Tuesday, May 25, 2010

Releasing more reserve sites may not lower the cost for buyers

Recently the government has released 18 confirmed sites and 13 reserve sites for the 2H2010. The 18 Confirmed List sites comprise 15 residential sites [including 5 Executive Condominium (EC) sites], 2 commercial & residential sites and 1 white site (any development). The 13 Reserve List sites comprise 12 residential sites and 1 commercial & residential site. People say that this sudden release of so many sites will result in a lowering of property prices. In my opinion, this may not be true.

Using an analogy, if you've always been bidding $x for a pencil (for example), will you bid any lesser if the number of pencils increase? Note that most developments are funded by bank loans. If the banks are willing to loan them that amount, then the number of sites that are released does not matter because the companies will just bid around the same price psf as they will not know if the others will lower their bids.

What will really tame the property prices has nothing to do with the release of land. It's to regulate the banks. I'm sure most Singaporeans are familiar with the CPF's Housing Withdrawal Limit. From 2008, the CPF Withdrawal Limit for Housing is 120% of valuation. Why can't this (or something similar) be implemented for property development loans?

By putting a cap on the amount that the banks can loan out for property development, we're forcing the developers to re-think on their finances when they are making such bids. This will also prevent cases where the developers fold halfway through the property development due to cashflow problems. This cap will also force the developers to re-think on how to value-add to the property development (e.g.. green features, nicer finishing) in order to secure the bid. I believe this is also known as the "beauty contest".

Who benefits? The buyers of course.


Anonymous said...

you are right it probably wont lower cost of housing. why should it? an unstable pricing system is unfair to those who already paid at optimum value or high. not only unfair, it makes them angry too(wouldn't you be angry if you buy high and your neighbor buy a similar unit much cheaper because of fall in prices?).

by now, our garmen should be wise not to allow home prices to swing(up and down) and benefit...."vultures"(such as flippers) in the market at the expense of long term homeowners.

Anonymous said...

property is just like stock market. It is not a demand vs supply game. It is a small bunch of well off investors driving the markets and expectations of tomorrow.
Sadly, our MBT is too short to see it...(what is his height again?)

chantc said...

I like to repeat what my teacher used to tell us. "Life is unfair, get used to it".

There's no such thing as a sure win investment. Any investment have its ups and downs. I'm sure in my block, there are some people who bought their apartments at a lower/higher price. Some of the items in used a few years ago are now sold for only half the price.

Therefore, one shouldn't think that just because people bought their properties high, the prices must remain high. That's totally unrealistic. Before you make any big purchase, you must always do your homework and make sure that you are able to afford it.

Property prices have an indirect relation to marriage and kids. Is it worth it to continue sacrificing our population growth and import more foreign talent just to fuel the property price growth? I hope not.

Anonymous said...

yes,life is unfair AT TIMES but the gov job is to try to make it fairer or equitable for all where issues are of common interests.

home is indeed an investment and it should be a sure win for all citizens because, they make their home here. otherwise, the gov should not call it an asset if they don't ensure it performs as an asset.

those who want to profit from the property market will always use the word 'high' in an extreme sense. sg property should always remain at an Optimum Price Level which is a stable high side, not unrealistically high.

that said, there is no proof that a burst housing market will increase birth rate. In fact, a burst housing market is a sign of a troubled economy. birth rate will dive more in a troubled economy.

you must be a flipper.

chantc said...

I'm not sure who your flipper remark was directed to because what I've recommended in my blog post will in fact cap such speculative behaviour and prevent rapid property price growth.

Anyway, I don't agree that property should be in a stable high side. Why must property prices be high?

One example. I heard that Geylang's property price is hitting 1 million, but I've also heard that you cannot get a bank loan to fund your purchase. Therefore, is it realistic to ask for 1 million for a Geylang unit?

Using valuation and putting a cap will put a stop to such frenzy which I foresee will end up like what happened in the US and UK.

With regards to the population growth, it's true that there are no facts that back it up. It's purely my personal opinion which I've written about earlier. Sorry that I've forgotten to qualify that.

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