Published 4 March 2011
By Mah Bow Tan
Everybody knows the property market was very hot last year. This was due to various factors: Low interest rates, excess liquidity, and jobs growth attracted many buyers into the market. Some were upgraders and investors. Others were speculators out to make a quick buck.
High property prices have made some Singaporeans happy. But others worry that they have missed the boat, worry that prices will go up even further. It is hard for both groups to be happy at the same time. Property prices and economic growth go hand-in-hand. Property prices cannot be expected to stagnate while the economy is powering ahead as it has done.
What the Government can, and will try its best to do, is to stabilise the market and moderate price increases amidst extraordinary economic growth.
We acted early to pre-empt a bubble from forming. I remember sounding the alarm in mid-2009, when I saw property prices start moving up. We introduced the first set of cooling measures in September 2009. Since then, three more sets of cooling measures were introduced, in February and August last year and, just recently, in January.
At the same time, we ramped up the supply of private housing through the Government Land Sales programme to meet demand. As at Q4 2010, the latest figures that I have, 33,000 units of private property remained unsold. This is equal to three years of supply based on the average annual take-up over the last five years. I have mentioned this figure many times, URA has included this figure many times; in fact, they do so in every one of their press releases. But, I guess, if the market is hot, such inconvenient truths are conveniently ignored. Yes, we will be supplying even more under our land sales programme. So there is absolutely no need to rush into the market.
The efforts we have made so far have prevented prices from spiralling out of control. The rate of price increase has reduced quarter-on-quarter and continued to fall since the first set of measures were introduced in September 2009. Subsales have been kept in check. Subsales is usually used as a proxy for speculation; in Q4 2010, subsales were 7 per cent of all transactions, compared to 13 per cent in Q2 2009, when we started to introduce cooling measures when the market picked up strongly.
But how the market moves in the next few months will depend on many factors – state of the economy, interest rates, liquidity, and external factors, what is happening in the Middle East and oil prices, etc. We will continue to keep a close eye on the market and act again if there is a need. Some people say that our measures have added uncertainty to the market. I beg to disagree. In fact, what is certain is that the Government is determined to do whatever is necessary to maintain market stability.
I use three words to describe our approach – pre-emptive, calibrated, targeted. Pre-emptive – in the sense that we act before prices run away and before a bubble is formed. Calibrated – we intend to cool but not to crash the market. We apply the brakes gradually and consistently, so that we do not have to slam the brakes and cause either the car to stall or worse, people to fall out through the windscreen. Targeted – to hit those who are speculating for short-term gains or those who are inclined to over-borrow to invest in property; it is not intended to affect the first-time genuine home buyers.
(One MP) asked if we should restrict purchase of landed properties by Permanent Residents. The purchase of landed properties is restricted to citizens and PRs, and PRs today are required to meet certain strict criteria to be allowed to buy landed properties. I will relay the suggestion to further tighten these criteria to the Ministry of Law.
(An MP) also suggested doing away with the Reserve Price of sites so as not to set any floor to the tender prices. A Reserve Price is necessary, as it is the Government’s duty as the custodian of State land and, as members know, all proceeds from sale of land reverts to past reserves, as the custodian of State land, we must ensure that we maintain or we get a fair market price for the sale of land. But the Reserve Price only serves as a guide and not a strict criteria. In fact, the Government has awarded sale sites in the past even when the top bid was below the Reserve Price.
AFFORDABLE HOUSING FOR FIRST-TIMERS
I will now move on to public housing. With the sharp economic recovery, prices for HDB flats have also risen and caused concern among some Singaporeans. I think we all share these concerns.
But while we tackle the immediate concerns at hand, let us not lose sight of what we have achieved and how we have done so. In a series of articles on public housing in the Today newspaper last year, I explained the three key principles which underpinned our public housing programme. Incidentally, I would be compiling these articles into a booklet for wider circulation soon.
In these articles, I touched on not just the key principles but also hot issues such as affordability, waiting time, rental flat for low-income family, and so on. I would like to reaffirm that these three key principles have served us well and will continue to guide our public housing programme going forward.
First, home ownership: Today, we enjoy one of the highest home ownership rates in the world. I have said this many times and I think we probably do not appreciate how important and how significant this is. Over 90 per cent of those staying in HDB flats own their homes. We provide homes for ownership, not rental, so that Singaporeans have a clear stake, have a tangible stake in our country’s growth. This has been our key commitment since independence. It is a promise that has been delivered. It is a commitment that we will continue to uphold.
Second, home as an asset: Tied to the idea of the HDB flat being a stake in the country, we must allow its value to appreciate over time with economic growth. We therefore allow homeowners to resell their flats at market value. However, to ensure affordability for first-timers, HDB sets the price for first-timers at a discount, at a subsidy to the market price and so in this way, prioritise new flats for first-timers. New flats are also priced based on market values, but with a substantial subsidy, to make sure that it is affordable. To make it even more affordable, we have also introduced grants over the years, to further ensure affordability for first-time buyers.
Third, homes for the masses: Unlike other countries where public housing is often seen as poor quality housing for low income, where public housing caters for the poorest minority, HDB’s mission is to house the masses so that we can build an inclusive nation. Already, eight in 10 Singaporeans stay in HDB flats, with 90 per cent owning these homes. New schemes like the Special Housing Grant (SHG), on which I will elaborate more later, will help even more low income households become home owners.
MP Cedric Foo is right in calling it “universal home ownership” or “universal housing”. He asks specifically whether I can commit that, “if an eligible Singaporean family remains in the workforce, the family will get a flat eventually”. My answer to him is yes, most definitely. It may not get a flat of a type, size, location or time of its choosing but, if the family remains in the workforce, has a steady job and plans ahead, it will get a flat eventually. Indeed, our policies are specifically tailored to make it possible for every Singaporean who is prepared to work hard and make prudent flat choices to own his or her home.
These principles of home-ownership have guided us to achieve one of the highest home ownership rates in the world in a sustainable way. Let me re-affirm that our commitment and our priority is to ensure HDB flats stay within reach of first-time buyers. In this buoyant market, this is of immediate concern and I can understand this. To ensure this, we have adopted a two-pronged approach to achieve this: One, raise supply sharply and two, dampen non-urgent demand.
On the supply side, we have ramped up all categories of public housing for households across the income spectrum. When demand started to pick up in late 2009, after the financial crisis, we swiftly increased our planned Build-To-Order (BTO) flat supply by 50 per cent. New flat supply in 2009 totalled 13,500.
In 2010, as sentiments soared with the sharp economic rebound, we further increased new flat supply to 17,700. In case, members are not aware, this is a huge supply. 17,700 is about half the size of Toa Payoh town today. So we are building half the Toa Payoh last year. To increase housing options for higher income households, we also raised the income ceiling for the purchase of new Design, Build and Sell Scheme (DBSS) flats from S$8,000 to S$10,000.
(One MP) asked whether we could have built more flats in earlier years. New flat supply in past years was low not because we had constrained supply, but because demand was weak. Take 2006 for example, when HDB offered relatively lower number of new flats at 8,100. Even then, about 1,100 remained unsold. In fact, there were flats that were unsold, not taken up, every year in the past decade. In 2003 and 2004, we even had to cancel some BTO projects, because of low application or take-up. In other words, if HDB had built more flats in the earlier years, it would not mean more flats sold but more flats left unsold.
Some have asked why HDB does not build new flats according to demand such as the number of marriages per year. The number of marriages eligible for subsidised housing averaged around 15,000 each year. But the take-up of new flats by first-time flat buyers was lower than the number of households formed due to marriage, consistently, over the years.
There are two reasons for this. First: Not every new family buys a new flat from HDB. A significant number of first-timers buy resale flats. They do so because they are only interested in a particular location where there are no BTO flats for sale or they cannot wait for new BTO flats. So they go for the resale flats.
Second: Not every couple that gets married buys a flat immediately. Total annual take-up of new and resale flats was lower than household formation in some years. This is because home buyers adjust their purchases, depending on the economic outlook and market sentiments. When sentiments are weak, some buyers hold back. Others will turn to the resale market as resale flat prices are low. This was the case in the early to mid 2000s.
Conversely, when outlook improves and prices begin to rise, more buyers come forward, some feel more optimistic, more confident about keeping their jobs, while others worry they may miss the boat. This adds up to increased demand, prices pick up. This has been especially stark over the last two years. Hence, given the very volatile nature of housing demand, HDB has to take into account market conditions and sentiments when it plans its building programme.
In our desire to meet the strong housing demand today, we should not forget lessons of the past regarding the volatility of demand. Members will recall that flat demand literally vanished overnight when the Asian Financial Crisis struck in 1997. The Auditor-General at that time queried the Ministry about the high cost of holding vacant flats.
To clear the surplus stock of flats, HDB had to reduce prices, convert large flats into smaller ones, and hold walk-in-selection of ready unsold flats. Homeowners paid a price for the over-supply then. Members may recall residents in near-empty new HDB blocks in Sembawang, Jurong West and Sengkang expressing their concern about safety and theft. A news article in 2001 called these precincts “Ghost Towns”! To fill these blocks, HDB had to reduce prices.
When they reduced prices, some flat owners were unhappy that their new neighbours had bought their flats at a lower cost. Some residents from Sembawang, Jurong West and Woodlands petitioned HDB for a price reduction. Low prices also meant that those in mortgage arrears had difficulty selling off their flats. Many more were in negative equity.
Oversupply is as bad as undersupply – our continual challenge is to find the sweet spot that is not too much, not too little. We implemented the BTO system to try to prevent over-building of flats. We will only build if demand is confirmed for most units in a project.
Conversely, if demand picks up, to keep pace with the higher demand, we will adjust the number of BTO launches in a dynamic and responsive manner, as we are doing today.
NON-URGENT DEMAND DAMPENED
As we increased supply of new flats, we have to dampen non-urgent demand for resale flats. This reinforced the principle that HDB flats are primarily for owner-occupation, and not for speculation or investment. We raised the Minimum Occupation Period (MOP) for resale and subletting of whole flats in two steps in March and August 2010, from 1 and 2½ years to 5 years for the resale of flat and from 3 to 5 years for subletting of flat. At the same time, we disallowed concurrent ownership of private properties and HDB flats within the MOP for both subsidised and non-subsidised flats.
(One MP) spoke about the lower loan-to-value (LTV) rules for HDB upgraders. I understand that there are people want to upgrade for very legitimate and genuine reasons, but I have to explain that the intent of the measure is to dampen non-urgent demand and to prevent prices from overheating. That is why we had to cut back on credit while minimising impact on those who need a home.
Hence, first-timers and upgraders who are eligible for HDB concessionary loan can continue to get an LTV of 90 per cent, and sell their existing flat up to 6 months after buying their next flat.
But HDB upgraders who take on a bank loan – and these are a subset of people who are either ineligible for a HDB loan because of their salary, their income has gone up, or because they are PRs, or they have taken many HDB loans already – they can still get 80 per cent LTV if they discharge the first loan or show the letter of approval for the sale of their earlier flat. We have tried to narrow the restrictions such that genuine homeowners, first-timers, and even those who wish to upgrade, are not affected. But having said that, I recognise that there will be some upgraders who will be affected, and for that, we seek their understanding.
IMPACT OF MEASURES
Overall, the supply and demand measures have started to show signs of stabilising the public housing market.
Resale price growth and transaction volumes have moderated. Quarter-on-Quarter growth in resale prices slowed from 4 per cent in the second and third quarters of 2010 to 2.5 per cent in the last quarter. For 2011, month-on-month, resale price growth has slowed to 0.6 per cent in January and 0.7 per cent in February. The trend is still downwards.
Likewise, quarterly resale volumes fell by 21 per cent to about 6,500 transactions in the last quarter of 2010, or about 2,200 transactions each month. The average monthly resale volume in January and February this year has fallen further by another 16 per cent. Again, resale transactions have also come down.
For the new flat market, our BTO application rates have also shown signs of moderation. In the first seven months of 2010, application rates averaged 6 times. In other words, for every flat put on sale, there were six applicants. This decreased to 3½ times in August to January. The latest BTO exercise in January saw application rates of only two times. This means that more or less, everybody on that list will get a flat because there is quite a number who drop out.
Let me now address the issue of affordability. MPs spoke about affordability given the recent rise in housing prices. For the whole of 2010, the average Debt-Service Ratio (DSR) for first-timers who bought BTO flats in non-mature estates was 23 per cent.
In other words, if you bought a new BTO flat in a non-mature estate, you would need to use 23 per cent of your income to pay the mortgage loan. That means you pay no cash, because all of it is paid up by CPF. This is the average for all the first-timers who bought BTO flats in non-mature estates in 2010.
This is up 2 percentage points from 21 per cent in 2008. But even then, all this is still well within the affordability benchmark of 30 to 35 per cent.
Why 30 to 35 per cent? This is a much stricter benchmark than what is commonly used by others. For example, local banks are prepared to extend credit up to 40 per cent DSR. In Hong Kong, the DSR benchmark used for public housing is also 40 per cent. Here, we are talking about a benchmark of 30 to 35 percent, with an actual figure of 23 percent.
Yet, some buyers maintain that flats are “unaffordable”. Why is this so? I can only speculate. But I guess that some would define “affordability” relative to flat prices in the past. A common remark is this: “My parents paid only $30,000 for their flat 30 years ago, now I have to pay $300,000”, or some such figures. The question is, are we comparing apples with oranges? The flat their parents bought 30 years ago is not the same flat that they are buying today. Lifts at every floor, sheltered linkways, MRTs – many of these facilities were all not there in the past.
Secondly, as HDB caters to 80 per cent of the population, it has to offer a range of flats for different budgets. A first-time buyer looking for a three-room flat can choose to pay $150,000 for a new flat in Woodlands or $330,000 for a resale flat in Queenstown. If his family income is $3,000, he can comfortably afford the three-room new flat in Woodlands at $150,000, or Punggol at $185,000 or a four-room new flat priced at $250,000 in Yishun.
But if he wants to buy a five-room flat in Sengkang priced at $385,000, he would find it unaffordable if he has no other savings. The figures are only based on loans from HDB based on 30 per cent DSR. HDB has a flat for every budget but each buyer must consider the trade-offs between price, size of flat and location, and then choose a flat that best suits his budget.
Let me illustrate this with an actual example. Mr A and his fiancée, both 22 years old, have worked for about two years and have a household income of around $2,800 a month.
Taking advantage of HDB’s Fiancé/Fiancée Scheme, they selected a three-room flat from the October 2010 BTO exercise at Bukit Panjang. The subsidised flat cost them $190,400. On top of the price subsidy, they were given an Additional Housing Grant (AHG) of $25,000. They used this amount to fully cover their 5 per cent down-payment, so they did not have to come up with any cash at all. With the grant and their CPF savings, they only needed a $148,800 concessionary loan from HDB. This loan will have to be repaid with a monthly instalment of $596 per month, or only 21 per cent of their salary.
Given that the couple’s CPF OA contribution is $644, they can service the mortgage fully through CPF, without any cash outlay.
Mr A’s case is not unique: Eight in 10 new flat buyers needed to use 25 per cent of their monthly income or less to pay for their flats last year. In other words, after their CPF contributions, they pay little or no cash for their mortgage payments.
LOOKING AHEAD: GREATER SUPPLY …
What can flat buyers look forward to in 2011? Plenty of housing options for different first-time buyers.
First, HDB is prepared to offer up to 22,000 BTO flats. This is the largest supply of BTO flats in recent years. Of this, we will be offering 14,000 new flats in the first half of 2011. This will be spread in different locations all over Singapore.
Second, higher income earners can also look forward to a greater supply of DBSS flats and Executive Condominiums (EC). Last August, I announced that we will launch more sites in 2011 for DBSS and EC flats. We have raised the income ceiling for DBSS from $8,000 to $10,000. This year, we are going to offer land sites for 4,000 DBSS and 4,000 ECs will be offered in 2011. 8,000 flats in total. Again, a very significant amount.
Developers would typically take six to nine months to launch the projects after tender award. We sold five DBSS sites and 8 EC sites in 2010. So, 13 sites all in 2010. To date, developers have launched the first DBSS project where the new income ceiling will apply – Adora Green in Yishun. Four EC projects have also been launched to-date. The remaining DBSS and EC projects are expected to be launched within the year.
Third, and this is new, we will raise the income ceiling for three-room BTO flats in non-mature estates from $3,000 to $5,000 to provide low-to-middle income households with more housing options. The higher income ceiling will allow more low-to-middle-income households to have an additional choice of affordable flats. We have increased the number of three-room flats offered by 1,200 flats or 50 per cent increase over last year to cater for this larger group of buyers.
The $8,000 income ceiling remains relevant as it caters to about 8 in 10 households. This is still generous by any measure. Our budget is not limitless. Our subsidies are targeted to offer more help for the lower income, such as the AHG and the Special Housing Grant, which I will talk about later. Nevertheless, we recognise that the households with higher income may need more housing options. This is why we have extended the options to the DBSS flats as well. So last year, the income ceiling for the purchase of DBSS flats was also raised to $10,000. But we will regularly review the housing subsidies for different groups to ensure that they remain relevant, within the constraints of the housing budget.
… AND FASTER ALLOCATION
I had earlier announced that the BTO process will be streamlined so that flat buyers can collect the keys to their new homes six months earlier. This means buyers of projects launched in mid-2011 onwards will generally wait 2½ years from booking to collecting their keys, instead of three years. This is as much as HDB can shorten as there is still a physical constraint in building those flats. But we will try to reduce it as much as possible, and they have managed to reduce it by six months, which is considerable.
I have asked HDB to look into shortening the time it takes to start selection for BTO flats. Currently, it takes about nine weeks from the launch of a BTO project to start of selection. Hence, applicants may not know if their current application is successful, before the following month’s BTO launch. So, many buyers apply for multiple projects subsequently. If we can shorten this selection process, then they will be able to know the results of their previous application, and they may decide whether they need to apply again.
With effect from the March 2011 BTO project, the time from launch to start of flat selection will be shortened from nine weeks to four weeks. With this, flat applicants will be informed of their queue number in their current BTO application before the next launch. I think this will make a big difference.
But I also need to caution that shortening the BTO process has its tradeoffs. HDB will have to shorten the application period from two weeks to one. It will also conduct eligibility checks and balloting for queue numbers concurrently. So, there may be some applicants who receive ballot numbers but are later found not eligible to buy a flat. We seek everyone’s understanding that this move will benefit most BTO applicants but could inconvenience some.
To improve the BTO process further, I will ask HDB to provide more information to facilitate better forward planning by flat buyers. Today, flat buyers are told where the next BTO projects are located, about one month ahead. As a result, some flat buyers apply for multiple projects, because they are not sure about the projects in subsequent months. Therefore, I have asked HDB to increase the visibility of upcoming BTO launches, from the current one month to two or even three months ahead, to help flat buyers make more informed decisions.
Under a balloting system, I recognise that some applicants may be less lucky and not been able to select a flat after multiple tries. Today, our records show that the majority of first-timers get a chance to select within two or three tries, if they ballot consistently. But there are some who may not be so lucky. Apart from additional chances, HDB will offer balance flats on a case-by-case basis to deserving cases. This will include those who have applied multiple times unsuccessfully for BTO flats in non-mature estates and are in urgent need of housing. To date, HDB has made such an offer to about 400 households, but only about 30 per cent of them took up HDB’s offer. The rest said they are not in urgent need after all.
While there are unlucky applicants, there are also applicants who repeatedly reject chances to select, for various reasons low floors, facing the school etc. In 2010, over one in three first-timers invited to select a flat did not do so. There is nothing wrong with being choosy. It is understandable that each wants the best for himself and his family. Where it is possible, we will do so.
But being selective also means that their needs are not so urgent and they should be prepared to wait a little longer for their ideal flat. I have had many appeals and emails from people who have been unsuccessful many times and they always say they are in urgent need, please give me priority and allow me to select directly. But when we check, we find that either they have been invited to select but they have given up the chance, or they are very selective in their applications by selecting only certain areas or certain types of flats, such as Dawson, The Pinnacle @ Duxton, Punggol Waterway.
Over three years, they probably applied five times when we have more than 30 BTO exercises. Take Mdm T, for example. She applied for five sales exercises in the last three years and was invited to select a flat on four occasions. However, Mdm T did not select any of the 467 flats she was offered in these four exercises. Why? I’m not sure. There were 300 applicants who similarly rejected multiple chances to select a flat in 2010 alone. I have asked HDB to see if we can tighten the BTO procedures to give genuine flat buyers with urgent needs a much better chance than applicants like Mdm T.
With the significant ramp up in BTO supply, the improved selection process and a shorter waiting time, most flat applicants should be able to select their flats and collect their keys faster.
I know that Singaporeans, especially first-timers, are concerned that flat prices have risen too fast, due to the sharp economic recovery. With the measures that I have outlined, first-timers will be able to get on the first rung of the housing ladder. I urge flat buyers to exercise prudence, choose a flat within your means, and when the chance comes, do not give it up.
STRUCTURING MARKET TO WORK BETTER
Let me now talk about how we will structure the market to make it work better. Besides stabilising the property market, we will make structural improvements so that the market works better for developers and buyers.
First of all – estate agents. The Council for Estate Agencies started operations in October 2010. One of its first tasks has been to license about 1,400 property firms and register over 31,000 salespersons in the industry. CEA’s regulations apply to all estate agencies and salespersons who operate in Singapore, regardless of where the property being sold is located. So I think members will appreciate that this has been a massive effort, given the huge numbers involved.
Going forward, CEA will focus on raising industry standards and promoting public education for flat buyers and sellers. Salespersons will be required to take mandatory development courses so that they are up-to-date on the latest regulations. In the coming months, CEA will also conduct seminars and publish consumer guides for home buyers and sellers.
Apart from the recent regulation of our estate agents, (one MP) asked about possible regulation of managing agents that currently manage strata residential properties. My Ministry, together with BCA, will be reviewing the Building Maintenance and Strata Management Act this year. This is one area that will be studied as part of the review.
As for developers, MPs asked how we can help buyers make better decisions. The URA will be introducing enhancements to the Housing Developers (Control & Licensing) Act and the Housing Developers Rules to give buyers better access to accurate and timely information about the market and also about the property that they are buying.
We are considering new guidelines on showflats and sales material. Firstly for showflats, some of the guidelines would include having site plans drawn-to-scale, and not having showflats misrepresent the actual size of units. I remember visiting a showflat in Hong Kong where the developer, apart from the usual tricks like removing walls and putting tape on the floor and putting glass instead of solid brick walls, they went one step further and they had put in a substandard-sized bed into the rooms to give an illusion of space. If you had bought a full size-sized bed, the door of the room would not close! Our guidelines aim to pre-empt such practices from emerging here. I’m not saying it has happened here, but let’s pre-empt such practices. The second key area of enhancement is to require developers to provide the prices of units on sale, as well as the transacted prices of units in a more timely manner.
The proposed changes will allow buyers to have more comprehensive, more accurate, and more timely information and make the market work better as a whole. URA will be embarking on a public consultation exercise in March before finalising the proposals.
The Government recognises the importance of the property market both as an engine of growth and provider of homes for Singaporeans – good homes, comfortable homes, homes for Singaporeans. Its stable growth is necessary to ensure that our economy and our homes are sustainable for the long term.
We will take all necessary steps to ensure its stability. For the general masses looking to buy a place for stay or investment, I urge them to look ahead, think carefully and choose wisely. For the first-time, young couples, rest assured that the Government will help you set up your first home.
Mah Bow Tan is Singapore’s Minister for National Development. This is an edited version of his speech delivered in Parliament yesterday.