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HOW DID SINGAPORE Real estate PRICES INCREASE IN VALUE

“The measures that were announced by the Singapore government on February 19 do not address the root cause of the problem yet. The root cause of the problem is a short-term supply crunch at the lower end of the market, but it definitely helps mitigate the risk of bubbles being formed in the future.” (Channel NewsAsia, 2 Mar 2010, Asian property expected to continue to rise despite govt measures, Karamjit Singh)

We read Mr. Singh’s comments and we did a little greater homework. We agree with Mr. Singh’s comments. (Read the following for the in-depth Analysis)

Singapore’s population (in ’000s) with respect to the Singapore department of statistics are: -

Year Total Singapore

Residents

2000 — 4,027.9 — 3273.4

2001 — 4,138. — 3,325.9

2002 — 4,176. — 3,382.9

2003 — 4,114.8 — 3,366.9

2004 — 4,166.7 — 3,413.3

2005 — 4,265.8 — 3,467.8

2006 — 4,401.4 — 3,525.9

2007 — 4,588.6 — 3,583.1

2008 — 4,839.4 — 3,642.7

2009 — 4,987.6 — 3,733.9

The population growth in 2006 over 2005 is a net growth of 135,600

The inhabitants growth in 2007 over 2006 is a net surge of 184,000

The population increase in 2008 over 2007 is a net surge of 250,800

The population growth in 2009 over 2008 is a net expansion of 148,200

There is a nice table at http://tankinlian.blogspot.com/2010/01/hdb-flats-and-population-growth.html which shows the relative increase rates of HDB. We are not against importing talent, but not even the USA have such a huge import quota. We are worried that the government has run out of ideas to grow the economy and is resorting to brute force economic increase.

Based on household size of 3.5 people (Source: Singstat), this would translate into a potential housing demand of: -

2006 – 38,743 units

2007 – 52,571 units

2008 – 71,657 units

2009 – 42,342 units

“In year 2006, we were building about 2,400 new flats. This year, we are

building about 8,000-plus new flats. Supply has gone up to meet demand. That’s

why HDB prices have gone up but they have not gone through the roof.” (Source: Straits times)

MASS Marketplace HDB BEING PROPPED UP

Many of these new sources were “Built-to-order” flats which unfortunately can take 3 to 4 years to complete adding to serious shortages of HDB apartments.

LOCAL need from Household formation (Marriages) come in at a range of 23,000 to 25,000. These new young couples definitely need someplace to lodge. Why couldn’t the HDB foretell the need? household formation is something which is very simplistic to estimate and noticeably consistent over the years.

Aside from that, even though not all immigrants are given Permanent resident (PR) status, these individuals can generally end-up staying somewhere raising leasing income.

Rental prices are being pushed up.

Mass market HDB property prices are raised

WHAT IS THE LIKELY End results?

Devoid of much selection, Fussy Singaporeans will be forced to think about undesirable locations such as Punggol which in the past has excess units. Not only that, some may not wait and instead go directly to buy private housing.

HDB flat house owners whose valuations have gone up and are sitting on profits will now consider to sell their HDB and buy a private unit instead. There is currently no shortgage of supplies of Private properties at around 60k units over several years. This is easily 7 to 8 years of supply based on average consumption trend.

The end consequence is that a greater proportion of people would certainly end up living in Condominiums and private apartments. This will deplete supplies and bring smiles to property developers in Singapore.

The Singapore government on the contrary would be completely happy that price ranges of land will rise and reach the land’s minimum reserve price to trigger a bidding process. Extra land sales equal more income for the government. And more developers bidding for land means higher prices. These higher prices are then translated into more costly priced condominiums. Singaporeans have to work even harder and hopefully earn more to pay for such private apartments or condominiums of which the key price requirement is the land price.

PERFECTING THE ART OF MICRO MANAGEMENT

Singapore has perfected the art of micro-management. At $8000 home income, HDB income ceiling, you are not able to buy HDB flats. At $10,000 you reach the Executive Condominium ceiling, you are not eligible to buy Executive condominium anymore. At a household income of $10,000 onwards, the Singapore government intently encourgage you to move upwards in consumption. Consumptions helps growth tax revenues (annual real estate tax, stamp duty, transaction fees for real estate realtors which translate into taxes), and helps the economy in creating jobs.

WHAT THIS Means For THE SINGAPORE PROPERTY Purchasers AND THEIR mortgages?

If you are Singapore Property buyers, you needs to be aware that there may be a slow-moving change in Singapore Government policy in play. The government is the largest land-owner, it can regulate supply to control prices. Being an honest and efficient Singapore government bent on maximising land efficiency, you could expect land costs to proceed to rise and set new standards.

These understated or not so subtle policy recommendations will either enrich or impoverish you. And when you take into account your Singapore housing loans, you ought also to take care to choose the right framework to cash in on these unwritten government policies or mis-calculations.

We do not uphold or reject any government plans, we only spotlight such policies to the consideration of our readers so that they can find ways to benefit from these policies or consequences of government’s miscalculations.

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