Monday, March 29, 2010

HDB flat sales proceeds and CPF

According to an article from (reproduced below), at a forum organized by REACH, PM Lee announced that the government “is exploring how it can further tie a person's CPF to the purchase and sale of an HDB flat”. The implication seems to be that sales proceeds from HDB flats will be returned to CPF.

I have two questions.

“It is a growing trend that has got authorities concerned: Home-owners selling HDB flats to pay off debts, only then to ask their MP for help in getting a rental unit.”

So, if they do not ask their MP for help in getting a rental unit then the authorities would not be so concerned?

“Prime Minister Lee said this goes against the aim of these homes as assets for life.”

So are we to now understand that it is more important to preserve the the government’s aim than it is to allow the indebted person to clear his debt and start afresh?

Somewhere along the line I seem to have lost my ability to understand the government’s rationale and priorities.

I think I would be better able to understand it if the rationale had been that there is too much buying and selling from people trying to extract cash out of their houses and getting fresh loans for the next, and thus this measure is to prevent them from increasing their indebtedness. Although I would have preferred less government intervention, but at least it would have been understandable. But to do so to prevent a debtor from selling his home to clear his debt boggles my mind.

Are we down to treating symptoms only? Is this scheme going to be accompanied by some other schemes to help the indebted person sort out his financial predicament?

Am I old-fashioned to think that elected representatives are elected and paid by taxpayers to help the people they represent? Is this the help we can expect when we are down?

How is the HDB flat an asset when it cannot be utilised as we will? Private properties can be sold to repay debts but not HDB flats?

What about foreclosures / mortgage debts? Would banks still have first charge over CPF? Does this mean that sales proceeds from the sale of HDB flats can be used to repay bank loans but not other debts?

It seems I lied when I said I have two questions.

From :
Title : Govt to explore ways to increase use of CPF for buying HDB flats
By : Hoe Yeen Nie
Date : 27 Mar 2010 2131 hrs (GMT + 8hrs)

SINGAPORE: The government is exploring how it can further tie a person's CPF to the purchase and sale of an HDB flat.
The aim is to strengthen the message that property is an asset for one's old age.
Prime Minister Lee Hsien Loong said this at a forum organised by REACH, the government's feedback unit.
It is a growing trend that has got authorities concerned: Home-owners selling HDB flats to pay off debts, only then to ask their MP for help in getting a rental unit.
Prime Minister Lee said this goes against the aim of these homes as assets for life.
"When we help people to own a home, it's really for you for life," Mr Lee said. "When you're not so old, and you've bought the house, and now you see that the pot of gold is down there and you ignore the 'please don't break the glass sign' and you break the glass and take the money out straightaway, then what happens to you? Or more importantly, your children and your dependents? Where do they go?"
Hence, the government wants to strengthen the CPF route in the buying and selling of flats.
"Like what we've been doing with the Additional Housing Grant - that grant we give you into your CPF, you can use it to buy a house," explained the Prime Minister.
"If you sell the house, the money goes back into the CPF. So if you're buying another house, you can use that for another house. If you're not buying another house, the money is there for your old age."
On tackling income inequality, the Prime Minister said the point was not to measure the size of the gap, but to look at how the poor can be made better off.
Access to a good education and a high rate of home ownership are two of the best things the government has done.
However, Mr Lee noted there are some people who will be left behind.
"And my advice is, please try to help yourself. And particularly, please help your children to break out of this cycle," he said. "The government will help them, but you must help them too."
Said Dr Vivian Balakrishnan, Minister for Community Development, Youth and Sports: "It's not just about dollars. It's how you deliver the dollars, how you deliver assistance so that people make the right decisions for themselves and their children.
"If you were a poor person, anywhere on this planet, Singapore is the one place where you will have a roof over your head, where you will have food on the table. Even if you can't afford it, we will have meals delivered to you. You will get healthcare.
"Do not lose sight of the fundamentals. And I am confident that we have done our duty for the people who need our help."
The hour-long dialogue also saw questions on the teaching of the Chinese language, and more help for singles.
In response to a question on casino entry fees, Mr Lee said the aim was not to prevent Singaporeans and permanent residents from gambling. He added that gambling was not harmful if seen as a form of entertainment, but it does become a concern when people get addicted.
The dialogue session is part of a forum on securing Singapore's future.
- CNA/yb

Friday, March 26, 2010

Property Prices

If HDB flats are affordable because the average HDB owners pay less than 30% of their household income as mortgage payments for their homes, then bungalows in Singapore are also affordable because the average bungalow owners pay less than 30% of their household income to pay for their homes.

No, I do not have the statistics on what % of their income bungalow owners pay in mortgages, I was merely trying to illustrate the invalidity of the above argument.

The govt has immense influence over the property price levels in Singapore. It claims it cannot control resale flat prices. That is only true if we are looking at individual transactions. But the general price level of resale flats is largely determined by new HDB flat prices. New HDB flat prices form the base for all property prices. So how does HDB price its new flats? It is based on resale prices. Exactly how, I have not been able to discover. So I shall assume that here that new flat prices is based on resale prices of similar flats in similar locations minus a fixed quantum or a percentage discount.

But what if this discount is less than the resale premium that the market is willing to pay? For example, if buyers are willing to pay $80k more for resale flats because they can get it immediately and have greater choice over the location , floor level etc, but the discount factor for pricing new flats is say $50k, then this would cause a price spiral.

Period 1: new flat prices $200k, so resale prices $280k
Period 2: new flat prices adjusted to $(280-50)k = $230k, so resale prices climbed up to $230 + 80k = $310k,
I suppose this will carry on until the resale premium shrinks to the level of HDB's discount factor before some form is equilibrium is atttained. But it is the market that adjusts to HDB, not the other way round.

Ideally, home prices should move in tandem with wage levels. Unfortunately, property prices are subject to many other forces and do not always track wage movements. But since the govt has absolute control over new flat prices, it should price HDB flats based on wage levels rather than resale prices, thereby providing greater stability to price levels. For example, 3 room flats could track the 30th percentile wage level, 4 room flats the median, etc. And the income ceilings for each type of flat could also track a benchmark wage level.

If we continue to allow property prices to outstrip wage growth, we will see our future generations having to fork out a larger and larger proportion of their income for housing, and life will get progressively harder.

Wednesday, March 24, 2010

Resume blogging

I have not posted anything on my blog for a long time, though I have continued penning my thoughts offline. The reason was because my last post on the homeless issue seemed to have been picked up in several quarters, and concerns arose on whether my posts would be taken as the official position of the Reform Party. I deliberated over whether I should stop blogging or clear the content with the party before posting. The latter, frankly speaking, is something I will not like to do. But then, life is not always about my own personal likes/dislikes. The irony of becoming gagged or muffled upon joining a political party is not lost on me either. And so I mulled over this for a long time. Yes, I know 2 months is a long time to mull over this, but I am by nature a cautious person, and I wanted to be sure. [And yes, I know the question this begs asking is “If you are so cautious, why did you join an opposition party”. Ahh, the answer to that question is so complex, it would be like trying to tell my whole life story, and I am not about to commit political suicide by boring netizens to death. Instead, I shall attempt to give interested persons the means to draw their own conclusions, by writing more diligently on my blog.]

I place the blame of my previous dilemma squarely on Kor Kian Beng’s shoulders. [Kian Beng , if you are reading this, I am only half joking.] A press release from the party was sent to the Straits Times about our Education Seminar and a brief description of the speakers. I admit I totally did not see what was coming. I was naively expecting publicity on the education seminar and marveling at the support shown by the ST towards this event. The resulting article was all about scholars joining the opposition, and not a word about the seminar appeared. What an effective lesson on newsworthiness that was. I shall not make the same mistake twice.

Before the article, I was expecting to start my new journey in obscurity, taking my time to learn the ropes, for I feel I am but a baby in the new world that I have ventured into. Life seldom goes according to plan does it? Rightly or wrongly, because of the article, I have felt compelled to accelerate my learning curve, and it is a lot more work than I had anticipated. There is so much information that I need, but no easy way of finding it. Pouring through the Hansard required all my determination to keep at it. Sigh, fictions are so much easier reads. So please, anyone out there – journalist, researchers, librarians, students - who knows of any useful and reliable resources accessible to individuals, do let me know.

Justin told me I should not allow myself to be rushed just because of that article. But if there is one lesson I learnt very much to heart in my 17 years of working life, it is the importance of managing expectations. That article has raised expectations that I must recognize and take into account in my decisions. In any case, it is not pushing me into a path I do not wish to take, merely hurrying me along.

Hence the decision to continue blogging. This will be my way of managing expectations. What I am, what I am not, what I believe in, what I hope for, let it be out in the open way before any decision needs to be made. As indicated in my revised header, all opinions expressed here are my own, not to be taken as the Reform Party’s official position.

Please do not presume anything just because I was a scholar. It only meant I was very good in mathematics (and that is something I will unashamedly admit, I am very good in mathematics and modesty can go take a hike.) But whether I will be any good as a politician, please keep an open mind.

I have found the cyberworld to be a totally different world. What I see and hear on the net, and what I see and hear in my physical life, from friends, relatives, colleagues and people I meet on walkabouts form two totally different pictures. It would therefore be dangerous to start to believe that the cyberworld is reflective of the real, but I have found it a perfect environment to put one’s ideas under scrutiny. Nobody is going to hold any punches. If there are holes, somebody will find it. What better place to train yourself to think and write with discipline?

I am all in anticipation.