Monday 13 February 2023

Wake Up From HDB

Back in August 2021, I wrote an opinion piece (here) on the issue of HDB affordability. Currently, it seems like the situation has further escalated into more anxiety for potential first time home owners. Resale prices continued to rise and into its 31st consecutive month! That's against a backdrop of a recovering global economy, political tensions and inflation. I kept wondering how could this be when personal income is climbing slowly, cooling measures are in place and the most important factor, that all HDB flats are 99 years lease which mathematically would reduce to zero at the end of it. So at this juncture, I have arrived at the following pointers.

1. People have still not woken to the fact that the HDB flat is a depreciating asset. They are leasees who happen to be given the option to sell any remaining lease period. Perhaps the first 50 years of a flat can be traded but the value should fall thereafter given the lease decay and natural wear and tear condition. Therefore, if prices continue upward, someone in the end stands to hold this hot potato and get burnt.

2. The HDB flat may have been mistaken to be holding certain intrinsic value throughout its tenure. Singapore was growing when the first HDB was built and as people became wealthier, prices naturally increased. But being a mature economy now, there would be limited upside in its ability to achieve continuous high growth figures, yet the HDB price is showing otherwise. Rising prices in older flats are simply unsustainable, even in the best locations and biggest units. I think the asset enhancement policy touted by the government is working its "magic". Despite several reminders by ministers that majority of flats would not be enbloc and have to be returned when time is up, this has fallen on deaf ears or maybe blind faith?

3. The government had taken pains to emphasize that HDB flats were heavily subsidized and various metrics showed that the average BTO remained affordable. What's missing in their narrative is the great buffering action taken so far. They have been kind to absorb any interest rate impact by keeping the lid on HDB loan rate. That, in my opinion, perpetuated the idea of affordable home ownership. But for how long can the budget allow such benevolence? The taxpayer better be prepared for bad news.

4. People can choose to be oblivious but the government is the only actor who can defuse this situation. It can guide a free market into the preferred direction through a series of rules, incentives, policy changes, interventions etc. The sense I get is that the minister in charge and his wise council know the problem but do not know when is appropriate to take a tough stand. A jolt is needed, not some teeny measure to tame the HDB price exuberance and expectations.

Tip: Longmorn 18, apple orange peel, lightweight and toffee in the middle

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