In our previous article, we spoke about how Minister Khaw Boon Wan put forth two ideas that the Housing Development Board (HDB) was considering. We then elaborated our thoughts on the first idea, which was lifting of the income ceiling limitation for purchases of public housing in Singapore. In this second part, we would like to explore the other idea HDB is considering, which is to set Build-to-order (BTO) flat pricing independent of the prevailing property market. Instead of following market rate, it would be allowed to influence the property market.
Let us explain. Currently, BTO units offered for sale directly by HDB are linked to prevailing property prices by an opaque and unspecified formula. This means that even public housing offered by the government fluctuates with the free market. By removing this linkage, and basing it on some other criteria (for example, median income or affordability index), public housing then becomes a viable alternative to the free-market, investor-driven, greed-focused prices of Singapore private property. This in turn allows it to be a hedge against run-away prices. (It is also hoped that the government will be more transparent in how it derives said BTO prices.)
But for this to work, the resale market has to be addressed as well, or else profiteering will still occur in housing areas with perceived value, whether justifiable or not. For example, areas such as Bishan, Bukit Merah, Marine Parade and Queenstown have seen extraordinary price fluctuations in the past. During market downturns, their value drops to just marginally higher than other areas. In a market boom cycle however, their value skyrockets to unprecedented levels.
This encourages speculation and simple-minded investment mentality amongst public property buyers. Such thinking feeds into the property bubble for certain areas, causing their prices to grow ever higher. And with BTO prices pegged to market value, the bubble even affects new public housing prices! In our opinion, the public housing market should not behave this way.
As such, while delinking BTO prices from market value is part of the remedy, it only addresses one side of the equation. The other side, specifically the resale market, must also be dealt with, to prevent certain public housing areas from being perceived as an opportunity for a windfall capital gain.
One possible strategy would be to ensure that new HDB flats are well distributed around our sunny island. Currently, it seems as if new BTO units are all or largely skewed to the more outlying regions like Jurong West, Sembawang, Woodlands, or perhaps even Pulau Ubin in the future. This should change to create potential new towns or even precincts nearer to the city centre. Such offerings could be in locations like Everton or the nearby unused railway tracks and depot, the former Bidadari cemetery and the previous light industrial zones in the Commonwealth-Buona Vista area.
As we stated in our previous article, no one should be profiting excessively from public housing, at the expense of another Singaporean or the state. Creating sufficient supply of BTO units distributed in locations nearer town will serve to ease public demand. Perhaps then, those who buy purely on sentiment and perceived potential gains (prices will keep going up because they have been going up in the past!) will realise how little true value they get when buying resale HDB units at the current dizzying and record setting prices.
Once we have these things in place,
- sufficient supply (which we have taken to be a meaningful surplus of new and move-in condition flats)
- much lowered BTO prices as suggested
then the less popular and outlying HDB towns would likely (and rather quickly) see their resale prices drop until they hover just above BTO prices.
That is the easy part. For prices in other popular areas with a high perceived value to fall, more needs to be done for new areas to make them a near-equivalent alternative, for example,
- quick and efficient transportation for the less-connected and not-so-popular new towns
- fast-track new town development, especially amenities
- create extra value in new towns, e.g. ample parking, more green space which would be harder to achieve in matured towns
- valuation that places more emphasis on real value (are there alternatives, strong fundamentals?) vs investment value or even perceived value
- build more five-room flats and reconsider building some executive flats once more, as these tend to be the high-demand units
While we’re talking about going back to the basics, why don’t we take a page from the book of someone who already had a tremendous track record in the past with HDB, the late Dr. Goh Keng Swee?
In the 1950s, Dr Goh already had the idea for the Jurong Industrial Estate. But in those days, it was all swampland. Even after the swamp was cleared and industries started moving in, housing was slow to pick-up. In 1965, Dr. Goh implemented a toll of $50 per month for every bus and lorry that carried workers to Jurong, thus encouraging businesses to house their workers in Jurong itself, instead of commuting them from other parts of Singapore. This out-of-box (for that time) thinking was instrumental in starting the transformation of Jurong Industrial Estate into Jurong Town. Ironically, not a single cent of toll was collected while the toll gate accomplished its purpose.
In the 1970s, housing really started to boom in Jurong with the creation of Boon Lay, Bukit Batok, Bukit Gombak, Hong Kah, Teban Gardens and Yuhua. Even before flats in Jurong were fully occupied, however, a lake with boating facilities and an outdoor cinema had already been constructed, in 1967. Road, rail and bridge infrastructure was also constructed years before that, starting in 1964. This combination of push and pull factors allowed Jurong Town to grow and flourish despite it being once known as “Goh’s Folly”. Do we have such forward thinking in the development of today’s HDB new towns? Punggol New Town stands out as a very good example, but instead of standing out it should become de facto standard, for example in Sembawang, Woodlands and the future Tengah.
We do recognise that balancing the requirements of public housing with today’s property market is a tough act, but that’s what our world-class government is for! It’s time for HDB, and the Ministry of National Development, to start setting positive trends once again.
*Article first appeared on http://www.bluta.com.sg/blog/2013/04/minister-musings-hdb-the-trend-setter/