HOME-buyers hoping for a fall in home prices must have been disappointed by recent housing figures.
Housing Board (HDB) resale flat prices rose 3.8 per cent in the third quarter to a fresh record. Prices have risen some 35 per cent since the first quarter of 2009. That was the last quarter which saw a price fall - albeit by just 0.8 per cent.
HDB resale flat prices' ability to defy gravity is puzzling at one level, because HDB is already ramping up supply of HDB flats aggressively. But the new flats being built are available only to Singaporean couples and families and will be ready only in a few years.
Meanwhile, underlying demand remains strong. Singles, permanent residents and those who have already bought subsidised HDB flats before, have to turn to the HDB resale market for affordable housing.
But the biggest reasons underpinning the price rise in the HDB resale market could be the supply crunch created by a mix of recent and past policies.
Analysts say some measures introduced recently to cool the property market have created incentives for HDB flat-owners to hold on to their flats and not sell them. Rules were tightened to weed out would-be speculators who want to buy HDB flats to 'flip' (resell) or rent out in the short-term. The rules did not affect those who already owned HDB flats. The result: existing HDB owners hang on to their flats. Fewer put up their flats for sale, creating a supply crunch.
Analysts point to another rule that makes it difficult for buyers to move homes. This requires HDB flat-owners to prove they have sold their existing flat before they can qualify for higher 80 per cent financing on their next home. Otherwise, they get only 60 per cent.
ERA Realty key executive officer Eugene Lim said this policy is making sellers reluctant to let go of their units.
The rule was meant to discourage speculation in properties by increasing the cash amount buyers must pay for a second mortgage. But analysts say the rule is unnecessary in the HDB market since no household is allowed to own more than one HDB flat anyway.
This is one rule that merits review. One simple solution around this problem is that the Government allow 80 per cent bank financing for all HDB home-buyers, on condition that they sell their existing HDB homes within three to six months.
There is another big factor explaining the supply crunch. This is the fresh supply of new HDB flats that turn five years old and can be sold on the resale market.
New HDB flats are sold at subsidised prices to Singaporean couples and families, who must live in them for five years. After that, they can be sold to Singaporeans and permanent residents.
The number of flats built fell drastically after 2005 as the Sars outbreak and economic crises in the early 2000s had created an unsold stock of tens of thousands of HDB flats. In response, HDB scaled back its building programme. In 2006, 2007 and 2008, the number of flats completed were 2,752, 5,111 and 3,183 respectively.
What this means is that in the last decade, the resale market had an annual injection of 11,000 to 30,000 flats which turned five and could be resold. But the number will shrink in the next three years: from 2011 to 2013, there will be only about 11,000 flats for the entire period.
Of course, considered against the existing stock of one million HDB flats, this drop might not be significant. But it does exacerbate the supply crunch amidst a market with robust demand.
So the overall picture is that supply looks set to remain tight for the next two years at least. Resale prices are thus likely to remain firm.
Analysts say there are some short-term solutions that can be considered. One is to review the financing rule for HDB owners. Some people think the Government can go further, to introduce new policies to compel HDB owners who do not really need their flat to sell it.
HDB flat-owners are allowed to rent out the whole flat after five years. If they can afford to live elsewhere, perhaps they should let go of their flats to help ease the pressure in the market.
Another way to raise short-term supply of resale flats is to create incentives for HDB resale flat-owners to sell, rather than rent out, their units.
One way is to impose a levy on income from renting out HDB flats. Owners now have to declare all rental income as part of their personal income tax returns. But many have incomes below the threshold for paying income tax anyway, so they do not have to pay any taxes. A direct levy of, say, 30 per cent imposed on rental gains from renting out HDB flats may tip some owners into deciding to sell instead of rent out their units.
Unlike a change in ownership criteria, a levy on rental income has the advantage of being easier to tweak, or scrap when the market no longer needs it.
Source: The Straits Times – 15 November 2011
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