Wednesday, April 7, 2010

Don’t pamper spoilt property buyers

I REFER to the commentary ‘Public + private=property prices’ (BT, April 3-4).

I would like to make two points on the writer’s view that if private property prices go up, public flat prices will have to follow and hence intervention is needed.

1. Resale mass market condos are still affordable: First of all, mass market private property prices in Singapore over the past decade have hardly kept pace with even economic growth. While most countries enjoyed a property boom from the mid-1990s (post the commercial property bust in the US of 1990-1993) until the financial crisis of 2008, Singapore property prices peaked in 1996 and were in the midst of a long bear market until 2006; only in mid-2007 did the mass market condo segment start showing any signs of life. This very short rally from mid-2007 to mid-2008 was cut brutally short by the financial crisis. The property markets are now merely continuing from where they left off in mid-2008. The quarter-to-quarter comparisons that are so favoured by analysts and the media look high only because of the very low base and the fact that the market has to make up for quite a bit of lost ground over the past decade.

My point above is supported by the fact that resale condo prices are still very reasonable and not out of reach for upgraders. To illustrate, I would like to draw your attention to several good-quality condos near amenities in the Upper East Coast area such as Stratford Court, Villa Marina and Eastwood Green that are still available and have transacted recently in the $600 psf range – which means a spacious 1,200 sq ft condo can be bought for less than $800,000. Can someone explain to me how this is a bubble? In a truly overheated market (for example, London before the crisis), even resale flats receive several bids, sometimes even higher than the asking price.

The fact that new launches such as The Vision are selling at more than $1,000 psf only proves the herd-like mentality of unsophisticated buyers and not the fact that there are no affordable condos. If upgraders choose to buy at higher prices from developers, it is their problem and not one that requires government intervention. New launches cannot be used as benchmarks for the condo segment as a whole when nearby older properties are trading at a 20-30 per cent discount. There is still ample supply in the secondary market, as around half the condos bought in Singapore are for investment purposes and not for owner occupation. Ignoring this source of supply and continuing to release more land will result in an oversupplied and depressed property market similar to what we saw after the Asian crisis.

2. Buyers are too choosy and need to adjust to new realities: It has been proven several times by the government that buyers reject most flats offered to them for the flimsiest of reasons such as low floor, far from schools, etc, and then they claim that affordable property does not exist. Pandering to such ’spoilt’ buyers is not the way forward. In major cities such as London, New York and Chicago, a workplace commute of around one hour is the norm; so will the case be here as prime-location property gets priced higher.

In a nutshell, every type of property – whether it has a poor view, faces the sun or is on a low floor – has its own price set by supply and demand. Buyers need to be mature and accept this fact rather than go crying to the government and asking for intervention. The government is already doing more than its share by selling subsidised built-to-order flats. Demanding cheap resale flats and condos on top of that is a bit too much.

Bobby Jayaraman

Arthur Sim replies: HDB data revealed that in Q4 2009, COV (cash-over-valuation) for resale flats was $24,000, double the $12,000 for Q3 2009. This does not represent a stable resale market. The median COV amount continued to rise in Q1 2010 – up $1,000, to $25,000.

Source: Business Times, 7 Apr 2010

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