Saturday, November 03, 2007

Why Deny HDB Windfall?

Donald Aw lamented in the Young PAP Blog that the prices of HDB flats in some matured estates were "absurd" and asserted that "if the purpose of the HDB housing programme is to provide affordable public housing, then there is a need to re-look at the way the resale market is structured."  Donald concluded that "we should send a clear signal that those who stay in these public housing in mature estate are privileged and not that only those who are financially privileged can stay in these public housing."

I agree with Donald that a key tenet of HDB would be to provide affordable public housing.  But aside from being a roof over our heads, the HDB flat is also, for many Singaporean families, a major component of their financial assets.  The value of the HDB flat can be realized only if it is sold on the resale market (although more recently, it can also be used as collateral for the reverse mortgage/annuity schemes).

As with all assets, prices sometimes rise, and they sometimes fall.  Traditionally, no resale flat would be priced lower than the amount for which it was purchased from the HDB.  In the past 10-15 years, however, with the economic swings, rising HDB direct-sale prices etc, there are people who have lost money (whether on paper or otherwise) even if they had bought their units directly from HDB.  This would apply to a greater proportion of those who bought resale units.

Now that prices have risen (in the mature estates at least), some HDB flat owners have chosen to cash-out, whether to upgrade to private property or realize some profit.  They are generally not speculators; direct-sale or 1st time buyers who used the CPF grant would have stayed in their home for a minimum of 5 years before selling – one of the many anti-speculation measures in place for HDB flat buyers.  Is it so undesirable that some lucky ones are able to enjoy a windfall?

To be fair, Donald's concern appears to be focused on young couples who cannot afford to live near their parents.  

But the simple matter is that location (and distance to amenities etc) and flat type/size are the major price determinants.  Other factos include the floor/level, view and facing (west sun is generally a no-no), whether it is on a lift landing floor, whether there is "O$P$" splashed on the walls of the block etc.

It is inevitable that some flats will command a premium over others.  When times are good and buyers are flush with cash (whether from en bloc sales or Toto winnings), this premium will increase; and the gap will narrow when times are bad.  Just because a buyer has the means and is willing to pay a premium for a HDB unit does not make him any less a "genuine buyer."  

After all, if *all* HDB flats are only for meant for the less financially privileged, then HDB should start evicting all residents whose household incomes have risen above $6,000 or $8,000 or whatever the cap for that flat size may be.  Judging from the marques I see at many HDB car parks these days, there will be a lot of people pushed to the streets … and quite possibly living in expensive cars  ;-)

HDB does provide affordable public housing, done primarily via the direct sales channel.  Some units (albeit limited) are in mature estates and others are in very nice (if somewhat ulu) new estates.  Young couples who buy a resale unit near have an added incentive of a larger CPF grant.  

But ultimately, resale HDB flat prices should be determined by market forces.  Why deny HDB flat owners the occasional windfall?

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