Thursday, September 24, 2009

HDB High Prices & Influx of FT

You can sign an online petition on Lower HDB Price or Build more affordable Flats for Singaporeans here.

One of my favorite blogger Lucky Tan has written on the reasons of the rise in HDB resale as well as new flats' prices. The moderator of 3-in-1 Kopitiam Kojakbt has put up one of his reasoning and his chart on how influx of Foreign Talents is correlated to the pricing of HDB resale flats. (See above)

Although the Pearson Correlation Coefficient is pretty high for the two sets of data, technically speaking there must be a reasonable explanation behind such correlation, else such correlation would be considered irrelevant statistically.

The more appropriate data to be used is the number of increase of PR and non-native Citizens vs the HDB resale pricing. This is because only PR and new non-native Citizens are allowed to buy HDB resale flats. The Total of Foreigners in Singapore could only at best be an approximate to the increase in PR or new non-native Citizens, assuming that the number of new PR and Citizens are directly correlated with the Total number of Foreigners. In Singapore, we have not much choice of data set because the government does not release specific numbers on the increase of PR and New Citizens.

The spiral of HDB resale prices is basically due to two forces, demand and supply. Singaporeans generally could only own one HDB flat per household. It would mean that the supply of HDB flats to Singaporeans are more or less in equilibrium. However, with the injection of new demand caused by the increase in PR and New non-native Citizens, it would cause an inequilibrium in the demand and supply. The supply of HDB resale flats are limited as most Singaporeans bought the flats for own use while the demand of such flats keep going up with the influx of foreigners as PRs and New Citizens.

This will inevitably cause the prices of new flats to surge because the present new HDB flats' price are pegged at the resale flats' price. In effective, HDB is just giving a "discount", not a real subsidy for native Singaporeans. The implicit result would be the influx of Foreigners would have tremendous impact on Singaporeans, especially the young couples, in terms of higher HDB prices.

My suggestion is as follows:

1) HDB should stop hoodwinking Singaporeans by pegging the new HDB flats' prices to the resale HDB market prices and disguise such Discounts as "subsidies". The pricing should be de-linked and new HDB prices should be sold to Singaporeans at cost price and on top of that, REAL subsidies at cost price should be given as follows:

a) Born native Singaporeans or those who have lived here for more than 15years, $20K of subsidies from cost price.
b) Those Singaporeans who have completed their NS, another $10K subsidy
c) Those who get married before 30 years old another $20K subsidy.

2) In view of present FT policy, PAP must solve the problem of inadequate infrastructure, especially housing. HDB should sell NEW HDB flats to PRs direct at MARKET PRICES, instead of cost prices. This will ease the unbalanced market situation due to high influx of FT getting PRs. By earning from these PRs, HDB will be able to cross subsidize native Singaporeans.

This will of course encourage more PRs to convert to Singapore citizenship and at the same time, give REAL VALUE to Singapore Citizens who have contributed to this Nation. On top of that, it encourages family units to be formed without discriminating those singles badly. Singles who are native Singaporeans and served their National service would get their subsidies in recognition of their contribution to the Nation as well.

There is no reason for HDB not to sell New HDB Flats to PRs at MARKET PRICE instead of allowing the resale market to grow into a bubble and in turn, affect all native Singaporeans' housing liabilities. High HDB prices will prevent young couples from forming up family units early. This is a contradiction to our National needs.

It is time for PAP government and HDB to give due recognition to Singaporeans' contribution to the Nation and put tangible value to our allegiance as a citizen. It is unacceptable for us, especially the young Singaporeans, to pay the price of PAP's indiscriminate FT policy in terms of paying higher price for HDB flats.

Our PAP government has been talking big about how they value Singaporeans and putting their interests FIRST above all others. But the truth is, the PAP government is the MAIN CULPRIT in hurting Singaporeans' interest by implementing such housing policy that inflate the prices of new HDB prices for our young Singaporeans. If this policy is not curbed, our future generations would definitely be burdened by higher housing cost all across the board.

Goh Meng Seng

After note: There is an article at that claims that a report by ERA has indicated that40% of HDB resale flat transactions are done by PRs while Business Times has reported that 86% of transactions have been done at Cash Over Valuation, instead of PAP's claim of 25% of HDB flats done valuation or below valuation.

The quote from ERA report is as follows:

"The government's target population of 6.5 million is steadily increasing the pool of PRs; and they have to buy their HDB homes from the resale market as they do not qualify to buy new flats directly from HDB. ERA's resale transactions show that PR buyers make up some 40 per cent compared to 20 per cent three years ago." - Eugene Lim, assosiate director, ERA Asia-Pacific.


Fievel said...

Mr Goh,

This is actually a very simple problem to solve and the key lies not in the formulation of a solution, for its is like a multivariable equation with infinite solutions, and I can come up with another 10 variations of solutions in 10 minutes. I think the key is to understand 2 matters;

1) Was this an accidental failure on HDB's end to anticipate the surge in demand. Did HDB not do its job in watching over demand? If so, what measures can be built in to prevent this from ever happening again? It should be a simple inventory and supply chain management question. In fact, I am pretty sure this was not an accidental failure by HDB, but that's just my personal view.

2) Next, if this is not an accidental oversight by HDB, what is the aim or purpose of this intentional choke on public housing supply? What is the reason? I have a few theories of my own, one of which is that this asset inflation is actually intended to win votes, because the Singaporeans who "gained" probably still outstrips the ones who lost out, since first time property buyers are but a small segment (age 25-35) of the entire demographic. That, is but one of my theories.

I hope that, as an opposition politician, you will create more awareness of PAP's policies' shortcomings and draw more of their blank-firing denial response, so that our people can finally think more on their own.

Straits Times can be there forever, but if the core ideas and ability to dissect our current issues are planted in the voters' heads this time, I'm sure it will go a longer way than mere formulation of single-fit solutions...

Goh Meng Seng said...

Dear Fievel,

Thank you for your comment.

I understand where you are coming from and I too suspect that PAP has an agenda in keeping high asset value, but in politics, it is dangerous to talk about something just based on speculation without any reasonable deduction to back it up.

You are right about this issue is about inventory and supply chain management. However, it is also about the policy made that causes the surge in HDB prices. If there is a high COV, there must be a reason for it to be sustainable at that level. The key lies with the high demand created by influx of foreigners.

This article aimed to demonstrate the correlation of PAP FT policy to the end result of high HDB prices caused by the pricing mechanism that PAP has set. It points directly to the fact that PAP's FT policy has greater impact on Singaporeans than just jobs and economy.

I tend to look at policies from a more holistic perspective. Of course, my suggestion of this solution may not be the only one or even the best one. There could be many variations but it basically addresses more than the HDB pricing policy from a more holistic approach.

Before we could solve this problem, we must first identify the roots of the problem. It seems that the root of the problem here is PAP's FT policy. If PAP is unwilling to change its stand on the FT policy, then it must address the problems created by it which affect everybody here, including yourself.

Of course, politically, it would be wise for an opposition politician to kick PAP's backside over this. But more importantly, I guess Singaporeans are looking for more creative alternative solutions and views.

But the ultimate change will only come from voters like you. Only voters like you could get the message spread and effect a change in voting mindset.

Thanks you again.

Goh Meng Seng

Fievel said...

I feel that the FT policy should not be entangled into the housing issue, because we can have an even more aggresive FT policy and still not have a housing problem had the govt taken due care to ensure sufficient housing supply.

Most of us Singaporeans have got no problems with our new immigrants. We are much more harmonious and accomodating than the recent NDP rally and ST headlines would give us credit for.

$10 million to go into integrating citizens with new comers? Comeon man, I'll suggest that PAP use that money to integrate THE RICH vs the REST. (And THE RICH definitely includes the ministers themselves.)

That is where the real fault line is. And that, my dear opposition Mr Goh, is wherein lies the biggest secret weapon if you want to call it that.

Anonymous said...

"c) Those who get married before 30 years old another $20K subsidy."

I don't understand this. So are you saying PRs who get married before 30 years old will get 20K subsidy? Why do you set it at 30, not 35 or 40? What is the rationale behind this?

Goh Meng Seng said...

I am sorry and should be more specific.

PR will only get their HDB flats at MARKET PRICE, no discount no subsidy.

The subsidy for those who marry before 30 is specifically for Singaporeans only.

Goh Meng Seng

Vincent Sear said...

The trouble is, if there's restriction on PR buying HDB flats causing a fall in prices, those Singaporeans already "owning" flats, paid for them or paying for them at higher prices, will feel cheated or at least shortchanged.

Many Singaporeans are held hostage by earlier government policies of so-called home ownership for all and asset enhancement.

Anonymous said...

Hi, with regards to

"c) Those who get married before 30 years old another $20K subsidy."

I saw your replies but saw that you leave out the explanation on giving extra subsidy to those who get married at a younger age. This idea of yours still puzzle me.

Faircomment said...

To Vincent Sear

The trouble is, can Singapore continue with its present rate of absorbing PRs just to support the ever rising resale flat prices? The answer is definitely "No".

When that happens, won't resale prices fall even more drastically? Does any one realise this is really a giant Ponzi scheme? The longer the present govt is allowed to operate the Ponzi scheme, the greater the financial mess we will suffer.

Fievel said...

I haven't thought of it that way before, a Ponzi scheme.

It's really apt though, come to think of it.

Vincent Sear said...

That's why I said, held hostage.

Anonymous said...

Hi everybody, I understand the reason why Mr Goh suggested that couples getting married before 30 get more subsidies. It will help ease the financial burden of young couples and help them in their family planning.

We should encourage young singaporean's to get married earlier and start and family.

Anonymous said...

" $10 million to go into integrating citizens with new comers "

I think this $10 million will be more effective in breaking up the citizens and new comers more.

Just simply don't understand govt's rationale. What the citizens need is not more BBQ, Karaoke or Party sessions with the PR or foreigners. Why don't govt. generate the $10 million to more pro-citizens usage, like further subsidies for poor old folks and for young Singaporean couples who have to vie with the rich PR for resale HDB flats.

To integrate locals and PR together, it's very easy! Just give more benefits to the locals and we will feel that PRs are here to help them and not to fight with locals for jobs and housing.

Dear PAP, I seriously think you have totally lose touch with the ground.

Faircomment said...

Recently, PAPa made such a song and dance when an additional $3M was allocated to subsidise the aged poor in community hospitals. This is less than a third of the amount allocated just to hold parties to "integrate" foreigners. Goes to show how much PAPa values foreigners vis a vis locals.

Anonymous said...

"a) Born native Singaporeans or those who have lived here for more than 15years, $20K of subsidies from cost price."

This is very funny. You wanna differentiate your so called "born native" one and "naturalized" one? and the funniest is for those who have lived here for >15years. Then what affected is not only housing subsidy, it could be baby bonus, childcare subsidy, working mom relief, and many many more, then the government is gonna super busy to set all the threshold ... LOL

Anonymous said...

No logic on encouraging couples to get married before 30. Then couples above can take their time? Will this encourage couples below 30 to rush into marriage in time for the subsidy? If this is how GMS think, then there is really low merit in his rationale.

Goh Meng Seng said...

Why encourage young couples to marry early? Before 30?

There are a few reasons which I always encourage my friends to marry early.

1) If you wait for a few more years, most probably for those graduate couples, your combined salary will be more than $8000 per month. This would make you illegible for HDB new flats. Quite a number of people were caught in this trap. They may not have enough savings to pay for private property's down payment but yet, they are not allowed to buy HDB new flats.

2) It is technically dangerous for the ladies to have their first babies after the age of 35. If you marry after 30, you will face the higher possibility of having high risk pregnancy.

3) If you treasure your retirement, it would only be conducive to marry early and have children early. Imagine if you are to have your first child at 35, your first child will only be 20 years old when you are 55 years old.

4) For both the men and women, once you cross the age of 30, the chances of getting married become slimmer by the days. This is a social norm.

Goh Meng Seng

Anonymous said...

The reasons you stated are already good enough encouragement to marry early. The question is why the extra subsidy. You don't seem to understand the question at all.

Goh Meng Seng said...

The truth is, the young couple will not have enough savings to pay the down payment of the flats after they get married. Thus the need for the extra subsidy which give them the financial confidence to start a family.

Goh Meng Seng

Anonymous said...

its becoming harder and harder to own or get an hdb, and its very hard for a married couple to get an hdb because of high prices. what if you and your partner dont have an enough income?

Singapore Company Formation

Anonymous said...

There are lotsa middle income owners who paid fully for their HDB flats and bought another private property, likely a freehold fully paid as well. Most are enjoying life in the private property and renting out the entire fully paid HDB flats for side income. This may be a reason for lack of supply of subsidised flats. My guess is there is a sizeable number of people operating this way now. Is it illegal to do this?

many of these rich (yet not so rich) folks are prs. Hope the gov will investigate.

wei qiang said...

Pearson correlation test does not account for causality, it only proves correlation. e.g. it is illogical to say that a rise in HDB prices will lead to increase in FT. if so, then why is it logical to conclude otherwise?

'a common mistake made if people do not take research as a module' my prof would say.