HDB will be the price-setter: Khaw

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#1
The Straits Times
www.straitstimes.com
Published on Apr 13, 2013
HDB will be the price-setter: Khaw

It won't take cue from resale market; the objective is to ensure affordability

By Daryl Chin And Rachel Chang

AS THE chief supplier of homes, the Housing Board should set the price of public housing, rather than take its cue from the resale market.

No longer will HDB let "the tail wag the dog" as it did for decades when it used a market-based approach to price its Build- To-Order (BTO) flats, said National Development Minister Khaw Boon Wan.

This resulted in soaring new flat prices as the resale market spiked 80 per cent over the last six years.

Mr Khaw put a stop to this by "delinking" BTO prices from the resale market after he took over the housing portfolio in 2011.

"(Being) led by the private sector (is like) a tail wagging the dog. We should be the price-setter, not be the price-follower... The social objective is to ensure home ownership and affordability," he said in an exclusive interview with The Straits Times.

Even before he stepped into this job, he was clear about wanting to make use of HDB's dominant market leadership position to influence prices, he said, adding: "I can't set market prices in the private sector, but I can influence them."

He dismissed worries that delinking new flat prices from the resale market would mean indefinitely increasing the subsidy that taxpayers give to HDB buyers, as the property market moves in cycles and "what goes up must come down".

HDB pays market rate for its land and construction costs. Hence, when it prices flats below a market rate, it incurs a housing deficit - now in the region of about $1 billion a year, including other costs such as upgrading.

In the wide-ranging interview ahead of housing-themed sessions of Our Singapore Conversation, Mr Khaw also spoke of his plans for the future.

In lieu of the old market-based approach, he favours pricing new flats in non-mature estates at about four times the annual median income of its applicants - 30 per cent lower than the current 5.5 times.

This will be implemented "soon (as) it's not something for the next century", he said.

But how it will be instituted without affecting existing flat owners' asset values, as he has promised, is the tricky part - and what he wants Singaporeans to debate in the national conversation.

A four-year salary cycle is reasonable, he said, because that was what flats cost before the bull run of the last six years.

Anything less than that, he noted, might put undue strain on the state.

Mr Khaw lamented that, judging by packed showrooms, it has not "sunk in" for Singaporeans that the era of huge capital gains from property is at an end, with slower economic and thus wage growth in the years ahead.

While property prices have moderated across the board in the past year, "there is still scope to bring (prices) down to minus (growth rates) for some segments", he said.

Despite breaking with the policies of his predecessor, Mr Khaw defended Mr Mah Bow Tan, who helmed the National Development portfolio from 1999 until he left Cabinet in 2011. He noted that in the late 1990s, Mr Mah faced a housing crash, and was heavily criticised for "ghost towns" of empty flats - a stark contrast to the supply crunch of the last few years. "If I came in four years ago," said Mr Khaw, recalling a period of economic uncertainty after the United States mortgage crisis, "my policies may be the same as his".

"When I came in, it was over and a strong recovery was being experienced, so I could do these things. Policies depend on the time. What's important is nimbleness and don't be too stubborn."

Industry players said his new approach would be popular, as the old pricing model seemed to make buyers pay more for the country's success. But they said it had to be in tandem with an adequate supply of new flats.

If there is another supply crunch like that of the last few years, BTO buyers will come into a windfall as resale prices pull away from those for new flats.

HDB has rolled out 70,000 new flats since Mr Khaw took over. "He cannot do this without his ramp-up of supply of new flats," noted PropNex Realty chief executive Mohamad Ismail. "But as long as public housing is in ample supply, this is the right and logical approach."

darylc@sph.com.sg

rchang@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Policy makers play god and devil. Personally, he only highlight the fact that HDB buys land at mkt prices - why didn't he reveal how much profits SLA made selling the land to HDB and at what prices. At least in open tender we know the ppr sales price.

These days, policy makers also want to pass on the responsibilities back to electorate - something to discuss about during Singapore Conversation. Frankly, there is too much talk and too little leadership let alone action. During the LKY era, hard decisions are made, rolled out then being fine tuned if things don't work out well. While I admit that times have changed and consultations are needed, sitting on critical National decisions and twitching fingers is not the right thing to do. Eventually, frustrations are being vent at the boxes and the hard truths will then sink in.

Housing is part of the tail wag the dog. Housing, immigration and procreation are all interlinked. All in all, there has been plenty of policy mistakes since IR was mandated to lift Singapore to another economic development phase. What has entailed IMO was a start of a vicious cycle beneath the glamour amidst the pursuit of economic prosperity. The entire episode is not well thought out except for the chase of prosperity. In the end, the focus is on chasing money and more.

Results so far - hard assets hugely inflated, over crowding, more competition (not necessarily levelled ones), heightened pressure (from school to work place to everywhere in the society), continued decline in population replacement and more gamblers (be it straight into the casinos or in highly leverage new property launches). Money is no enough and everyone wants it fast.

So much complains on a Saturday morning but nothing appears to have change except for more talk, more noises when actions are critical. Best of luck to talkers in 2016.

Nothing that I can do Except Talk

(13-04-2013, 08:10 AM)Musicwhiz Wrote: The Straits Times
www.straitstimes.com
Published on Apr 13, 2013
HDB will be the price-setter: Khaw

It won't take cue from resale market; the objective is to ensure affordability

By Daryl Chin And Rachel Chang

AS THE chief supplier of homes, the Housing Board should set the price of public housing, rather than take its cue from the resale market.

No longer will HDB let "the tail wag the dog" as it did for decades when it used a market-based approach to price its Build- To-Order (BTO) flats, said National Development Minister Khaw Boon Wan.

This resulted in soaring new flat prices as the resale market spiked 80 per cent over the last six years.

Mr Khaw put a stop to this by "delinking" BTO prices from the resale market after he took over the housing portfolio in 2011.

"(Being) led by the private sector (is like) a tail wagging the dog. We should be the price-setter, not be the price-follower... The social objective is to ensure home ownership and affordability," he said in an exclusive interview with The Straits Times.

Even before he stepped into this job, he was clear about wanting to make use of HDB's dominant market leadership position to influence prices, he said, adding: "I can't set market prices in the private sector, but I can influence them."

He dismissed worries that delinking new flat prices from the resale market would mean indefinitely increasing the subsidy that taxpayers give to HDB buyers, as the property market moves in cycles and "what goes up must come down".

HDB pays market rate for its land and construction costs. Hence, when it prices flats below a market rate, it incurs a housing deficit - now in the region of about $1 billion a year, including other costs such as upgrading.

In the wide-ranging interview ahead of housing-themed sessions of Our Singapore Conversation, Mr Khaw also spoke of his plans for the future.

In lieu of the old market-based approach, he favours pricing new flats in non-mature estates at about four times the annual median income of its applicants - 30 per cent lower than the current 5.5 times.

This will be implemented "soon (as) it's not something for the next century", he said.

But how it will be instituted without affecting existing flat owners' asset values, as he has promised, is the tricky part - and what he wants Singaporeans to debate in the national conversation.

A four-year salary cycle is reasonable, he said, because that was what flats cost before the bull run of the last six years.

Anything less than that, he noted, might put undue strain on the state.

Mr Khaw lamented that, judging by packed showrooms, it has not "sunk in" for Singaporeans that the era of huge capital gains from property is at an end, with slower economic and thus wage growth in the years ahead.

While property prices have moderated across the board in the past year, "there is still scope to bring (prices) down to minus (growth rates) for some segments", he said.

Despite breaking with the policies of his predecessor, Mr Khaw defended Mr Mah Bow Tan, who helmed the National Development portfolio from 1999 until he left Cabinet in 2011. He noted that in the late 1990s, Mr Mah faced a housing crash, and was heavily criticised for "ghost towns" of empty flats - a stark contrast to the supply crunch of the last few years. "If I came in four years ago," said Mr Khaw, recalling a period of economic uncertainty after the United States mortgage crisis, "my policies may be the same as his".

"When I came in, it was over and a strong recovery was being experienced, so I could do these things. Policies depend on the time. What's important is nimbleness and don't be too stubborn."

Industry players said his new approach would be popular, as the old pricing model seemed to make buyers pay more for the country's success. But they said it had to be in tandem with an adequate supply of new flats.

If there is another supply crunch like that of the last few years, BTO buyers will come into a windfall as resale prices pull away from those for new flats.

HDB has rolled out 70,000 new flats since Mr Khaw took over. "He cannot do this without his ramp-up of supply of new flats," noted PropNex Realty chief executive Mohamad Ismail. "But as long as public housing is in ample supply, this is the right and logical approach."

darylc@sph.com.sg

rchang@sph.com.sg
Reply
#3
Thanks GG,

Perhaps there will be action soon. It was hinted by KBW that he wants to bring down flat prices to 4 years of median annual income, instead of the current 5.5 years. That would entail a 20% to 30% fall!

Let's see how he plans to execute this.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#4
he could only touch non-mature estates...powerless
Reply
#5
(13-04-2013, 08:46 AM)Musicwhiz Wrote: Thanks GG,

Perhaps there will be action soon. It was hinted by KBW that he wants to bring down flat prices to 4 years of median annual income, instead of the current 5.5 years. That would entail a 20% to 30% fall!

Let's see how he plans to execute this.

Too much thunder and lightning but too little rain - its a big drought in good policies for too long already and my confidence has been shattered.

Special needs education for my special child has been wanting for years ever since a MP with a special needs child was elected in 06 - also plenty of light shows but nothing beyond the usual wayangs.

Sorry for side tracking.

GG
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#6
Why they only want to disclose HDB's loss but not SLA's making ?
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
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#7
4X annual median income....is it income of the person, or of the household (couple)?

If the former, it comes up to $170-200K per flat.
I wait until there is money lying in the corner, and all I have to do is go over there and pick it up.
Jim Rogers
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#8
(13-04-2013, 11:50 AM)BlackCat Wrote: 4X annual median income....is it income of the person, or of the household (couple)?

If the former, it comes up to $170-200K per flat.

Of the "buyer", which I assume refers to couples.

Please visit this thread to read more:-

http://www.valuebuddies.com/thread-3150-...l#pid47325
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#9
He is a good director.
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
Reply
#10
Finally a minister who dare to change the status quo, acknowledge and reverse policies that are not working anymore. It is definitely not easy to change a policy that is so ingrained in the fabric of HDB. I could imagine the existing policy makers in mnd and hdb speaking up against it, as implementing this would make all their previous explanations on why market based price is right seem wrong.

Need someone like him in manpower ministry as well.
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