Opinion: High Cost of HDB Prices Good For Us?

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Opinion: High Cost of HDB Prices Good For Us?

Gilbert Goh

The sudden spike in HDB prices have allow many Singaporeans to cash out and upgrade either to a bigger flat or private property. It is a sure sign of our country’s confidence in the economy and continued optimism. I did the same thing having sold off my flat last year pocketing a small profit in the process. I am now flat-less technically but CPF rich. The fact that I have moved abroad also help in the situation as we do not need a flat though rental income will come in handy for us if we have one to rent out currently. Rental income has hold steady for the past year. A 5-room HDB flat can fetch a rental income of around $1,800 – $2,000 in an average location.

The private property market kicked back into life in February after a sluggish 2008 when Singapore enters into a recession.

In the first half of this year, developers sold 10,000 units more than the 4,300 units sold in the whole of last year.

In the Housing Board resale market, a four-room Queenstown HDB flat sold for $653,000, setting a new record.

A small 3-room HDB flat in Bedok central was recently sold off by a friend at around $300,000! It is crazy prices all round for people who are willing to sell out their houses in whatever locations. The recent record HDB prices will definitely outstrip those chalked up during the euphoria 1996-1997 period when housing prices roared off the roof.

The recent influx of many foreigners in our workforce also meant that there is the demand for housing at any time of the year. Foreigners will naturally prefer to buy and have their own place than rent. When one purchases their own place, they have the pride of home ownership and more importantly the anticipation that their housing will appreciate in value. This will inevitably push up resale HDB prices as currently I heard that demand outstrip supply.

PRs To Be Blamed?

Most housing agents I spoke to told me that PRs with ready cash are pouring into the property market unabated. They somehow managed to gather enough cash for the down payment (which can range from $20,000 to $30,000 depending on the cash over valuation and loan amount that the bank is willing to lend). Coming from third world countries like India and China, it is sometimes difficult to imagine how they can cough out so much cash. They could have work in Singapore for a while all along renting out before plunging into the property market after saving up enough cash for the downpayment. It makes sense to have your own place in a small country like Singapore as there is a high percentage that houses will appreciate in value. However, should we just point the finger at PRs at the recent record-high HDB prices? Are there other factors in play?

People have speculated that with the two Integrated Resorts (IR) set to make a big splash next year in our economy, this will immediately set off a whole chain of economic elements that will push up the stock and property market. Already, homes fronting the resort at Marina have chalked up record high $5,000 – $ 6,000 psf property valuation – spiking unhealthy speculation in the area. The economy is also optimistically predicted to take off well next year after a sluggish recession-drenched 2009 that imany will want to quickly forget.

For upgraders, the recent high HDB prices is a positive sign for them as they can sell out and upgrade their housing. However, those who need a place to stay and could not upgrade due to various reasons will not be able to capitalise on this crazy price hike. They will not be affected by the recent hike in housing prices at all. This group will continue to stare at the crazy housing price and yet not benefit from it’s appreciation.

I wonder if it is still good news if there are downgraders in the market right now – people who sell out from a bigger flat and move down to a smaller more affordable flat. They will definitely benefit from the price difference as they have now downsize and own a smaller flat.They can then save up on the difference and use the cash either to start a small business or save it up for rainy days. I believe that downgraders will also benefit from the current housing craze.

In fact, for many young couples who are on the look out for resale HDB flats, they will be priced out of the market. Many do not want to wait 2-3 years for a new flat as it will interfere with their family planning. Many new affordable flats are also located in far away remote places making them very unpopular despite the subsidised pricing.

The way the housing market is heading right now, there is every fear to believe that there will be a bubble asset forming. Our economy has just come out of it’s doldrums and unemployment is still an issue for some people here. Those who upgrade and take up half a million mortgage upwards will need to be careful here.

Conclusion

The recent recession has shown us that prices of property flats will come down when the economy weakens. Situation in Dubai and Greece have revealed that there will still be turbulence in the world economy. There is every reason to believe that things are not as rosy as it looks on the world economy.

As Singapore recovers from the ashes of the recent recession and things look bright again, let us not forget the lessons we learned from the downturn. It is better to err on the side of caution than to plough oneself into the market with eyes half shut.