Minister of National Development Mah Bow Tan may not appreciate it, but when he states that lowering the prices of new HDB housing will impact the prices of existing one million flats, he is opening a can of worms. He was responding to Workers' Party's stand against the present government's asset enhancement policy and blaming HDB for pushing up flat prices.
First a primer on the US subprime crisis which triggered the financial meltdown of 2007-2008. Borrowers with weak credit histories and dubious repayment capacity were encouraged by financial institutions to take on difficult mortgages. The sweetener was long-term trend of rising housing prices, and risks of a market downturn was never in the equation. Like everything else, the property market has boom and bust cycles. When home prices did fail, consumer wealth evaporated, and pulled down the banking institutions and their fancy refinancing cocktails.
What Mah Bow Tan has been flogging to the market is the housing equivalent of the toxic Lehman products, instruments packaging financial risk in esoteric derivatives and complex collateralized debt obligations. Seduced by promises of high returns of a resale market, potential home owners ignored or were ignorant of the risks of housing and credit bubbles. The scam is more pernicious in the Singapore context since the CPF fund which is the lifeline for retirement is depleted by 20 to 25 year loan repayments. Asset rich, cash poor, those caught in the ponzi scheme can either starve to death in the highrise pigeon holes or head for the MRT tracks. Now you know why LTA are in no hurry to install the safety barriers.
For the new HDB pricing to work, the current resale schemes may have to be jetisoned, hopefully along with the Minister. After all, HDB flats are on lease, outright purchase was never in the contract in the first place. HDB flats should be for residential purpose, not speculative intent. You want o gamble, go to the casinos. If the flat owners decide to the relinquish the unit, say for an upgrade to accommodate a growing family, it can be resold to HDB at cost plus interest, equivalent to what CPF demands when the loan quantum is returned to the CPF account. And what kind of numbers can we expect? According to a link provided by a reader, the average cost to build a flat unit ranges from $110,752 (Jian Huang Construction, 465 Dwelling Units at Jurong West) to $179,314 (Tiong Seng Contractors, 1072 Dwelling Units at Punggol West). Which is significantly different from Mah's number of $300,000 a flat. The Workers' Party's proposal is definitely worthy of consideration.