When will Singapore’s public housing bubble
burst?
Temasek Review
In a speech made last week to Tanjong Pagar residents,
Singapore’s octogenarian leader Lee Kuan Yew admitted unwittingly
that Singapore’s housing market is heavily dependent on
foreigners.
“To continue to grow and prosper while slowing the intake of
foreign workers, the same number of Singaporean workers must
produce more. Otherwise, there will be a deflating economy, and
knock-on effects on jobs and asset values. Instead of many job
opportunities and rising asset values, including prices for resale
HDB flats, the reverse will happen… fewer jobs, lower salaries,
lower asset prices… pay will fall and so will the number of jobs
and promotion,” he said.
The prices of HDB flats have sky-rocketed in recent years due to
rising demand fueled by immigration amidst a limited supply of new
flats.
Only about 3,100 flats were built in the year 2008 when there
were more than 70,000 PRs and 20,000 new citizens in the same year
alone.
Prices of resale flats increased by 8.2 per cent with
Cash-Over-Valuation (COVs) doubling the last quarter of 2009, a
year which saw Singapore mired in recession.
Recently launched Build-to-Order (BTO) flats were oversubscribed
by more than 10 times, an indication of how acute the housing
shortage crisis has become.
Government leaders have remained oblivious to the inherent
dangers posed by the rising prices and sing in unison to the
official stance that it helps to “generate wealth” for
Singaporeans.
Common sense will tell us that it is impossible for prices to
continue going up and it is only a matter of time before the prices
drop.
A property bubble in the public housing market has been building
for quite some time and Singaporeans will be “caught off guard”
when the crunch comes.
According to figures obtained from HDB Infoweb, the median
prices of resale flats have doubled in the last four years when it
took nearly a decade for it to do so.
While prices have already reached astronomical levels with some
property agents asking nearly a million dollars for 5-room flats in
prime districts, the wages of ordinary Singaporeans have lagged far
behind the rise in housing prices.
At some point, the market will have to crash because there will
no buyers for the overpriced flats. So the question on the mind of
everybody is: when will Singapore’s public housing bubble
burst?
Probably in the year 2013 or earlier.
Stung by criticisms from Singaporeans at its failure to provide
adequate housing for first time home buyers, HDB has predictably
increase the supply of flats in a classical knee-jerk response to
the housing shortage.
Four BTO projects have already been launched this year with a
projected number of 12,000 new BTO flats being built which will be
completed in three to four years time, earliest by 2013.
A glut of new private and public housing will be completed in
2013 thereby increasing the supply of flats which will surely cause
the prices to drop even at the present rate of immigration.
Between now and then, who can guarantee that there will not be
another global financial crisis?
Singapore’s economy is heavily dependent on foreign workers and
investments which explains why it became the first Asian country to
enter into a recession in 2008.
Any slight knock to the global economy will turn back crucial
foreign direct investments (FDIs) from Singapore leading to an
exodus of foreigners with disastrous consequences for the housing
market.
About 6o to 70 per cent of buyers of Singapore properties in the
private sector are foreigners while they make up about 20 per cent
in the HDB resale market.
As their values have already been overly inflated, the resultant
drop in prices will be equally as much if not more.
There is a good chance that prices may be rolled back to the
2006 – 2008 levels meaning a drop by nearly 50 per cent which will
plunge many Singaporeans into financial distress.
The public housing market had crashed once in 1996 and this time
it would be worse as prices had far exceeded the 1996 levels.
Singaporeans will have to pray that foreigners continue to buy
up properties in Singapore to keep their asset values going up.
Unfortunately, with the emergence of China and India as economic
powerhouses, the attractiveness of Singapore as magnet for foreign
investment will continue to decrease in the next few years.
With lower economic growth, declining wages and fewer investment
opportunities looming ahead, will Singapore’s public housing market
continue to soar as before?
When the crash finally comes, many Singaporeans will see their
entire life savings being wiped out in an instance.
Perhaps that is the only way to wake up apathetic Singaporeans
from their slumber and revamp the entire system once and for
all.
HDB to finally consider introducing rules to curb
speculation in public housing market
After months of denying that the prices of HDB flats have
spiralled out of control, National Development Minister Mah Bow Tan
finally relented and said last week “the Government is looking into
’something’ regarding measures for the HDB market.”
Though he did not reveal the details, property experts
interviewed by the Straits Times “reckoned the Government could
extend the minimum occupation period for those who bought their
flats with bank loans as well as make checks to ensure owners are
not flouting the rules.”
Mr Mah has received alot of flak lately over his inept handling
of the matter which has caused considerable distress and anguish to
ordinary Singaporeans who are increasingly priced out of the public
housing market, especially the resale one.
The prices of HDB flats have almost doubled in the last few
years, with that of resale flats hitting a record high in June 2009
when the economy was mired in recession.
The abnormal situation is caused largely by the lack of
foresight of HDB to plan well ahead to build more flats to meet the
expected increase in demand for housing fueled by uncontrolled
immigration.
Recent launches of BTO flats are more than 5 to 10 times
subscribed even in less popular areas like Choa Chua Kang, an
indication of how serious the housing shortage has become.
Only slightly more than 11,000 new flats were built between
the years 2006 – 2008 when there were over 90,000 PRs and 20,000
new citizens alone in 2008:
[Source: HDB Financial Report 2008/2009]
Below is a graph illustrating how the rise in the prices of
resale flats coincides with the rise in the number of foreigners in
Singapore between the years 2000 and 2008, courtesy of Kojakbt, the
moderator of 3in1kopitiam:
Due to the ruling party’s liberal immigration policy, foreigners
now made up 36 per cent of Singapore’s population, up from 14 per
cent in 1990.
The prices of HDB flats are kept artificially high by building
less flats than needed to meet the demand and increasing the
population via immigration.
Unlike in other countries, PRs are allowed to purchase public
housing in Singapore from the open market with few restrictions.
Some PRs have “spoilt” the market by over-paying for the flats. An
Indonesian PR was reported in the media to pay $653,000 for a
4-room resale flat in Queenstown when he could well afford a
condominium.
According to official figures, PRs form 20 per cent of the
buyers in the resale market though some real estate agencies like
ERA put the figure higher at 40 per cent.
The state media has been trying to deflect public anger from the
government and PRs by pointing the fingers at private property
owners for snapping up the resale flats when they constitute only
about 5 – 7 per cent of the buyers.
With elections around the corner and public sentiments fast
turning against the ruling party, HDB has to be seen as “doing
something” to placate angry Singaporeans.
Mr Mah has to act quickly so that he will not be “caught
offguard” again. As for Singaporeans who bought the flats as such
obscene prices, they will have to pray that hard that prices will
continue to rise and not drop in the next few years with more flats
being released into the market.
Better buy with your wife or husband only - not your foreign
friends
