Effectiveness of Recent Measures to Stabilise Property Prices

Ms Foo Mee Har asked the Minister for National Development in view of the recent record property transactions, including a $1 million Queenstown flat, whether the anticipated fresh flood of liquidity into the US financial system with QE3 announced by the US Federal Reserve will have an impact on property prices and affordability.

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Mr Speaker, with your permission, I will take Question Nos 1 and 2 together. Ample global liquidity and low interest rates in recent years have contributed significantly to the strong demand for residential property, exerting upward pressure on property prices. To restore market equilibrium, the Government has put in place a number of demand management and supply measures.

Both the private property and HDB resale markets have shown signs of stabilising. For private property, growth in prices has moderated significantly from 18% in 2010, to 6% in 2011, and to 0.9% in the first three quarters of this year. Yearly Resale Price Index (RPI) growth has also come down from 14.1% in 2010, to 10.7% last year and to 3.9% in the first three quarters of this year. Ms Foo Mee Har cited the case of the Queenstown flat which was sold for $1 million. From time to time, there will be some buyers who are prepared to pay way above market valuation as determined by professional valuers. This is an executive flat, measuring 150 square metres at Level 16. So, this is not your typical HDB flat. In some HDB towns, there will be some such units with unique characteristics which buyers are willing to pay way above valuation.

Nonetheless, we have seen an uptick in RPI in the third quarter of 2012 based on the flash estimates of 2% growth from second quarter of this year. So, while things are improving, we are not yet out of the woods. With the recent announcements of further monetary expansion in both the US and the Eurozone, we expect the current low interest rate environment to persist. This will continue to contribute to the strong demand for residential property, which could cause prices to rise beyond sustainable levels.

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As these monetary conditions worldwide are far from normal, MAS has announced new curbs on loan tenures to encourage greater financial prudence among property purchasers in both the public and private housing markets. This is a calibrated step to prevent excessive speculation.

There is also a significant supply of housing – both public and private – that will come onto the market over the next couple of years. In particular, HDB has ramped up its BTO supply significantly and we will keep up the pace of new flat supply into next year. This will enable us to provide more options to suit individual housing needs and budgets. We remain ready to act, if and when necessary.

Sir, I thank the Minister for his reply. I have some supplementary questions. Firstly, with respect to the additional BTO housing that is being provided, we still see a rise in the resale flat price index. What would be the acceptable level before MND considers further cooling measures? Secondly, at which point would MND deem that our resale flats are unaffordable, and would act to assure the public about affordability?

What is an acceptable Resale Price Index would depend on the economy. Over the medium, long term, there is a strong correlation between GDP growth – which is a proxy for wage growth – and property prices. That is quite easy to understand because if wages do not keep up with prices, then there would be no buyers. And this also answers the second question: if prices become unaffordable – that is, if people cannot afford to buy it – then there will be no buyers and there will be no market.

Sir, I would like to thank the Minister for the clarification and answers. May I ask more specifically on affordability, and if the Minister could share what planning parameters the Ministry uses to determine prices? And how is average household income used as an indicator to determine affordability?

Sir, there are international guidelines on this particular subject. What is commonly used in practically all countries is the mortgage burden vis-a-vis wages. Typically, the guidelines suggest that if someone has to use more than 35%-40% of their monthly wages to service their mortgage, then that would not be affordable. On that score, we have done not too badly. In Singapore, certainly for the HDB BTO pricing, we always ensure that the average burden is about one quarter, or 25%, which I think is quite good. The resale market varies a little but it is generally below 35%.

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Sir, I would like to ask the Minister: based on the projections on the number of family nucleus and eligible singles, do we have an adequate supply to meet this demand in the next few years? Secondly, would HDB consider building more flats to meet some of this projected demand and to manage some potential surplus as a reserve, so that there is always some buffer? We may not always get the demand-and-supply balance right and so, will HDB consider having some surplus to meet some unanticipated demand?

Sir, that is what we have been trying to do in terms of meeting family formation demand, at 25,000 units per year, which was the case last year as well as this year. This is many more than the number of family formations. Every year, marriages involving citizens average 15,000; so, 15,000 family formations a year. Twenty five thousand units do provide us with some buffer. Of course, there are other additional demands coming from up-graders, down-graders and second-timers. We have been working on this quantum of 25,000 units per year for two years. In fact, if not for other upcoming policy changes, I would be beginning to wind it down a little. But we now have this new subject of catering to singles. Hence, I have to deliberately ramp it up a little higher in order to cater to singles. We are still mulling over it because it is very hard to put a figure on how much more we should cater for the singles group.