'Unrealistic' To Cap Prices

Source : The Straits Times, July 21, 2009

A CAP on increases in the resale prices of HDB flats would be 'unrealistic', Parliament heard on Monday.

Senior Minister of State for National Development Grace Fu argued that prices of properties - especially HDB flats which are owned by 85 per cent of Singaporeans - should be a reflection of Singaporeans' wealth, and hence it was 'not such a bad idea for prices to move steadily over time'.

Referring to a letter published in The Straits Times' Forum page last Saturday, she noted that there are Singaporeans who bought their flats at the height of the property boom in 1996 and are waiting for prices to return to that level so that they will no longer be in 'negative equity' - with their flats worth less than the loans they took out.

Ms Fu was replying to a question from Madam Ho Geok Choo (West Coast GRC), who asked if a cap should be imposed on rising HDB resale prices. Madam Ho raised concerns about whether or not HDB resale prices were being artificially propped up by inflated valuations.

Responding, Ms Fu pointed out that HDB valuations were not made by the Government, but by independent valuers based on recent transacted prices. She said the HDB resale price index has fluctuated within a narrow range of between plus 1 per cent and minus 1 per cent in the last few quarters, suggesting that prices have stabilised.

In fact, the cash over valuation or COV amounts have fallen - from a high of $22,000 in the fourth quarter of 2007 to below $5,000 in the second quarter of this year, said Ms Fu. The COV refers to the amount that a seller wants over and above the valuation of his flat. A lower COV means that the buyer has to fork out less in cash, as banks lend only up to a certain percentage of the valuation amount.

Ms Fu noted that HDB flats remained affordable to Singaporeans, as first-time home buyers who purchase a resale flat in non-mature estates use on average about 25 per cent of their household income to service their loans. This is 'well below' the benchmark of 30 per cent the HDB uses to measure affordability, she noted.

Read the full story in Tuesday's edition of The Straits Times