Invest in Singapore Property: Regulation and analysis

ANALYSIS of Singapore Government Property Regulation

Commenting on the 30th Aug 2010 Property regulation
http://www.propertybuyer.com.sg/articles/regulation/singapore-property-regulation-30th-aug-2010/


Due to a mis-alignment in supply and demand from insufficient HDB flats in the year from 2006 to early 2010 HDB prices have shot upwards. We cannot help but be critical of the Singapore government as we feel this is a major mistake and causes untold hardships on first time property buyers and raises the cost of housing via raising land prices. We can only see one beneficiary, the Singapore government land sales program.



Using regulation to constrict demand is a Brute force mechanism. Of course regulation can stop some demand by curbing affordability, limiting access to credit or by stopping some Permanent residents (PR) from buying property in singapore. A more severe regulatory environment can even kill growth. But all these are necessary as most electorate stays in HDB flats and government must be seen to control rampant HDB price rises.

HDB has repeatedly clarified that they have a very sophisticated way to measure demand and therefore build houses, but these explanations while it seems like there are some logic, is illogical and out of touch with the reality.

Supply and demand is easy enough in a Country such as Singapore. Therefore we can only conclude that the Singapore government wants to maximise land productivity as Minister Mentor has mentioned.

Maximising land productivity means you can expect the singapore government to get the most out of you by selling you the land. This is our interpretation.


Demography

Just take a look at the statistics and our conclusion is still that supply and demand has been misaligned. Someone must have fallen asleep on the job.


From the year 2006 to 2010, the population (mainly from immigration) grew from 4.4014m to 5.0767m (http://www.singstat.gov.sg/stats/themes/people/hist/popn.html).

This is a massive increase 675,300 people in less than 4 years. A more than 15% increase in population. Not even a big country like America who has more than 300m population takes in so much people.

HDB flats built numbers are extremely elusive. We wonder why don’t HDB put these data in one place on the website.

From 2006 to 2007 – HDB built 4628 units (Adapted from Source: http://tankinlian.blogspot.com/2010/01/hdb-flats-and-population-growth.html)

From 2007 to 2008 – HDB built 1472 units (Adapted from Source: http://tankinlian.blogspot.com/2010/01/hdb-flats-and-population-growth.html)

From 2008 to 2009 – HDB built 8400 units
(“The Build-To-Order (BTO) system constitutes the main supply of new flats. HDB has to date launched about 5,000 of the planned supply of 8,400 Build-To-Order (BTO) flats for 2008.” source: http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/82A850D8E04A77C8482574EC001188EC?OpenDocument)

From 2009 to 2010 – HDB built 13,500 units (http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/78746BAD770849794825768C00147042?OpenDocument)

For 2010 – estimated HDB built flats are 16,000 to 22,000.
(Source: http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/895204E2295BDC394825778E007FA919?OpenDocument)

Total HDB units built between 2006 to 2010 (estimated)
2006 - 4624 units
2007 – 1472 units
2008 – 8400 units
2009 – 13,500 units
2010 – 16,000 to 22,000 units

= 43,996 to 49,996 units

Total population increase = 675,300

Assume that 80% of these population growth stays in HDB or will eventually buy HDB.

80% of 675,300 = 540,240

With an average household size of 3.5 (Singstat figures for Singapore's household size). We do accept that foreigners can have a different household size, but this is simply an estimate.

The total HDB units demand is estimated to be 540,240 / 3.5 person per household = 154,354 HDB units of demand.

154,354 HDB units of estimated demand and only 43,996 units built.

HDB SHORTAGE = 110,358 units (Estimated).

It is precisely this shortage to fulfill latent HDB demand that fuels crazy HDB prices rise. And do bear in mind, there is a 2 years lag in building HDB, therefore the shortage is real.

In another words, part of the price rise is not bubble, but an actual acute shortage of HDB flats due to an imbalance created by HDB.

What about Property Supply in the Private Residential segment?

According to MAS, there is adequate supply in the pipeline. There is a pipeline of 75,700 units (61,800 as at 2Q2010 and 13,00 from Government land sales GLS programmes) available with 32,600 available or could be made available for sale. (Appendix 2)

Possible End result of this new Singapore property regulation

This new property regulation is nonetheless a move in the right direction and will lead to less speculation.
And since Private property dwellers will no longer be able to buy HDB flats, this will relieve pressures on HDB flats from rising too fast.
But the latent demand is real. Even if all these people that need HDB housing are not buying, they will be renting. The rental yields will rise and therefore lead to HDB price rise.
Some of the HDB dwellers will sell out and then upgrade to Private residential housing.
By constricting HDB flat supply and then creating more Private residential supply, if this was intended, this indicate that the Singapore government was intending on upgrading it’s citizens towards private residential housing.
The bulk of Singaporean heartland residents who stays in HDB or aspire towards owning a HDB will suffer. As HDB prices rise and closes the gap with private housing, newly wed couples will have a hard time to afford to buy even a HDB given that HDB is priced based on a market subsidy.

What is a HDB market subsidy?

HDB publishes financial statements, but they cannot be easily understood, let us just attempt to make some assumptions here based on our best understanding. You can go to this link to understand more about the financial report. http://theonlinecitizen.com/2009/11/hdb-annual-report-deficit-has-doubled-%E2%80%93-really/)

We read the financial report and we have a big headache understanding what they say.

After looking very hard, we have compiled the HDB flats supply here for you.

An example of market subsidy, the price of a resale flat is $350,000. And for first time buyers, you get a subsidy of $30,000. HDB sells you a HDB flat for $350,000 - $30,000 = $320,000. That $30,000 is a market subsidy, but that is not real money, it is simply a discount.

If the price of the flat in the resale market rises to $420,000, HDB will sell corresponding new flats in similar location at $420,000 - $30,000 = $390,000.

Say the cost of building an HDB flat is $100,000 per unit. And the price in the market is now $420,000. Then HDB could buy the land from another government body for $320,000. Add $100,000 to the construction cost, you will arrive at the selling price of $420,000. Since HDB sells you at only $390,000 HDB technically lose money.

But of course, the money would have gone into the Singapore government’s coffers via another government agency which holds the land.

Therefore HDB really did lose money subsidizing the citizens, but on the overall, the government ends up with increased prices for the land which HDB sits on.

Call it land productivity or whatever terminology. The end result is a fairly regulated and micro-managed property market in Singapore whereby the heartland Singaporeans are increasingly marginalized in the name of profits.

And for those who can afford more, the government is moving the population into a higher consumption bracket. We believe this is to create consumption or to suck up excess liquidity.

APPENDIX 1 - HDB supply of New HDB flats in 2010

“HDB will be offering more than 16,000 new flats in 2010. If demand remains strong, HDB is prepared to launch up to 22,000 new flats in 2011. These numbers are substantial. Over two years, HDB will offer more new flats than the total flats in Toa Payoh town today (35,400 flats).

In addition, HDB will release more land for tender in 2010 to yield an estimated supply of 3,000 DBSS 1 flats and 4,000 ECs. In 2011, HDB will release land sites for another 4,000 DBSS flats and 4,000 ECs, if demand is sustained. This injection of 7,000 DBSS flats and 8,000 ECs over two years is also significant. In comparison, 4,000 DBSS flats and 10,000 ECs have been launched for public sale so far.”

(Source: http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/895204E2295BDC394825778E007FA919?OpenDocument)

Appendix 2 - Adequate Private Supply in the Pipeline

“12 The Government will also continue to ensure that there is adequate supply of housing to meet demand. In the second half 2010 GLS Programme, we have made available sites that can yield about 13,900 private housing units, of which about 8,100 units will be from sites on the Confirmed List. This is the highest potential supply quantum in the history of the GLS Programme. We will inject an even larger supply of private housing in the first half 2011 GLS Programme, if demand continues to be strong.

13 Apart from the supply from the GLS Programme, there are also 61,800 uncompleted units of private housing from projects in the pipeline as at 2Q20109. Of these, 32,600 units were available or could be made available for sale. These comprised units that had been launched for sale by developers, units that had pre-requisite conditions for sale10 and which could be launched for sale immediately, as well as units with planning approvals for which pre-requisite conditions for sale could be obtained quickly from the Government and made available for sale11.”
(source: http://www.mas.gov.sg/news_room/press_releases/2010/Measures_to_Maintain_a_Stable_and_Sustainable_Property_Market.html )