By Goh Meng Seng
20 December 2010
The War on Housing (Part Two)
The mismatch of Demand and Supply in the New HDB flat market due to MBT’s “caught off guard” has been transferred to Resale Market via this increase in grants for “lower income” couples.
One must not look at the difference in prices of the flats in both New and Resale flat markets as just that difference. For every dollar difference, you must add in interest cost. This difference in prices will compound over time with interest rate.
Who benefits from these “grants”? Many think it will benefit Singaporeans, especially those first time buyers. Look deeper into the situation. If you are a citizen selling your flat in the resale market, whether you downgrade or upgrade, you will have to buy another flat. These grants which sustain the high prices will not benefit you unless, you are like me, sold my flat and stay with my parent.
When in the short term, housing stock is fixed, an increased in demand will create a mismatch to supply. Who are the ones who could just sell off their flats and take full profits from such sales? Definitely less so for Singaporeans. PRs, yes. They could just sell off and retire back home with lower cost of living. That’s the truth that many people cannot see. And that is why many PRs are trying to buy resale HDB flats now.
The influx of foreigners thus increase of PRs buyers in resale market will definitely push prices up. They do not have loyalty to this land. Most likely, they are here to earn enough money so that they could live a comfortable life back home or migrate to somewhere else.
The complexity of the influx of foreigners and PRs is not easy to solve. They are here and need accommodation. HDB will become of their option when the rules do not prevent them from owning one. They also create “excess demand” on the market. Well, imagine if only citizens are allowed to buy HDB flats, regardless of New or resale. There will be less problem of mismatch of demand and supply.
When PRs come into the picture, it creates excess demand on the market. Without an increase in the housing stock, there is no way we could accommodate both Singaporeans and PRs with the present HDB system without pushing up the prices in resale market. The worst thing to happen is that HDB failed to build more flats for new citizen entrants but instead, to take the quick remedy to their incompetence, pushes these new citizens to resale market with more grants!
The result is pretty obvious now. You will start seeing more and more HDB flats over-populated. I have come to know of 3 room HDB flat being populated by 14 people altogether!
HDB resale market will crash someday. The reason is simple. When people over commit themselves with 30 year mortgage, they will inevitably forced to sell off if the present low interest rate starts to climb. The PRs will be the first one to sell off and leave.
Stopping this fire with soft landing is an urgent task right now. Young Singaporeans should not bear the brunt of the incompetency of HDB and its negligence in not building enough new flats. It is difficult to give you a full picture because of the complexity. But please don’t be fooled by half baked people like Ramseth who goes around to talk nonsense anything about economics when they don’t even know what’s going on there.
Goh Meng Seng