Are PRs to blame for high HDB resale flat prices?
By Tejaswi Chunduri (courtesy of PropertyGuru)
There has been considerable debate regarding the issue of permanent residents (PRs) buying HDB resale flats and how it has allegedly pushed up cash-over-valuations (COV). In fact, an article published recently on Yahoo! Singapore by PropertyGuru received over 1,000 comments as a result of the heated exchange among netizens.
After reading the comments, it is clear that many Singaporeans are unhappy with the skyrocketing prices in the HDB resale segment and PRs are getting the most blame. But is that justified and are there any financial underpinnings to this that we need to be aware of?
Let's look at the HDB subletting market. As per HDB's latest quarterly figures, the total number of flats approved for subletting rose to about 40,000 units in Q4 2011, compared to around 39,100 units in Q3 2011 — a meagre two percent increase which seems barely sufficient to cater to the ever-growing demand for subletting.
Similar to the property sales market, rentals are also driven by demand and supply dynamics. As per data obtained from Singstat's latest mid-year estimates, the number of foreigners and PRs in the country increased by 80,400 in 2011 compared to 59,100 in 2010, an increase of 36 percent. For their housing needs, the bulk of them depend on renting in the HDB subletting market, creating demand pressure in this segment. The lack of sufficient supply in the market to meet the demand will push rental prices up.
PRs, who are competing with foreigners to get better rental deals, might seek alternative options. Since they are eligible to buy HDB resale flats, they might as well do so to escape the high rental prices.
To get a clearer picture, I spoke to some PRs who have bought HDB resale flats. Their prime reason for purchasing was to make use of their CPF contributions and shelter themselves from the higher rental prices. For example, taking an EMI (equated monthly instalment) of around S$1,200 from their CPF is far better than forking out S$2,500 as monthly rent, leading to savings of around 50 percent.
While the benefits of the CPF housing scheme could be the main driver for PRs looking to buy HDB resale flats, the high rentals tend to create a sense of urgency in them to buy flats sooner than later. It is this mad scramble for resale flats that gives sellers the confidence to ask for higher prices, resulting in rising COVs. So while the asking prices for resale flats can always be influenced by supply and demand dynamics, some factors like COVs can be "contained" if there is no rush to buy.
As such, it is time that the policymakers increase the supply of subletting flats and implement measures to cool the red-hot rental market, thereby minimising the rush to buy HDB resale flats.
Do you feel that increasing the supply of HDB subletting flats will ease resale flat prices? Do write to me at research@propertyguru.com.sg
Tejaswi Chunduri is a real estate analyst for PropertyGuru.
