Cooling measures still relevant as property prices are still high

In the commentary “Cooling measures worth tweaking” (Feb 14), the writer suggested that the low overall resale volume indicates that not much upgrading is taking place. He felt this is not a good situation as homeowners cannot fulfil their housing aspirations, and attributes it to the property cooling measures.

Even if he is correct in stating that not much upgrading is taking place, I believe this to be a result of the high property prices, which the cooling measures target to tame, rather than of the cooling measures themselves. As he noted, “under normal market conditions … households relocate to bigger or better homes as their income rises”. However, today’s high prices mean that few can afford to move to a bigger private home in a comparable location.

Sales information indicates that many private homes sold today are equivalent or smaller than some four-room Housing and Development Board (HDB) flats. This means most upgraders today will have trade-offs in terms of living space and location if they want the intangible benefit of perceived higher social status of living in private property and the convenience of access to recreational facilities.

Therefore, until property prices are at a more affordable level, I believe the property cooling measures are still relevant.

Moreover, there are also other reasons for the low resale volume. Most upgraders today are choosing not to sell their HDB flats as a confluence of factors has made it more attractive to keep them.

Firstly, the flat can fetch a very attractive rental as a result of the high property prices. If the upgrader bought his flat directly from HDB more than 10 years ago, the rental yield can easily be more than 10 per cent of his purchase price, which is impossible to obtain in any other asset class of similar risk.

Secondly, the low interest rate means that the upgrader has little need to release the capital locked up in his flat to lower his loan quantum to save interest payments.

Thirdly, the restriction on purchase of flats by private property owners means that an upgrader may prefer to keep his flat, rather than risk not being able to buy any flat in future.

From Chong Lee Ming

Source : Today – 17 Feb 2014