Saturday, April 3, 2010

Public + private = property prices

WITH both public and private property prices continuing to rise in tandem, developer Simon Cheong’s call last week for private property prices to remain unfettered by government intervention seems not only contradictory but perhaps also misguided.

Property developers have long had a constructive relationship with the government.

Indeed, the reserve list system of the government land sales (GLS) programme was largely created in consultation with property developers and the Real Estate Developers’ Association of Singapore, of which Mr Cheong is currently president.

In 2003, the government even suspended the confirmed list of the GLS – which allowed developers to unload their inventory of unsold housing units without additional competition from new sites.

In H1 2004, with the suspension of the confirmed list still in effect, only 2,755 housing units were potentially available through the reserve list. By H2 2004, this number fell to 2,600 units.

The subsequent limited supply of new developments played a part in the run-up to the property price peak in 2007, and certainly helped developers boost sales and profits.

So to say now that the government should be taking a laissez faire approach to the property market is disingenuous. One cannot welcome government intervention to support property prices in bad times, but call for a hands-off approach when property prices are rocketing.

It is true that the government is intervening to control private property prices in the current boom.

For H1 2010, for instance, it has made available land for up to 10,550 housing units through the GLS with sites on both the confirmed list and the reserve list.

Mr Cheong, in an impassioned speech, suggested that not all Singaporeans are entitled to aspire to private housing. After all, he argued, private property only serves about 16.5 per cent of the population, so why does it need to be ‘affordable’?

But the line between the two segments is not so neatly drawn.

For many Singaporeans, including some who live in private property, wealth creation comes from the sale of their public housing flats. So every upgrader who has ever sold a public housing flat for a profit to buy a condominium has had a hand in supporting prices in the private home market. That is why resale public home prices are often seen as the price base for private housing units. And developers have benefited from the aspiration of many Singaporeans to upgrade to private property.

Property consultants DTZ found that in 2009, buyers with public housing addresses accounted for 41 per cent of total buyers, almost double the 22 per cent in 2007 (when higher-end projects were leading the rise in the market).

With private home prices rising, DTZ found that private housing had become less affordable with its housing affordability index rising 13 per cent. This could push up demand and prices for relatively cheaper resale public flats which, in turn, could price other buyers out of that market, with knock-on consequences on demand for new public flats.

The private and public housing sectors are closely interlinked, which is why the government looks at the property market as a whole. Mr Cheong was right only when he said that property prices are a ’sensitive topic’. But for him to suggest that the private property market is ‘exclusive’ (in all senses of the word) is just off the mark.

Source: Business Times, 3 Apr 2010

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