It has been just less than two months since the most recent and extensive round of cooling measures were implemented on 12th January 2013. Despite the initial shock and awe across the island, it appears from January’s transactional activity that the market is increasingly resistant to cooling attempts. We expect this to continue given that residential property vacancies are low at 5-6% islandwide, jobs figures remain healthy, and loan interest rates are set to stay low till at least end-2014.
To be sure, January’s data cannot be taken at face-value. While transactional volumes hit record levels, with new home sales hitting 2,013 units, several market analysts have pointed out that the bulk of these numbers were clocked in prior to the cooling measures taking effect. For instance, star-performer for the month, 810-unit La Fiesta brought forward its launch date and extended sales operating hours the night before the cooling measures kicked in, clocking in 404 units in January, of which an estimated 90% were deals closed prior to the measures.
There’s plenty more that could be done to improve the efficacy of the cooling measures currently in place. For instance, I do not think it is in Singapore’s best interests that the cooling measures (coupled with the recent changes to the property tax structure) result in excessively punishing conditions for developers operating in the high-end, luxury sector. This sector is clearly not an area that the government should be concerned about keeping things affordable, and should instead encourage developers to continue to push the envelope with high-quality, world-class projects. But for today, let’s just focus on what the cooling measures should be more focused on – controlling the prices of homes for the masses.
I dare say the cooling measures to-date have yet to achieve the primary purpose they should be seeking to serve – reducing the cost of housing to those to whom cost matters the most, ie. those who can only afford to live in public housing. The cooling measures have in fact indirectly resulted in a shrinkage in the supply of resale flats offered up for sale, as flat owners now feel uneasy about giving up their flats since it has become exceedingly challenging for a private property owner to re-enter the HDB market if he wishes to downgrade his home further down the road. After a consistently rising trend for resale flats being sold post-MOP, from 4.3% in 2008 up to 18.3% in 2011, 2012 saw a dip to only 11.8%.
At the same time, record deals continue to be struck in the public housing sector this year. Before February was even over, we had already clocked in 18 resale transactions crossing the $900,000 mark. In 2012, this figure was achieved over an entire year. The deals this year include a 5-year old unit in Jalan Membina which was transacted at $925,000. The 5-room flat has an area of 1,180 sq ft and worked out to be $780 psf.
The biggest weapon the government seems to be wielding in its bid to cool the HDB market is its ramped up supply of BTO flats, but to me this is simply not targeted enough. Cooling from the supply side, that is promising more than enough to go around, is neither sustainable nor efficient in the long run, since it makes no sense to hold on to excess inventory of homes in land-scarce Singapore.
The recently-introduced ban on PR flat-owners subletting their HDB units once they purchase private property is a move in the right direction, but too little too late. While I cannot completely agree with one Valerie Lau, whose letter was published in Straits Times’ Forum on 28th January, because her suggestion that all HDB owners be forced to sell off their private properties within a reasonable period of time would be a retrospective application of law and against natural rule of law, I do agree with her that the high rental yields enjoyed by HDB flat owners has encouraged resale flat supplies to stagnate and prices to skyrocket. As she pointed out, only about 5% of rented flats are PR-owned, thus it does seem clear that in order for results to be felt, the ban should be extended to Singaporean flat owners too.
To summarise, there are areas where the cooling measures should be loosened, and other areas where policy makers should be paying closer attention. My hope is that we won’t have to wait too long for problems with the current set of cooling measures to be rectified.