So there has been some discussion on topics that are “close to our hearts”, such as HDB prices.
Wife read a site/blog that claims that HDB flats are leased to us, so why do the prices go up instead of down as the flats age?
Simply put, it’s inflation. But why inflation?
So let’s start from the root of the problem. Singapore’s economy is highly dependent on her workforce. Unlike the middle east, we have no natural resources. So we LPPL.
(We’re also lucky in that aspect, otherwise we may be at war.)
We also suffer from an aging population. This is not uncommon – most developed countries have this problem. We will need to fill up the jobs that our parents used to fill to keep the economy going.
So it’s quite clear now that to grow our economy and to maintain our standard of living we’ll need to grow our population. And so the government has started to “import” population as a desperate measure, otherwise our economy will go downhill – which will actually be worse.
What happens when we have “imports”? They need a place to stay. Since they can’t buy new flats (which doesn’t make sense anyway — new flats take time to build, and they need a place to stay IMMEDIATELY), they’ll buy resale.
And with a small plot of land, a shortage in supply of flats and a strong demand from our imports, HDB prices will naturally go up. 99 year lease term? Doesn’t matter. Arboh you want the imports to sleep on the streets?
So why can’t the government build more flats? OK, let’s turn that question around. Who’s going to build more flats? Ah-ha! We need more imports.
Get the idea now?
Economic growth is a cycle. You can’t break it. Too bad… the world works this way – even before money was invented!
IMHO, we are here in a developed country. We have our problems. Whether we like it or not, we either suck it up and make the best of it so you can live a better life here, or think about how you can get away if you can find a greener pasture elsewhere.
BTW, don’t get me wrong. I’m not in favor of any political party. Actually I’m interested to see what the opposition has to say. Most have a lot of rubbish to say but no solution yet. We shall see!
April 23, 2011 at 1:59 pm
Agree with your take on the HDB prices and the tension between growing our economy using increased inputs (aka FW and immigration) versus our land and infrastructure constraints.
Just to be stickler about the term ‘inflation’ though, i would not call the recent rise in property prices inflation. Inflation refers to a general rise in prices across the board, and in the case of housing, it has risen much higher beyond inflation.
In some other countries, inflation may be simply due to govt policy of ‘printing money’. If there’s suddenly much more money floating around, prices (and wages) rise. In the case of housing, however, it is due to a specific combination of demand and supply.
As you have pointed out, demand rose (we have more FW, PRs, new local families, and perhaps higher income). There’s also the speculative aspect of demand (people owning property for investments instead of for living) On the other hand, supply did increase on an absolute basis, but did not keep up with the demand. A planning/coordination mistake i think.
IMO, as much as the govt claims that in sg the free market operates in sg, the govt in effect holds a monopoly over the property market in sg. This is in the form of owning lots of state land (keeping a substantial amount of land in reserve), being in charge of hdb (and hence able to set prices of new flats), and their ownership in certain key property related GLCs like capitaland. Add on the policy levers that the govt has over the market (in terms of COV, LTVs, etc). However, this is not to say that market forces do not operate in the sg housing mkt – it does, but the govt remains a very big player.
The key policy issue in my opinion regarding the housing market is this: How do we balance the need for affordability of housing for the new generations (as well as those PRs/FWs working in Singapore, with the fact that a large part of the people’s retirement assets are already tied in the property market?
April 23, 2011 at 1:18 pm
Actually, your thesis on HDB prices is wrong. It is not *just* inflation.
1. Price went up for several reasons:
(a) HDB mismanaged the housing supply, i.e. built too few new flats
(b) Greed + bubble. There was quite a lot of speculative activity.
(c) Housing is not your “normal” good. There’s a “stickiness” arising from the psychological factor that most people will hold out and die die won’t sell flat for less than what they paid for.
2. Even in the absence of the above factors, HDB prices will still not fall even as the lease runs out, because there is a tacit agreement that leases will never reach 50 years because of SERS. In our words, the expectation is that you will get a new replacement flat every 40 years.
There you have it. 🙂