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Overwhelming Demand For HDB Units

>> Monday, October 3, 2011

I read reports about the overwhelming demand for sale of "leftover" HDB units with amusement.

The statistics is 18,428 applied for 2847 units, which is 6.5 times over subscribed. And of course as with all statistics, the results may be bias. Some clean up of studio and 2-room flats need to be removed to better reflect the numbers as these units are only available to the minority who fit the criteria to apply. Then it will be 17,355 applying for 2264, which is 7.7 times over subscribed. Certain hot locations 5 room units can see demand exceeding 20 times over subscription.

This over shadows the 9476 applications for the 5415 units for the concurrent Built To Order (BTO) project, which is less than 2 times over subscription. With the anticipated drop out rate, I believe all the applicants for this project can get a unit even if they are so unlucky as to draw the last number.

What amused me was the way the reports were written. Most mentioned that it was surprising that the side show (leftover units) has overwhelmed the main show (BTO). Further, the reports mention that the demand is astonishing as these balance units are significantly priced higher than BTO units.

If policy makers share the same opinions, I think the housing problems in Singapore will be further compounded.

It is pretty obvious that leftover units will have more demand:
1. Better locations.
2. Shorter waiting time for completion, if not already completed.
3. Price is relative to the anticipated capital appreciation that can be realised earlier.
4. Competition from existing resale home owners who have not used their "first timer" Singaporean right.

The system needs to be revamped.

BTO fails in only giving a small penalty to those who got a number but did not take up a unit even though there were still available ones. This results in a try and complain environment with sincere applicants frustrated.
Many will try and if they do not get their ideal unit, complain. Then try at selected developments again. Rolling over the demand and the cycle continues. After all, it is just $10 for this "4D ticket".

How about:
1. Giving a permanent black mark (maybe a 3 year ban or allow them to only compete among the 5% of units released, etc) for applying as a first timer and not taking up a unit even though it is made available to them. (Prevent the insincere complainers)
2. Automatic compulsory free roll over of unsuccessful applicants to next BTO with double the number of chances and doubling it further each time. (Prevent anti selection for choice projects only and assuring sincere applicants that they stand an exponentially increasing better chance)
3. Build ahead of demand to shorten waiting time. What is wrong with having a small amount of over supply of new homes?

Sale of balance units should allow for market forces to play. Artificially releasing the units at predetermined depressed prices compared to surrounding units creates enormous demand, particularly from "insincere" Singaporeans who have not used their "first timer" rights. And I do not blame them, it makes perfect economical sense to do it, I'll do it as well if I could.

Instead of a lucky draw, how about auctioning the units? To sell these houses in a form of lucky draw is extremely unfair. The winner is almost certain to make profits in the 6 figure range, equivalent to striking TOTO. In an auction, firstly, results are not based entirely on luck; secondly, it should fetch a more reasonable price and do justice to state owned assets; thirdly, it will silence the unlucky complainers like me who grow jealous looking at others strike lottery out of public housing.

And since the topic is about HDB, I feel another policy for the HDB loan is contradicting the CPF extra 1% bonus interest objectives. When a HDB loan is taken, the CPF-OA account is emptied, however, CPF is giving an extra 1% bonus interest on the $20k balance in the CPF-OA (T&C apply, mainly due to CPF-SA & CPF-MA balances). I feel an option should be provided by HDB to allow a $20k balance to remain in the CPF-OA to enjoy the higher interest as well as a rainy day to service the mortgage installment without additional cash in the event of job/contribution loss. After all, a 3.5% rate of return beats a 2.6% loan interest rate, no argument there.


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