BTO flats are the prime locations were oversubscribed. If buyers could bid with cash instead of opting for a ballot system, let me assure you that the bids would be as high as COV figures in the open market. Just look at where the certificate of entitlement (COE) is heading now that there is a downward adjustment in vehicle growth. Let me assure minister Khaw that if supply had been adequate in the first place, COV will never reach the dizzy heights of today.
2) Failure of the "asset appreciation" policy.
One of the worst policies of all time. It was to ensure a steady growth in HDB prices so that, in theory, HDB dwellers could monetize their flats in future for a higher price than what they paid when they bought it. To appreciate the asset, the only way was to cut supply. Everyone is made to feel that the HDB flat is an asset to them and some started thinking of HDB flats as investments. In fact, to have a title deed to the flat would not make sense to me as the HDB flat is just ownership of a lease from HDB to reside in that dwelling house for a period of about 99 years or whatever is left of it. HDB flats were passed off as investment grade properties when they were not and thus everyone, PRs and Singaporean private property owners alike, saw this as an opportunity to make money.
3) Huge influx of foerigners.
Ok, so what if the PRs were not the main culprits? Indirectly they were. People saw HDB as a sure way to get great rental yield. Suddenly there were so many foreigners flocking into Singapore. They all needed homes to stay in and some Singaporeans and PRs who were eligible to purchase a flat but did not do so before, did so now. Rental for a 3 room flat could fetch approximately $24,000 per annum. A 3 room flat was in the region of $300,000. This would mean a rental yield of about 8%! This is extremely good return for such a small capital outlay. Why then would a person in a right investment frame of mind ever pass up on such an opportunity? If rentals were less attractive, I am pretty sure many people would not have dipped into their bank accounts to purchase HDB flats. Even though there is a minimum occupation period, some rent their properties out despite the possible penalties if caught. The returns are too attractive to be ignored!
Perhaps the minister should ponder about these points as well?
Yours Sincerely,
Daryl Lum
(+65) 9009 8731
visit my website @ www.DarylLum.com
read my blog @ www.DarylLum.blogspot.com
