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Is Public Housing For The Public?

>> Wednesday, December 1, 2010

Was peering at a block of HDB flats in front of me one day when a thought suddenly struck me.

A 4-room HDB flat cost on average about $300k. A 12 storey block of flat has about 50 units. That translates to $15 million in value for a block of flats. Furthermore, these are all leasehold 99 years. Well, my point is, so what determines the value?

It seems that the system in Singapore is to take the latest transacted prices of nearby properties to determine the approximate value of the property in consideration.

To make things worse, there is Cash Over Valuation (COV). If the valuation is wrong, shouldn't it be amended to reflect its true value? Properties should be transacted at their valuations and the COV paid to the owners directly without affecting transacted prices, which will ultimately affect surrounding property values. The COV will need to be justified due to the unique property features which may not be present from surrounding properties.Or else, this would result in an endless spiral of valuations being chased upwards.

Is that a fair system in determining public housing, a basic need?

Imagine if public transport was to practice a similar method to determine price. Customers had to pay a fare based on the prices paid by customers before them. Assume a limited capacity ride and customers are allowed to choose to pay more to ensure a place on the ride, displacing others who pay less. From this simple thought exercise you would have guessed that customers' base fare will keep going higher as frustrated customers earlier who do not get in will pay more and it will be an endless cycle upwards. Unless one can choose not to take public transport any more, we are at the mercy of this system.

Therefore, similarly, unless one can choose to live on the streets, I strongly believe the public housing system in Singapore needs to be reviewed. Public housing should be just that, to fulfill the basic need of shelter and affordability is key. Luxury real estate is for the rich, for investments or rental and the well-heeled can be subjected to market forces of supply and demand but not for the HDB flats.

Looking in the past, how was property valued initially when there was no transaction to draw reference from? They were priced so that it was affordable to all Singaporeans to provide for their basic need of shelter. New public housing prices used to be $30k a unit, now it is $300k, has the average income increased from $1k/monthly to $10k/monthly? What has changed to justify the current pricing system?

Introducing measures to indirectly slow down the price increase is not solving the root of the problem nor will it bring down prices back to reasonable levels. Direct intervention is necessary.


Wealth Journey December 2, 2010 at 11:44 AM  

"They were priced so that it was affordable to all Singaporeans to provide for their basic need of shelter. New public housing prices used to be $30k a unit, now it is $300k, has the average income increased from $1k/monthly to $10k/monthly? What has changed to justify the current pricing system?"

I believe the increase is partly attributed to the increase leverage employed by singaporeans (rightly or wrongly).

The banks encouraged loan consumption by allowing maximum loan tenure (35yrs) for most. The consumers lapped it up and with a 35yr loan, they can afford a higher priced housing as compared to sticking to a 10-20yr loan tenure.

Anonymous December 2, 2010 at 10:39 PM  

Of course it is justified, if you are the elites of Sinkapore; This is what they call "progressive society."

From few hundred thousand to millions in take home pay.
Ha! Ha!
Laughing all the way to the bank.
My pay???

Lau December 5, 2010 at 2:15 PM  

That is indeed an interesting observation. I agree w u. They are discouraging leverage in investments such as trading, yet very relaxed when it comes to property purchase.

So one measure the government could do is to cap the loan tenor up to retirement age (age 62) instead of age 75. Which also makes sense that people should be debt-free at retirement.



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