Ramped Up Supply Of HDB Flats Not Sustainable In Long Run (Jun 2013)

singapore

Source: CNA – Ramped up supply of HDB flats not sustainable in long run

Notable excerpts:

The Housing and Development Board (HDB) has been ramping up the number of flats it has launched in the last few years but National Development Minister Khaw Boon Wan said this number could slow down after 2015 to prevent a glut in the market.

While this has helped satisfy the backlog of demand from first and second time home buyers, Mr Khaw stressed this cannot continue.

This year alone, HDB plans to launch at least 25,000 new flats but Mr Khaw said this continued ramped up supply is not sustainable in the long run.

Mr Khaw said he is not worried about a “small glut” forming in the public sector as he wants to help more groups, like singles. He said he hopes to build up an inventory such that flats are ready if there is demand.

While he doesn’t foresee a glut happening in the next two years, Mr Khaw cautioned the market need to go back to a steady state.

He said: “Don’t expect this 25,000 units per year or the construction ramped up programme to continue forever. It can’t be. It is not sustainable, bearing in mind that new family formation is only at 15,000 a year. As we clear the back log, we should be able to move back to the steady state.

Mr Khaw said: “The steady state is a sustainable property market. I think property prices will probably always float upwards unless the economy crashes. We hope not to have prolonged recession. So long as economy is growing steadily, wages will go up steadily, and therefore property prices will also go up steadily.

“But there will be times when the asset appreciates much faster than wage increases, like in the last five years, so that is not sustainable. That was a period for happy sellers and very unhappy buyers but we are slowly tilting and hopefully we will reach a happier state, a fairer state between buyer and seller sometime soon.”

However, Mr Khaw said what he is concerned about is a glut occurring in the private market.

He noted that a large proportion of private property is taken up by investors who are hoping to rent out their units.

He cautioned that if there is a glut in the market, rental yields could drop very quickly.

This will also cause serious financial trouble for those who have taken up a private loan, especially when global liquidity begins to ease.

Mr Khaw stressed that preserving the value of property has practical implications for retirees but capital appreciation has to be reasonable, and not like the last few years.

Mr Khaw added he is working on making BTO flats more affordable.

He hopes to bring down the cost from five years of a couple’s annual income to four years but he said home buyers will need to have the right expectations.

“If you engineer the softening of prices, and everybody shifted their expectation where previously they’d buy a three-room and now they’d buy a five-room, then you’re chasing tails and the problem will never be solved,” said Mr Khaw.

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