Mah Bow Tan: HDB resale prices to rise, but still affordable as they are subsidized
- Thursday, September 03, 2009
News and opinions from an independent perspective
Mah Bow Tan: HDB resale prices to rise, but still “affordable” as they are “subsidized”
September 3, 2009 by admin
From our Correspondent
National Development Minister Mr Mah Bow Tan is confident that the prices of HDB resale flats will continue to rise this year despite hitting a record high last month. HDB resale prices rose 1.4 per cent in the second quarter to a record high.
‘The flat prices would probably go up … by 1 per cent, 2 per cent. It will just keep on going up if the economy recovers as people expect, and if confidence returns but affordability will always be there.” Mah said.
Despite widespread concerns on the ground that HDB flats are becoming more expensive, the government is adamant that HDB flats remain affordable to ordinary Singaporeans.
In a letter published in the Straits Times forum on 31 August 2009, HDB Deputy Director Mr Ignatius Lourdesamy wrote that HDB flats remain affordable to eligible first-time households as they use between 21 to 25 per cent of their monthly income to service their loans on new and resale HDB flats which are well below the international affordability benchmark of 30 per cent. (read letter
As public housing, HDB flats should not just be affordable, but easily affordable to all. The international benchmark of 30 per cent should be used only as a guide and not an absolute figure to determine prices of HDB flats.
Though eighty per cent of Singaporeans qualify for housing subsidies and afford the mortage loan, it doesn’t take away the fact that they are paying much more than they should for public housing which should be heavily subsidized by the government in the first place.
Mah also claimed that the government is subsidizing the cost of the HDB flats and have increased the value of flats already bought by Singaporeans.“We subsidised you when you buy and we increased the value of your flat when you live in it and… facilitate you to monetise it when you grow old. This is the best form of investment and welfare for the people”, he added.Mah’s views were shared by his colleague, Senior Minister of State for National Development Grace Fu who noted that HDB flats remained affordable to Singaporeans In a reply to question from a MP who asked if a cap should be imposed on rising HDB resale prices during a Parliamentary session in July
“‘HDB flat prices should be a reflection of Singaporean’s wealth and it is “not a bad idea” for prices to increase steadily, especially for those holding onto negative assets bought in the previous market peak in the mid 1990s.’”
However, it is a fallacy that rising HDB flat prices will create wealth for Singaporeans all the time. In fact, as prices go up, the financial liabilities of households will increase and more will be plunge into debts.
A study done by two NUS economists, Tilak Abeysinghe and Gu Jiaying, shows that “past episodes of house price escalations have led to a substantial erosion of housing affordability” especially in the private sector. (source: NUS SCAPE) Higher property prices does not necessarily translates into higher wealth for Singaporeans.
Higher property prices, instead of creating a wealth effect, exert a significant and negative “price effect” on consumption expenditures leading to a fall in the average propensity to consume.
As house prices go up, the increase in the value of housing assets is accompanied by a concurrent rise in the financial liabilities of households, in the form of higher downpayments for purchase of residential properties and burgeoning housing loans.
Singaporeans will be plunged into greater debts with rapid escalating of HDB prices. Those who bought their flats years ago at a reasonable price will be in a slightly better position as they may be able to capitalize on the intrinsic asset value of their flats by selling them. However, they will probably need to fork out a larger sum of money to purchase another property at a much higher price unless they downgrade.
For Singaporeans who bought the flats recently, they will be in dire economic straits should the property market crash subsequently as in 1996. Given the record high prices now, it is highly doubtful that the prices of HDB flats will continue to rise due to the economic uncertainties and prospect of higher unemployment rate at the end of the year.
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