masteryourfinance – question on HDB price
June 30, 2012 1 Comment
Posted on June 30, 2012, on masteryourfinance forum. Waiting to see what others who have been through property cycles have to say about price sustainability of HDB.
I am mildly concerned that the points raised affect only high-end homes and not HDB prices. Of course eventually it will trickle down and affect HDB. What are your takes on this?
“With property prices still inching up, but we have factors such as (1) threat of increasing interest rate [actually more or less confirmed, only when since now it’s at an all-time low], (2) restriction on foreigners inflow to Singapore and purchase of Singapore properties, (3) property developers and HDB ramping up supply.
If this is the case, it really seems like 2015 is the perfect storm for housing to take a hit on valuations:
1. US Federal Reserve has indicated that interest rates will remain low till 2014.
2. Foreign Worker Levy is going up, P1 and P2 employment pass holders must now earn more, ABSD (stamp duty) is higher for foreigners = companies are unlikely to send foreigners to Singapore unless benefit > cost.
3. HDB and property developers seem to be building record amounts of homes (although they are smaller than ever).
With all this coming to pass in 2015 (that is when most of the property is completed), will we suddenly find ourselves with too much supply? So the interest rate will be higher in 2015, with many homes in the market.
I am not sure if my logic is correct:
1. The homes that are completed in 2015 may only be available for sale 5 years later (for HDB), and so it may then be that the ‘oversupply’ only starts in 2020 in line with when a record number of homeowners are able to sell their properties.
2. The foreigners who do make it to Singapore will probably be properly remunerated and hence have the buying power to purchase a home (if they deem it more beneficial than renting or if they intend to stay long and do not own overseas properties) but this is likely to affect the higher-end homes more than the lower-end homes.
I am concerned as a friend of mine has applied for BTO and had gotten a good number (49th place) at the Bendemeer BTO (which has 40 storeys and lots of unobstructed view with easy access to Boon Keng and the future Benedemeer MRT stations). At a price of very close to $400,000 for a 3-room flat, and given the above, would it be recommended?
I am wary that HDB prices behave differently from high-end prices, as the ‘supply’ and ‘demand’ comes from different places. Thus, the higher interest rates might not hit HDB buyers as they may always borrow from HDB at CPF + 0.1% at a fixed rate for 30 years. The higher interest rates might actually be more painful for buyers of private property who do not have upfront cash.
Another point mentioned earlier would be that the ‘oversupply’ I fear will come in 2015 is actually not affecting the HDB prices, but may affect the high-end homes which have no such thing as a 5 year minimum occupancy requirement. Of course if the house is sold within x number of years, might be treated as trading or subject to higher stamp duties and taxes.
I would like to end off by noting the following:
1. Singapore is land-scarce
2. Singapore has a growing population (some figures trumpet a population target of 8 million, up from 5 million currently, up to 60% increase)
3. Singapore government has locked in people’s life savings into their homes, and is unlikely to let the HDB prices fall by much, to the detriment of future generations of Singaporeans, who might in future pay sky-high prices for basement homes (if that ever comes to pass).
4. Singaporeans are able to pay for the homes (through loan instalments), even at their elevated prices now. All the above factors point to strong support for HDB home prices.
I wonder what is the take of the other forumers on this of HDB home prices? Is Singapore a ‘special case’ whereby prices will keep going up, only ‘by how much’ (e.g. http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyResaleFlatResaleIndex?OpenDocument#Detail which shows resale prices only declining back in 2009 for Q1, making light of the financial crisis)? Or will it be affected in the perfect storm scenario?
Would like to kickstart the discussion again, cheers :)”
moneytalksg 
The reply:
“HI Breeze,
I only know that in history, these things happened (NOT fabricated or imagined by me).
1. in 1998, during the Asian Financial Crisis, property prices fell by about 40%, across ALL properties. A HDB executive maisonette sold in 1997 at the highest price recorded for a HDB resale flat then at S$780,000, price fell to about S$450,0000. In year 2007, the same HDB maisonette was finally sold by the owner (who bought in 1997) at S$550,000. These were reported in newspapers, many forget, just that I remember, that’s all. Similarly, in 1997, Bishan 8 was launched at S$1,100 psf then, the highest price for a suburban condo, the price fell to about S$700 psf in 1998 and after more than 10 years, in year 2011, the price of Bishan 8 was back at S$1,100 psf.
Bishan 8 past transaction prices provided by URA:
http://www.ura.gov.sg/realEstateWeb/rea … tSearch.do
The lesson I learned from the Asian Financial Crisis is if Location is the most important factor in Property Investing, then perhaps “Timing” is the 2nd Most Important Factor, but this is a factor many average people are NOT aware or mindful of.
2. in year 2013/14/15, New HDB flats (28,000 launched in year 2011 and 25,000 to be launched this year) would be completed. In year 2003, when a record number of HDB flats completed (launched in better economic times in 1999/2000) and coincided with the “SARS” period, resulting in many people giving up their new HDB flats, refuse to take delivery and resulting in HDB having over 10,000 completed but UNSOLD (or returned units)….HDB revised downward its New 5 room HDB flat prices for Sengkang from S$280,000, to about S$220,000 and stopped building HDB flats in year 2004 when the over-supply persist.
It’s only until year 2006 that HDB managed to finally sell all of its over-supply HDB flats then…but 3 years of under-building of HDB flats (they stopped in year 2004 and built only 2,000 units each in year 2005 and year 2006 resulted in the supply unable to catch increase in demand when population started increasing by average 160,000 from year 2006 to year 2010, or total increase of population by about 800,000 in the 5 years from year 2006 to year 2010.
So if you ask me why HDB resale flats’ prices did NOT fall much in year 2008, when private property prices fell by about 20% to 30% for a short few months (only about 6 months) and then start recovering? My opinion is becos the Supply (of new HDB flats) cannot catch up with rapid increase in population then).
In the last 2 years, people did not realise that Singapore government has started to “close the door” to more foreigners and the population figure has remained largely unchanged. In fact, year 2011 saw the first time in 10 years that number of PRs actually fell instead of increase.
Last General Election made PAP realised that there is a lot of unahppiness on the ground about the huge influx of foreigners. Coupled with the slow down in Global economy likely in year 2013/2014, my opinion is that the government will continue to “close the door” and the population figure in Singapore for the next 2 years is unlikely to increase.
http://www.singstat.gov.sg/stats/latestdata.html
6.5 million population target for Singapore.
http://www.streetdirectory.com/travel_g … lation.php
The government has announced the aim to increase the population to 6.5 million (I didn’t read about 8 million) in 20 years, but that was announced a few years ago. With current population at about 5.18 million, increase to 6.5 million in 15 years would average about 88,000 a year or result in about increase in housing demand of about 22,000 a year. I think since about half of them probably buy private properties, it mean HDB if continue to build about 10,000 to 15,000 units a year should meet demand (instead of building 2,000 units each year in year 2005 and 2006, resulting in the insufficient supply and spur the HDB resale flats’ price increase.
There are currently (as at first quarter year 2012) about 36,552 Launched but unsold private properties, and with another 53,000 new HDB flats to be completed in year 2013/14/15. Coupled with slowdown in Global economy. which likely to dampen market sentiment and demand. Thus, I still remain the same view that there is a chance of turning in situation from insufficient supply to over-supply in year 2013/14 especially (Global Financial Crisis).
If you ask me, “Dennis, in 10 years’ time, will property prices in Singapore be higher or lower than current prices? I would say 99.9% higher. However, if you ask me what about property prices in the next 2 to 3 years’ time, I think high chance of property prices going lower instead becos of the reasons and factors I have explained. By how much, my opinion is 10% to 30%.
P.S. currently, we have an interesting phenomenon that you buy a property in Punggol for S$1,300 psf, but you can buy one in Novena at about S$1,400 psf. You buy a property in Bishan at S$1,700 psf, but you can but a unit in “The Sail” at S$1,800 psf. What does this mean? I personally interpret it as the average suburban property prices are too high, not the other way round, the City area properties are too low. Of course, most middle class now “conditioned” or brain washed by developers to expect at least S$1,200 psf for even suburban condos, and they might not even aware that at this price, they can even buy a nice condo in East Coast.
Who are the property buyers currently? My observation is home owners, upgraders and First time inexperienced property investors, and mainly are all middle class income people. All my multi-millionaire sifus including myself stopped buying condos since Jan 2011 as we don’t find the upside potential sufficiently attractive, compared to the downside risk. Maybe the middle class and first time inexperienced property investors are right this time and all of my multi-millionaire sifus are wrong this time, may be?
In my opinion, a Financial Crisis is “engineered” by the ultra-Rich to become Richer and Richer and to win most of the money from the 95% in a Crisis. And a Crisis is only likely to start when most of the middle-class people have Most of their money invested/stuck in stocks/property…so there may be some months to go for this process to be “completed” (to suck more and more money of middle class people into property, as there are still middle class people with excess Cash to invest)….so many would lose patience and finally jumped into the property market after waiting for 4 years doing nothing (my question is why did they not buy earlier? I bought mine 2 years ago).
I learn from the Rich, apply the upside/downside rule of the Rich and follow the Rich to be Market Cycle Investor and this has resulted me in avoiding the last Financial Crisis in year 2008 and buying stocks at low prices after collapse of Lehman Brothers and getting Richer and Richer over each Boom and Bust cycles…while before that I made money from 1993 to 1996 and lost all the gains and even lost half of my wealth in 1998’s financial crisis when I did almost exactly the opposite, buying when market Hot and prices higher…I learned my lesson and started my journey of learning from the rich in 1998….
Perhaps ALL the Rich got it wrong this time, perhaps. But unlike the average investor who invest based on Hope, the Rich is prepared to be wrong, in fact, we can be wrong 6 out of 10 times and still get Richer. While the average might not even be financially prepared to be wrong 1 time, some of them would go bankrupt if they are wrong just 1 time, becos they put most of their eggs in 1 basket, many are now putting almost all their savings into 1 single property investment. They forget the No. 1 rule is “never put all your eggs into one basket” and the No 1 Rule of Warren Buffett is “do not lose money (on on overall portfolio basis). And his No. 2 rule “do not forget Rule No. 1).
The above investment rules of the Rich were taught in my seminars. Question is how many seminar graduates really digest what I teach in my seminars? If you do, you would probably analyse and think the same way as I do. I have taught but it is up to seminar graduates to learn.
http://www.ura.gov.sg/pr/text/2012/pr12-44.html
Supply in the Pipeline
As at the end of 1st Quarter 2012, there was a total supply of 78,572 uncompleted private residential units from projects in the pipeline3, higher than the 77,089 units in 4th Quarter 20114 (see Annexes E-1 & E-25). The pipeline supply of 78,572 units was the highest ever recorded since such data were first available in 1999. Another 4,100 private housing units are expected to come from sites that had been sold or had been released for sale via the 1st Half 2012 GLS Programme.
Of the supply in the pipeline, 36,552 units remained unsold as at 1st Quarter 2012. The unsold units comprised 10,729 units in CCR, 8,895 units in RCR and 16,928 units in OCR (see Annexes B-1 & B-2).
Stock and Vacancy
The stock of completed private residential units increased by 2,152 units in 1st Quarter 2012. The vacancy rate of completed private residential units increased from 5.9% as at the end of 4th Quarter 2011 to 6.0% as at the end of 1st Quarter 2012 (see Annex E-1).
Cheers!
Dennis Ng “