Beating high COVs

Source : Straits Times – 7 Aug 2010

Targeting older flats and those in less popular areas can mean paying well below the high cash-over-valuation prices

When homebuyer Ng Hui Hui and her husband, Mr Edwin Soon, read newspaper reports of how median cash-over-valuation (COV) prices hit a high of $30,000 recently, they heaved a sigh of relief.

This may seem a surprise, given that having to fork out a higher cash premium to snare that home-sweet-home resale flat is a hot topic among property purchasers.

However, the couple were not being perverse – the pragmatic pair were just glad that they managed to nab a home with a COV that was under $30,000.

COV is the cash amount paid upfront by a buyer over a flat’s valuation by the Housing Board, and is not covered by a bank loan.

The Soons, who have been married for two years, got the keys to their five-room HDB resale flat in Sengkang last month. They paid $448,000, inclusive of $28,000 COV.

Ms Ng, 30, a corporate communications specialist, says that while $28,000 is way above their budget of $20,000 COV, ‘it is a small blessing that we paid less than what is the norm for this area’.

According to HDB resale transactions, the median COV for a five-room flat in Sengkang is $35,000.

The couple have been house-hunting for the past nine months and say they saw more than 100 resale flats.

They did not want new flats – which are sold directly by HDB and do not involve paying COVs – as they did not want to wait about three years to get their keys.

‘When we told agents that our budget was $20,000 COV, they told us it would be impossible to find a flat,’ says Mr Soon, 32, a program manager.

An Hougang maisonette that they viewed came with an asking price of $150,000 COV. A ground-floor unit in Bedok had a low $7,000 COV, ‘but we do not like ground-floor units as they offer little privacy’, says Ms Ng.

In the end, the couple settled for their fourth-floor, seven-year-old flat in Sengkang, which comes with floor-to-ceiling windows, white floor tiles and is opposite a primary school.

‘It will be convenient for our daughter, Charlotte, to enrol there,’ says Ms Ng.

The couple had set aside $40,000 for COV and renovation works. They now have a roof of their own over their heads, but they cannot move in yet.

With the higher COV price that they paid out of their savings, renovations will have to wait. Works they want done include upgrading the kitchen, which can be costly.

‘We will have to renovate our home in stages,’ says Ms Ng. Meanwhile, they will continue to live with Mr Soon’s parents in a terrace house in East Coast Road.

The $30,000 median COV figure was for resale cases registered with HDB in the second quarter of this year. It was a $5,000 increase on the previous quarter.

Typically, the agreed price for a HDB resale flat includes a cash premium on top of the official valuation determined by an HDB panel of independent professional valuers. It is an amount that a seller wants over and above the valuation.

However, there is some small cheer for disheartened home-hunters: Property experts that Life! spoke to say it is possible to find resale flats whose owners are not asking for such large cash amounts upfront. The caveat: Be prepared for the flat to come with less than ideal conditions, such as a less popular location and advanced age.

COV unlikely to top $35,000, say experts

Sales manager Alan Wong, 44, paid $26,000 COV for his three-room flat in Boon Lay. It is not a central location, but he says the COV paid is ‘reasonable, as it is on the 17th floor, a corner unit and nicely upgraded’.

Mr Eric Cheng, chief executive of ECG Property, says it is possible to find a flat for $15,000 COV in Jurong. Four-room flats in areas such as Choa Chu Kang, Pasir Ris, Woodlands and Jurong East come with a COV lower than $30,000 (see table).

Mr Lim Yong Hock, senior vice-president at PropNex, recalls a recent deal where a three-room flat in Ang Mo Kio sold with a $15,000 COV. ‘In today’s market, $15,000 is low,’ he says.

Despite the flat being nearly 30 years old and not on a floor with a lift landing, ‘the buyer bought it because other units in the area were going for $40,000 COV’. On the other hand, some COVs have soared way above the latest median, as much as several times that figure.

Mr Cheng’s firm recently brokered a deal for a rare penthouse maisonette in Bishan. The buyer, who declined to be interviewed, paid $170,000 COV for it. ‘He saw the flat, loved it and was willing to buy it even before he sold his former five-room flat,’ says Mr Cheng.

But before sellers rub their hands in glee at the prospect of seeking sky-high cash premiums, Mr Eugene Lim, ERA Asia-Pacific associate director, says that ‘$100,000 COV is very rare, usually one- off cases and usually for flats on very high floors’.

PropNex’s Mr Lim says that these days, ‘it is natural for the seller to ask for $40,000 to $50,000 COV because buyers are willing to pay’.

Ms Tay Yi Ling, 36, a senior manager, agreed to fork out $38,000 COV for her three-room flat in Bedok North, despite finding the amount on the high side.

‘It is a corner unit, big for a three- room flat, and it is right next to my parents’ flat,’ she says.

The highest median COV record on HDB’s books is $42,000 in 1996, when the property market was at its peak.

Mr Chris Koh, director at Dennis Wee Group, says ‘paying for high COV is becoming a norm now, but it should not keep rising’.

Property experts interviewed all say that median COV prices are unlikely to go higher than $35,000 in the next quarter of this year.

‘Once the threshold is hit, buyers just won’t pay,’ says Mr Koh.

Property agent Vincent Koh, who runs his own firm, MindLink Vincent Koh, says that with more new flats being launched, prices of resale flats and COV amounts will stabilise.

The HDB launched almost 9,000 new build-to-order flats in the first half of the year and will launch another 7,200 in the second half. The total amounts to 80 per cent more than last year’s number.

In addition, there are about 4,700 new flats under the design, build and sell scheme and the executive condominium housing scheme. In the pipeline are four more executive condominium sites in Punggol, Pasir Ris, Bukit Panjang and Tampines, which should yield 1,900 units.

However, despite more new flats on the market, some potential buyers say they will stick to hunting in the resale market.

Among them is tax officer Joanne Chang, 36. She has a flat in Sengkang, but spends most of her time at her mother’s home in Hougang.

She is on the hunt for a four-room flat in Hougang. ‘I want to live near my mum and also be near the school where I hope to enrol my daughter in next year,’ she says. She has viewed three flats since she began her home search a few weeks ago.

‘Most sellers are asking for a COV of $35,000 to $50,000, which I find steep. But I’m willing to fork out that sum if I like the unit,’ she says.

Account director Joseph Yeo and his consultant wife, Ms Hing Ying Ling, are also flat-hunting. They now live with his parents in an executive flat in Jurong East, but want to have a home of their own. Private housing is not an option as the couple find the prices too high and their joint income exceeds the $8,000 ceiling set for new HDB flats.

‘Our budget for COV is $30,000 or less,’ says Mr Yeo, 35.

They have seen more than 20 flats this year, in areas such as Clementi, Jurong East, Delta and Cantonment.

He says there are flats in Jurong East that fit his budget, but ‘it is a real hassle to drive to work in town daily’.

They recently viewed a four-room, 75 sq m flat in Cantonment Close where the seller was asking for $50,000 COV. ‘But it was just too small for our liking,’ says Ms Hing.

One of the more expensive flats they saw was in Clementi, which came with a $100,000 premium. ‘That is way beyond our budget,’ says Mr Yeo, who does not think he is being too picky. ‘A flat is a long-term investment.’

Mr Roy Varghese, foundation adviser and director at Ipac Financial Planning Singapore, advises buyers to do their sums before coughing up any cash.

He suggests dividing the premium over 10 years to see if they can afford it. ‘If not, buyers should be realistic and consider other flats that are cheaper but are in less central locations or are smaller in size, or even give up their cars, as a flat is a long-term asset,’ he says.

‘You must do your maths, and not depend on agents to tell you whether or not to buy.’

They paid $130,000 COV for Yishun flat 14 years ago

Source : AsiaOne – 31 Jul 2010

With the current property market and HDB prices at its peak, potential second-hand flat buyers should not dive in recklessly when purchasing a flat, but will have to be mindful of the potential pitfalls, warns real estate agents.

Citing an example of a family who paid S$645,000 for their executive maisonette in Yishun 14 years ago, Mr Mohamed Ismail, CEO of PropNex real estate agency, says the family has yet to make a profit on their purchase.

That is because they paid a cash-over-valuation (COV) amount of $130,000 then, during the property boom in 1996.

While prices of HDB flats are currently at its highest historically, the median price of a similar unit in Yishun now is still only $460,000.

Cash-over-Valuation is the difference between the bank’s valuation and the actual price paid.

According to the latest data released by the Housing Development Board (HDB), resale prices for HDB flats rose for the eighth straight quarter between April and last month.

The median cash over valuation (COV) hit a record $30,000, which is a 20 per cent jump over the $25,000 median COV amount in the first quarter of this year.

Almost all, or 96 per cent, of resale cases transacted above valuation.

Singaporeans seem undeterred by the jump in prices, as resale transactions rose by about 7 per cent this quarter, from 8,484 cases.

The example of the family in Yishun serves as a warning to others hoping to purchase a HDB flat now, when prices of flats and COV prices are at their peak, says Mr Iswan.

“It is a vicious cycle,” says Mr Iswan.

With the property market at its peak, sellers making a tidy profit from selling their unit would be willing to purchase a flat, despite a high COV.

Conversely, the seller would want to sell their unit at the highest price possible, to ensure that they will be able to afford another housing option.

Highest COVs for flats in Quenstown, Bukit Merah and Bishan

Flats in central Singapore are still fetching the highest prices, according to the latest statistics released by the Housing Development Board (HDB).

The resale price index for flats in the second quarter of this reached 161.3 points, with a percentage increase of 4.1 per cent from the previous quarter.

Units in Queenstown, Bukit Merah and Bishan fetched the highest amounts, with four-room flats in Queenstown and Bukit Merah transacting at a median price of $550,000 and $500,000 respectively.

The median price transacted for a similar unit in Bishan was $452,500.

As for executive units, a Queenstown unit fetched the highest amount, with a median price of $781,500, and Bishan was second at $685,500.

Mr Chris Koh, Corporate Director and Senior President of local realtor Dennis Wee Group advises potential buyers when choosing a flat, to focus on important factors such as the location, as well as the amenities that can be found in the neighbourhood.

“After all,” he says, “these are what will affect the price of your flat.”

Righting an ‘imbalance’

Source : Today – 26 Jul 2010

Red-hot HDB resale market will take a year to stabilise: Mah

Along with strong economic fundamentals, the red-hot HDB resale market is a result of an imbalance in demand and supply, and it will take a year or so for prices to stabilise, National Development Minister Mah Bow Tan said yesterday.

In the interim, the Housing and Development Board will roll out 18,000 to 19,000 flats this year.

“I hope with HDB pushing out a record number of flats this year, this imbalance will be redressed over the medium term,” Mr Mah said on the sidelines of HDB’s final community celebration for its 50th anniversary.

Some 9,000 build-to-order (BTO) units have been launched in the first half of the year, and another 7,000 flats will go on sale over the coming months. There will also be executive condominiums, Design, Build and Sell Scheme flats and some Sale of Balance flats, totalling about 2,000 to 3,000 units.

“If you’re a first-time buyer, there’s more than enough flats for you. But if you’re a second-timer, you have to compete in the market with the first-timers and others, and this equilibrium in the prices will be reached at a point in time in the medium term as we push out this supply,” said Mr Mah.

Property experts told MediaCorp that the European debt crisis, the possibility of a double-dip recession and a possible rise in interest rates may also impact price stability.

“The factors that suddenly come together to push up prices, if it’s not due to demographics – permanent residents and investor buying – can disappear just as quickly as (they) came,” Chesterton Suntec International research and consultancy director Colin Tan said.

Demand is also hard to predict. Mr Mah said the indication is that there will be “some slowdown” in the economy later this year.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said that “discretionary buyers” – those who can wait or have other housing options – are choosing to buy now “because they fear prices will rise”. He added: “If enough of them go into the market, it becomes a self-fulfilling prophecy.”

Agreeing, Mr Tan cautioned about a possible downside to a sharp rise in supply in just one year.

“If the demographics don’t support this, there’ll be a huge boom-and-bust cycle,” he said.

For now, Mr Mah recognised that the concern is over the Cash-Over-Valuation (COV) quantum. The latest median figure is $30,000.

But he stressed this had to be decided by the market.

“It’s in the interest of buyers to have low COVs, but it’s in the interest of sellers who own the flats to have high COVs.

“So, between these two groups, we must let them fight it out. The Government is not able to settle or fix COVs to say that it should be this or this figure,” he said.

“The Government prefers not to interfere. But we can interfere in the supply. This is something we can control.

“And I say again, we’re going to push out enough flats for first-timers. That’s the promise we’ve made, and that’s the promise we intend to keep.”

COV doubles for HDB flats

Source : Straits Times – 22 Jan 2010

UPFRONT cash paid by buyers for HDB resale flats doubled in the fourth quarter of last year on the back of high demand amid tight supply.

The Housing Board’s official statistics for the fourth quarter released on Friday showed the median cash-over-valuation paid for HDB flats was $24,000 – up from $12,000 in the third quarter last year.

The Resale Price Index hit a fresh record, with resale prices rising 3.9 per cent – 0.1% higher than the flash estimate released three weeks ago – for the last three months of 2009, bringing the full year increase to 8.1 per cent.

HDB said in a statement that sales volume declined by about 23 per cent, from 11,649 cases in third quarter last year to 8,926 cases in the following quarter. But 2009 was still a bumper year compared to 2008, with total number of resale transactions surging to 37,205 – an increase of 31 per cent over the previous year.

HDB also said that 93 per cent of sales in the fourth quarter transacted above valuation – up from 79 per cent in the third quarter. However, it added that the median COV has stabilised in recent times, with the figure for the first half of January down to $22,000.

HDB said it will launch 12,000 new flats this year under its build-to-order (BTO) scheme, or more if there is demand, and will monitor the market closely and adjust the flat supply accordingly.

Go back to basics for affordable flats

Source : Straits Times – 29 Sep 2009

WHAT does ‘affordable’ mean?

With rising home prices hitting headlines in recent weeks, Singaporeans are falling over themselves trying to pin down affordability.

The Government, which built its reputation housing a nation, has defended its record. It says that public housing is affordable because new home owners use less than 30 per cent of their income to service their housing loans.

While this is persuasive, public scepticism has been just as strong. The gap exists because there is no agreement on what ‘affordability’ means.

The Government feels flats are affordable because those who applied for them will not be paying through their noses. But this, however, does not take into account home seekers priced out of these flats in the first place.

Many home seekers, meanwhile, feel aggrieved because an HDB flat that does not require a long commute to work is getting out of reach.

Furthermore, a study by National University of Singapore economists Tilak Abeysinghe and Gu Jiaying published last year found that the buying power of people’s lifetime earnings in 2007 was lower than it was in 1990 when tracked against the prices of HDB resale flats. By this measure, the prices of HDB resale flats have become less affordable.

The HDB’s pricing system for new flats has also caused suspicion. New flats are priced at a discount from their market value, but this figure – as well as the size of the discount – has never been revealed. What is known is that the HDB bases the market value on the resale price of similar flats in the area. This means new flat prices can be affected by the speculative bubbles that emerge in the wider market. Enhancements made to new flats over the years have also raised prices.

In July’s batch of new premium flats offered in Punggol – which comes with timber and ceramic flooring and toilet fittings – four-room flats were going for a top price of $322,000. This is just $2,500 shy of the median resale price of four-room flats in the same town from April to June.

The response of the authorities to all these? It all boils down to home owners’ expectations, they say. Lower your expectations, live further away from town, or buy a smaller flat.

But perhaps it is time to take a hard look at the HDB’s increasingly conflicting mandates. In a Sept 14 letter to The Straits Times Forum page, the HDB said its ‘key responsibilities are to help first-time home buyers and to ensure flat values are sustained over the long term’.

The HDB undoubtedly had an easier time accomplishing these goals in its early days, when flat owners were largely resettled families who had not quite caught on to the income-generating potential of their homes. Both of the HDB’s goals could then be met rather easily by giving subsidies, keeping estates well maintained, and upgrading them over time.

Today, with the buying, selling and renting of HDB flats supporting an industry, it has become more difficult for the HDB to meet its goals.

The humble flat today is a shelter, an asset, as well as a source of rental and retirement income with the Board’s lease buyback scheme. A flat owner who moves on to a bigger home is entitled to a second subsidised home loan from the Board, while others who sell their first subsidised flat can go back for a second if they pay a levy. The benefits are substantial once someone gets his foot in.

But this cradle-to-grave system has also raised expectations about how much money flat owners can make from their property. People have come to expect that their flat values will rise – indefinitely. They do not seem to realise that this rise has to, to some extent, come at the expense of home seekers down the line. But just like passengers on a plane, they hope it will take off once they get on it.

Such expectations – supported by the HDB’s mandate to sustain flat values – also prevent the housing authority from building too many new flats at any one point in time. If the Board builds enough to satisfy quickly the demand of all home seekers, prices in the resale market will fall.

It was not too long ago that flat owners in Sengkang complained that the surplus of new flats created by the Asian financial crisis was suppressing the value of their homes. But the pendulum these days may have swung too far against the interests of home seekers.

What this means is that the HDB may be forced to prioritise one of its two mandates: Should it focus on helping home seekers own homes, or should it focus on protecting the value of the existing flats of existing home owners?

The Board cannot abandon either goal without political consequences. But it cannot achieve both in equal measure either.

It need not look far for clues about the way out. Former HDB chief executive Niam Chiang Meng declared in 2003 that the Board was going back to basics to improve the workmanship on its flats. Over the next few years, the Board cut out the more elaborate features in its upgrading programmes and focused instead on practical improvements like plugging ceiling leaks.

Why not apply this back-to-basics approach to the HDB’s goals: Provide shelter first before worrying about the values of existing flats?

The HDB could also slowly dismantle the systems that feed into the unreasonable expectations of home owners. For example, eligible households might be limited to just one subsidised flat, or just one housing subsidy, so as to wean people from the assumption that huge profits automatically await every flat owner.

Flat owners, meanwhile, have to realise that there are limits to how far public housing can be commercialised. They certainly cannot demand that the value of their properties appreciate – or even be protected – under any circumstances.

After all, they were all home seekers once, looking for that same leg up on the property ladder as the people who are starting off now.

18 failed attempts to get an HDB flat

Source : Sunday Times – 27 Sep 2009

With reference to the report, ‘Flat-hunters feeling COV pinch’ (Sept 13), here is my story.

My wife and I registered our marriage in late 2001 but have yet to hold our customary wedding as we have been unsuccessful in our numerous attempts – around 18 times since 2001 – to get an HDB flat.

Over seven years, we had spent much time, effort and money in applying for a flat under various Housing Board schemes, such as the walk-in selection, balloting exercise and build-to-order scheme.hdn

We have also approached our Members of Parliament for help, and written to the HDB to give our feedback.

All those unsuccessful HDB applications have left us poorer and emotionally drained.

Many people can’t believe we still can’t get a flat after so many years and so many applications.

We can only say that we have rotten luck.

Thus, we have been forced to try our luck at getting a resale flat, which means cash for agent, cash over valuation (COV) for seller, competition with other buyers and more cash for renovation.

With the rising population, plus scarcity of land in Singapore, the cost of property will rise, and low COV is uncommon, especially at this point when the economy is improving.

Therefore, we are at the mercy of valuers, sellers and even the HDB policies which may indirectly affect the prices.

Where is the help for those first-time buyers who face the cash issues of buying a resale flat?

Many like us are in need of money to hold the customary wedding, furnish and renovate a flat and set up a family. Many will be unable to pay the high cash over valuation.

The HDB should take steps to help people like us, who are forced to buy the mostly over-valued resale flats.

Perhaps the HDB could relax its rules and allow certain groups of applicants to use the HDB grant or Central Provident Fund money to pay for such flats, if the COV is not to be abolished.

Soh Say Kiat

Widow can’t find affordable home

Source : Sunday Times – 27 Sep 2009

I refer to last Sunday’s article, ‘Married, but no place of their own’.

This problem has plagued many Singaporeans, but what is being done about it?

Young people are encouraged to get married and start a family, but where do they live?

When I was widowed, I was servicing my housing loan from my Central Provident Fund Ordinary Account.

However, when I reached 55, the amount from this account was transferred to my Retirement Account. Hence, I had to sell my house to downgrade to an HDB flat.

The Housing Board said I had to wait 30 months before I could buy directly from the HDB. This was a condition for former private property owners.

This period applied not only to me, but also to my single daughter if she wanted to buy a flat with me.

All our letters of appeal to the HDB and visits to Members of Parliament did not help.

Now that the 30-month period is over, I am back to square one, and the ordeal is not yet over.

There is no HDB flat available. Balloting is a lucky draw – you can ballot for years, but if you do not get a flat, you have to try again.

Even the build-to-order scheme has thousands in the queue.

Like the married couple in the article, I cannot fork out the cash.

Could the HDB tell us what is being done to help people in my situation?

Kordial Kor (Ms)

Are homes affordable?

Source : Sunday Times – 27 Sep 2009

About a year ago, in a special report, I waded into the debate over the affordability of public flats.

The issue had been sparked by the relaunch of Pinnacle@Duxton last September. With prices of its five-room units reaching $645,000, the Pinnacle has become Singapore’s costliest public housing project.

At that time as well, condo-style flats under the HDB’s Design, Build, and Sell Scheme (DBSS) were going for over $700,000 for the bigger units.

Indignant home buyers flooded The Straits Times Forum with letters on what they saw as an ‘upwards price spiral’ of HDB flats. Netizens also weighed in.

But the buzz faded with the global downturn. Jobs were lost, and the property market fizzled.

Today, the decibels are back, and with a vengeance. Not surprising, considering the recession-defying property boom in the last six months, with HDB resale flat prices soaring to a historic record and surpassing the peak of 1997.

From recent reports in The Straits Times, developers – riding on the momentum – are raising prices at DBSS projects such as Natura Loft at Bishan and The Peak@Toa Payoh by up to $20,000.

Property analysts predict that when the HDB launches the remaining Pinnacle@Duxton flats, prices may hit $700,000 due to the prime Tanjong Pagar location.

The upset voices over the affordability issue are now louder, with some questioning the HDB’s method of measuring affordability. Some pointed to tables showing that homes here cost more than in Tokyo and New York.

‘HDB is not building enough new flats where Singaporeans want them,’ said a Forum letter writer. Ramp up the supply or ban the cash-over-valuation (COV) practice, a few urged.

One popular complaint: HDB prices rose quicker than wage increases.

Is there a basis for such claims?

A simple analysis shows this: A new four-room flat in 2000 cost about $150,000. Today, a new four-roomer averages $265,000, based on HDB figures. The price increase is roughly 77 per cent.

In comparison, the Department of Statistics put the median income for a resident household at $3,640 in 2000. Last year, this was $4,950, roughly a 36 per cent increase.

So yes, buyers are right: HDB flats have become more expensive, rising quicker than wages.

But real estate experts at the National University of Singapore point out that the quality and attributes of flats have also gone up from a decade ago, and buyers cannot expect to pay the same prices for improvements in design and to the surrounding environment.

The experts also say that housing prices in 2000 were dampened by the post-1998 Asian financial crisis.

Prices have since risen, reflecting the growth of Singapore’s economy in the last decade, buoyed by demand from new permanent residents (PRs) and citizens.

So, yes, prices have risen quicker than wages but are public flats still affordable?

Again, yes, it seems.

When the affordability issue was debated in Parliament recently, National Development Minister Mah Bow Tan took pains to address it.

From figures he unveiled, the monthly median income of a household seeking a new three-room $150,000 flat is $2,000, and $460 monthly is needed to service a home loan. This includes an additional housing grant of $35,000.

This monthly payment is 23 per cent of the household income – below the 30 per cent to 40 per cent benchmark of debt service to income ratio – what the HDB and real estate academics peg to be the international standard for housing affordability.

Even at the higher-income level of a household that makes $8,000 monthly, it can afford to buy a $660,000 resale flat at the 30 per cent benchmark. At this price, the household can get five-room flats in all towns, said Mr Mah.

So why the unabated uproar over home prices?

The truth is that there is a ’sandwiched’ middle-income group of buyers. Their feeling of resentment runs high because they face what the real estate experts call ‘liquidity constraints’.

This group, having exceeded the decade-old $8,000 income ceiling, cannot apply for new flats or enjoy housing grants in the resale market. They also find private homes too pricey now.

They turn to the HDB resale market but simply cannot stump up the high COV premium demanded by sellers in today’s rising market.

This situation arises because, in a rapidly rising market, the valuation of a flat will tend to lag behind the market price.

As historical pricing is a key determinant in a flat’s valuation, the gap between the market price and the valuation amount may be considerable.

One wonders: Can affordability be improved by tackling the above scenarios? It is not so straightforward.

Moving from a market-pricing mechanism to a cost-based one that many have called for – like in Singapore’s early years – will unfairly give a cash windfall to lucky owners who ballot successfully for new flats in a mature estate. It makes applying for HDB flats in popular estates like a lucky draw.

Worse, it may affect the demand for new flats in non-mature estates as first-time buyers will want to wait it out and crowd queues for the twice-yearly HDB ballots for new flats in mature estates.

Also, cost-pricing makes buyers vulnerable to volatility in construction costs, and will suppress the market value of existing resale flats.

This might provide short-term relief to buyers but what of the 885,000 HDB flat owners who look forward to capital appreciation when they sell their only home?

Banning COV is not practical either; this will mean flats can sell only at valuation price. No seller will agree to let a valuer decide the final selling price of his home, not to mention that too much power now goes into the hands of the valuer.

Making banks cover COV as part of the home loan will increase loan risks as this is not part of the flat’s valuation; buyers may also over-commit themselves and banks are unlikely to budge on this.

So it comes to this: Buyers say HDB flats are becoming unaffordable but HDB says that is untrue. Who is right?

Perhaps both sides are, and what we need are more data points to give more insight. Real estate experts affirm that the 30 per cent benchmark is not wrongly used and is indeed applied internationally by many countries to compare housing affordability. Banks also use this threshold to evaluate home loan risks.

But there is not enough data to determine the affordability of different income groups; say, is a prime HDB flat really affordable to a family in the corresponding income bracket? If not, should the $8,000 income ceiling be raised so that more households can enjoy the housing grant?

More independent studies should be done to include attributes such as distance to city and quality of amenities in the affordability indexes. People may more readily accept such findings, rather than rely on HDB’s assurances alone.

Currently, only limited data is available to match housing data to income groups, say experts.

If such information is made more available to researchers, their studies may provide insight into where housing shortfalls are, and for which income categories.

Then, both policymakers and buyers may have a better idea of how to improve the current situation – and hopefully, the chorus of voices would finally be appeased.

Jessica Cheam

How family’s fortunes have grown over years

Source : Straits Times – 26 Sep 2009

THE letters lamenting how singles are being priced out of the HDB market and the call to ban cash over valuation (COV) arrangements are bemusing.

My family is an example of how HDB policies have helped us improve our standard of living and how gradual price increases have helped my family upgrade our housing status.

My parents have three children and over 40 years, our family of five has moved from a one-room flat to a three-room and finally to a four-room flat in Choa Chu Kang – a location that is not ideal for some people but has reasonably good amenities. Most important, it is a place my family can afford.

Although we started out with a small one-room flat, the price increases have helped our family upgrade the size of our home.

Unlike other countries, Singapore has a unique public housing policy where the Government not only helps most of us buy our first home, but also ensures that the increasing value of our property will enable us to upgrade to the next level when we are ready.

My brother recently applied successfully for a flat in the vicinity. Although his fiancee’s parents live in the more popular Sengkang and of course she would like to live near them, they decided to apply for Choa Chu Kang because their chances of getting a flat would be higher.

When I got married eight years ago, I lived with my parents-in-law for a few good years before we bought our own place. Young couples these days complain they are being priced out of the HDB market. But it is their unrealistic expectations that have caused this.

Realistically, a young couple who want to start a family and own their own place should consider a tradeoff between the size of their first home, its location and the availability of new homes (especially in a mature estate).

Otherwise, there are other options like the rental market or living with their parents until they are ready to move out.

A word of advice to these young couples who plan to start their own families and move on to the next stage of their adult life: Instead of blaming others for not being able to own their own place (with the size and location they want), perhaps they should be more mature and realistic in their expectations.

In life, we must learn to adapt and not just live within our means, but also make the most of what we have.

Mabel Tan (Miss)

‘We are creating our own housing bubble.’

Source : Straits Times – 26 Sep 2009

WEDNESDAY’S editorial, ‘Watching HDB price behaviour, sensibly’, suggested that the sudden spurt in private property prices since July has boosted HDB values.

That may be true but may not the reverse also be true, that is, that HDB values have also boosted private property prices?

In some HDB estates, the prices of four- and five-room flats have risen by $100,000 or more over the past six years. How

will this not affect property prices in general?

The HDB says its flats are highly subsidised, which I understand to be more a case of discount on commercial prices.

However, as there is no developer of public housing except the HDB, from where are such commercial prices drawn?

The editorial made another excellent point, urging buyers to exercise their democratic right not to pay a premium by considering non-prime townships.

Perhaps the democratic right would be better exercised by demanding that the HDB build more smaller flats so buyers are not saddled with a lifetime of debt.

Buying small and then upgrading to a bigger flat later when you can comfortably afford it should be a safer way for buyers.

At the rate that housing prices are moving, we are creating our own housing bubble.

Coupled with the culture of easy bank loans and credit cards, it makes thinking Singaporeans wonder why the Government is allowing these harmful practices, even as the United States government is trying all ways to dampen such practices.

Chia Hern Keng

How to live in cheaper Woodlands when work is in Shenton Way and parents are in Tanah Merah?

Source : Straits Times – 26 Sep 2009

I GOT engaged a few months ago and have started looking for an HDB flat. We have gone from executive apartments to five-room flats and are now considering four-room units.

While the valuations are reasonable, the thought of having to fork out more than $40,000 in cash for a tiny four-room flat is ridiculous.

The Government has also suggested considering Sengkang, Punggol and cheaper new estates farther out in the suburbs.

But why would I buy a cheaper flat in Woodlands if I work in Shenton Way and my parents live in Tanah Merah?

Is this how better family relations are fostered? My choice was to stay closer to my parents to maintain the close bond I have with them. The Government must come up with more practical solutions.

Wilma Gaiyithri Muhundan (Ms)

Don’t blame insufficient land release for property price surge

Source : Straits Times – 26 Sep 2009

I REFER to Monday’s Forum Online comment by Mr James Tan (’High price of flats, not affordability, is the issue’) that ‘URA did not release sufficient land to build HDB flats in a timely manner, causing pent-up demand and a sudden surge in prices’ and that ‘in the 1970s, a typical three-room flat in Marine Parade, a choice location, cost about $9,500. Today, a typical flat can fetch as much as $300,000 in the new towns’. That is a 3,000 per cent increase over 40 years.

However, the increase in flat prices is primarily due to Singapore’s growth and prosperity as well as inflation. In 1970, Singapore’s per capita GDP was US$914 and last year it was US$37,597 (S$53,000), and increase of 4,000 per cent. And, of course, good old inflation: If you remember, in old cowboy movies where a dollar coin was made of gold, they would bite it to make sure it was genuine.

Land in Singapore is limited, and I believe the Urban Redevelopment Authority has so far managed supply and demand very well to maintain price levels. One possible problem ahead is that, as younger Singaporeans are better educated, better paid and more affluent, will the older generation be left behind?

Calvin Yong

Watching HDB price behaviour, sensibly

Source : Straits Times – 23 Sep 2009

THERE is a rising pitch of anxiety evident in queries and feedback about HDB housing in recent months. These have centred on affordability mainly, no surprise considering that the sudden spurt in private property prices since July has boosted HDB values, which already were holding better during the recession. Hence, complaints about cash over valuation. Why don’t buyers exercise their democratic right to not pay a premium by looking in towns less ‘prime’? Home buyers have also touched on policy issues like household income ceiling and the operation of ethnic quotas. National Development Minister Mah Bow Tan addressed most outstanding grouses in a well-timed statement in Parliament last week, but such is the variety of need and the habits of personal preference that assurances would still leave some home-seekers unconvinced.

Affordability is a bugbear, which in turn influences notions of supply relative to demand. Median income and the ratio of household income used for loan service (up to 30 per cent, as a general rule) cited by the minister are indicative of most people’s ability to pay, but these are rough guides. In every flat type of up to five rooms and the corresponding price ranges, households which fall below the median income line could progressively be less able to own their homes. That’s a lot of families. Financing difficulty can also arise when a family chooses a bigger flat than it can pay for, or needs. There are far too many of these big-is-better purchasers. But this is also where the comprehensiveness of HDB’s income-differentiated schemes and the different types of supporting grants available reinforce affordability.

There is little doubt that state housing is affordable, whether new or resale, if one considers carefully precise matching need. The HDB has every conceivable flat type and location to suit every budget. Home seekers create problems for themselves when, as seen, they buy bigger places than they can comfortably finance. They could also be unyielding about wanting to live in ‘mature’ towns or to be near their parents, for the (selfish?) child-minding convenience. It is an odd mentality that regards only as ‘ulu’ the new towns which otherwise score heavily in more spacious estate layout and the much nicer, contemporary design of flats. And what of ‘distance’? Farthest points on this island are reachable inside an hour by public transport, faster by car. Mr Mah urged buyers to be sensible about making ‘trade-offs’ between location and price. This newspaper would go further: If they choose to be obstinate about quirks, they should not be hectoring the HDB for impossible concessions.

Staggered income ceiling worth a look

Source : Straits Times – 22 Sep 2009

I DISAGREE with Mr Lim Hing Kok’s view last Thursday, ‘Four ways to bring down flat prices’, that HDB owners be forced to leave their flats should they become ‘very successful in life’. Public housing, as a means of residence, should not be taken away from anyone.

Other factors may lead such successful people to keep their flats: large families, sentimentality for their first home, proximity to friendly neighbours and family; and even the stress of moving house.

However, Mr Lim’s suggestion of a staggered income ceiling is viable and allows families who only just exceed the $8,000 income ceiling to buy larger premium public flats.

This would free up a larger portion of their income for education and other expenses.

As for eliminating property agents from the transactional process, the HDB already provides the option of direct

buyer-seller transactions, and holds regular seminars on how to do so.

However, property agents are necessary for the market at large. A property transaction involves large sums of money and many legalities.

Real estate professionals provide an important value-added service by helping clients find a willing buyer or ideal home, and shepherding them through a transaction process many find complicated.

The choice of engaging an agent lies with the buyer and seller.

Even if a client avoids using an agent, the actual amount saved is a fraction of the penalties should anything go wrong and lawsuits are lodged for non-compliance.

Adam Tan
Corporate Communications & Marketing Manager
PropNex Realty

Are flats too pricey or buyers too choosy

Source : Straits Times – 20 Sep 2009

Experts advise buyers to keep an open mind in terms of location, size

Mr Jason Zheng is getting married next month, but he and his fiancee have yet to find a place of their own.

The 27-year-old IT consultant does not want to wait three years for a new flat but has been priced out of the resale market due to the current property rally.

Sellers have been asking for cash of up to $60,000 above valuation, which he cannot afford.

He also struck out twice at the Housing Board’s half-yearly sale where most of the units on offer are completed.

His dilemma is not unique. In the past month, at least 15 people have written to The Straits Times Forum, venting their frustrations over escalating prices, premiums over official valuations and a perceived undersupply of HDB flats.

But have buyers really encountered a wall when it comes to housing options?

Or is it also a matter of some people being too choosy and unrealistic in their expectations?

National Development Minister Mah Bow Tan urged buyers to take a bigger view in Parliament last Monday. For a household that earns $4,000 a month, he said the options might be:

~ A new five-room flat in Punggol or Woodlands;
~ A resale five-room flat in Woodlands;
~ A four-room flat in a popular estate like Tampines; or
~ A three-room flat in a mature estate like Toa Payoh.

Those in the industry agree that buyers can be narrowly focused.

PropNex chief executive Mohamed Ismail observes that couples are often reluctant to live in the outskirts and want flats in certain good locations where they can move in immediately.

But these places – like Bukit Merah, Tiong Bahru and Clementi – command a high price.

A four-room flat in Toa Payoh can cost up to $535,000 while one in Woodlands is priced less than $250,000.

Agent D. Lim said newlyweds often insist on getting flats near their parents’ homes even though the latter may live in mature, pricey estates.

MPs interviewed said they have seen cases where couples turn down new HDB flats because the location was not ‘prime’ or the unit was on a low floor.

East Coast GRC MP Jessica Tan explained: ‘They have preferences, and since a flat is not a small investment, these people tend to be more choosy.’

MPs said newlyweds often go to them for help in getting a home, urging them to intercede with the HDB.

Certainly, housing is a hot issue, especially when prices are climbing.

Last Monday, in Parliament, Mr Mah assured the public that HDB flats remain affordable, noting that eight in 10 Singaporean households qualify for various grants. Still, prices of HDB resale flats are at a historic high, reversing from a first quarter dip of 0.8 per cent to a 1.4 per cent rise in the second quarter.

There is also the rising COV, or cash over valuation. This is the premium which sellers demand over the official valuation.

COV amounts reportedly doubled in July this year to about $10,000 to $15,000 for five-room and executive flats, from a median level of $5,000 in the second quarter.

MPs and industry experts said those most affected are first-time buyers – usually couples unsuccessful in getting build-to-order (BTO) flats and who cannot afford resale flats.

Currently, the HDB uses the BTO system, introduced in 2001. Eligible buyers can apply for flats in their preferred locations from specific projects launched.

It takes about three to four years for the units to be built. Construction will start after a majority of flats are booked.

Previously a queue system, where flats had already been tendered for construction when offered to applicants, was used. Though the system assured buyers of a flat when their turn was due, it did not provide a real gauge of demand as applicants could drop out at will.

This resulted in an oversupply of about 20,000 flats when the Asian financial crisis hit in the late 1990s. The stock was cleared only in 2007.

Now, flats not booked under BTO, surpluses from the Selective En bloc Redevelopment Scheme, surrendered flats or cancelled bookings are made available in balloting exercises as well as half-yearly sales.

To meet increasing demand, HDB said it will offer 8,000 or more BTO flats this year. This compares to 2,400, 6,000 and 8,000 in 2006, 2007 and last year respectively.

A spokesman added: ‘The majority of first-time applicants have a chance to select a BTO flat within two tries.’

Given the realities today, industry experts advise buyers to keep an open mind on where to live and the size of the flat.

KF Property Network’s general manager Tony Koe recommends that young couples without extra cash should look for units on the fringe of places like Woodlands and Choa Chu Kang, where prices are more in tandem with valuation.

MP Lim Biow Chuan (Marine Parade GRC) also warns couples against overstretching their finances.

‘A lot of people are now living on credit; when you buy a large flat and put yourself on a long-term financial commitment, what is going to happen if you are retrenched or fall sick?

How HDB determines the prices of flats

Source : Sunday Times – 20 Sep 2009

A new flat’s equivalent market price is first determined by looking at the recent transacted prices of resale units nearby.

Adjustments are then made to account for factors like location, finishes of the flat and other attributes. The price reflects the flat’s value at the point of purchase and is what people are willing to pay on the open market for such a unit.

The HDB then sells it at a significant discount, which is the subsidy given by the Government. The HDB sells flats based on market price instead of cost as this is the fairest way of pricing new flats.

A market-based pricing approach ensures that all groups of buyers enjoy similar discounts to the market and would be fair to those who are buying other HDB flats today.

It is not tenable for the HDB to price flats according to their development cost, which fluctuates depending on factors such as site conditions, material price and tendered construction price.

Hard to take property agents out of the HDB equation

Source : Straits Times – 19 Sep 2009

I AM writing with regard to Thursday’s letter by Mr Lim Hing Kok, ‘Four ways to bring down flat prices’.

First, Mr Lim says HDB owners should occupy their flats and not leave them vacant. I believe HDB already has this rule. Most HDB owners are single property owners and they live in their own homes. Only a small minority leave their homes vacant. Thus the impact is minimal.

Mr Lim’s second point, that HDB owners should move out when their incomes reach a certain level, is not practical or logical. Is he saying a couple who work hard to increase their incomes over the years will be penalised?

Third, he infers that those who earn more than $8,000 should not be allowed to buy a flat below $400,000. Why penalise a prudent buyer? Someone with $1 million may choose to buy a $300,000 flat. What is wrong with that?

As for Mr Lim’s final point about taking agents out of the equation, more than 95 per cent of all HDB transactions are done through agents. They do not set the prices. All transactions take place only when a willing buyer and a willing seller agree on a price. Prices will continue to remain high until HDB builds more flats to satisfy the demand from house-hungry buyers.

Albert Ephraim Wong

Pricey flats? Then buy something you can afford

Source : Straits Times – 19 Sep 2009

KUDOS to the Government for its success in encouraging home ownership.

However, like the ‘Stop at Two’ campaign to control population growth, its success in housing Singaporeans has raised fresh problems.

Many home buyers today are unrealistic in their expectations. If they insist on on a new flat, they must be prepared to wait and should not be disappointed when not given the choicest pick or worse, not selected.

With resale flats, which are a good alternative, be prepared to consider a unit that is smaller or farther from the town centre (where all amenities are) or at a lower level or less well renovated.

With flats that are generally cheaper as they are ‘not so good’, issues of excessively high valuation and cash over valuation can be drastically reduced. Like it or not, though not perfect, it is this ‘let the market decide’ process that allows many to upgrade to private housing after a few years.

Is there really a shortage of basic housing or are the expectations of many buyers unrealistically high?

Buy what you can afford. There is an old saying: Do not wear a hat that is too big for your head or you may trip and fall.

Charles Cheng

ST’s attempt to measure affordability

Source : Straits Times – 19 Sep 2009

THERE are many ways of calculating affordability, and every organisation that is interested in doing so – property firms, governments, banks – probably has its own individual index.

But one of the most internationally recognised measures is the price-income ratio, which is recommended by the United Nations and the World Bank. The ratio divides the price of a private home by a potential buyer’s annual income.

It is widely used because it is simple and uses readily available data on home prices and incomes. However, it is not as straightforward as it looks.

While only two factors are involved, they can each be calculated in a variety of ways.

For instance, should median income and median prices be used? The median is the figure at which half the number of values are higher and the other half lower. Or would the average figure for both better reflect the range of home prices? For prices, is it better to take the total price of a home – which, after all, is the amount buyers will use to determine affordability – or to use the per sq ft price, which also takes into account the fact that homes are getting smaller?

There is also the question of which measure of income to use: individual income or household income? And should it be the income of all households in Singapore, or only the income of employed households in which at least one person is working?

Finally, all comparisons must be done in reference to an earlier period. But which previous year should be used as a reference point? Using a boom year or a slump year could skew comparison equally and in different directions.

To compute the price-income ratio, The Straits Times took the prices of all private home sales since 1995, obtained online from the Urban Redevelopment Authority’s Real Estate Information System. This is preferred over using a basket of properties, as some analysts do. Income figures were obtained from the Department of Statistics. Monthly incomes of all resident households were multiplied by 12 to get annual incomes.

We took the median measures of price and income, to avoid skewing the result. On top of that, we also did the same calculations using average prices and incomes and found that the conclusions were largely the same.

Property consultants also agreed household income would be a better measure, since most households pool their money to buy a home.

We took the median income of all households in Singapore, because it is not only working households that need a roof over their heads.

To overcome the issue of which year to choose as the best reference point, we drew up a time series showing the price-income ratio over the years, dating back to 1995. Beyond it, home price data is not publicly available.

This period covers the epic boom of 1996 and 1997, the plunge in 1998, a mini-boom in 1999 and 2000, the subsequent slump that started in 2001 and led to the ‘dry years’ of 2002 to 2005, and the most recent boom and bust of 2006 to 2008.

From the chart, it is clear housing prices, as measured in terms of annual incomes, declined last year to match the comparatively affordable levels of the early 2000s. Even during the peak in 2007, affordability was higher than in previous peaks of 1996 and 2000.

Four ways to bring down flat prices

Source : Straits Times – 17 Sep 2009

I APPLAUD the new measures by the Government to curb speculation in the property market and reinstate the Government Land Sales Programme.

However, they do little to alleviate the structural problems at the root of the resale HDB market and the frustrations of many home seekers. It is too easy to blame cash over valuation (COV) for the rampant rise in resale prices or repeat continuously that resale HDB flats are affordable.

Four measures could be taken to significantly improve the supply of resale HDB flats and thus lower prices.

~ HDB flats should be affordable housing only for genuine home owners who occupy the flats.

They should not be used for investment or rental income.The resale market is still tight because many owners, who have already moved out, are simply holding on to their property or hoping for a collective sale.

If owners do not live in their flats any more, they should be put on the market immediately.

~ There should be an income and assets cap for owners of HDB flats.

If the owners are very successful in life after buying an HDB flat, they should leave their property on reaching a certain threshold and sell it.It is not right that families with multiple properties and very high salaries are able to hold on to their HDB flats.

~ Have a staggered income ceiling instead of a blanket one of $8,000, applicable across all HDB flats ranging from $200,000 to $600,000.

For example, have an $8,000 income ceiling for flats valued below $400,000, a $10,000 ceiling for flats valued above that and below $600,000, and $12,000 ceiling for flats valued above $600,000.

~ Take property agents out of the equation.

HDB should stimulate and facilitate direct owner-buyer contact.I urge HDB to consider these measures to tackle the problem at its root and let go of its free-property-market thinking.

Lim Hing Kok