Friday, 12 February 2010

How To Ensure Affordable Low Cost Housing?

The Government and HDB should consider seriously to practise market segregation into two HDB housing markets, in order to curb speculation and to ensure affordability of HDB flats, as I suggested in a posting in Mr. Tan Kin Lian's Blog. Mr Tan agreed with me that this approach could work.

The first HDB property which is said to be heavily subsidied by the state must be sold back to the HDB at cost. The HDB can then re-sell at near cost, based on adjusted price, with some appreciation in value to another first timer or second timer.

A first-timer who wants to upgrade to another bigger HDB flat or if he moves on to a private property, should sell back his first HDB flat to the HDB at cost.

A second time HDB owner should either buy from the open market at higher price or he should be allowed to buy from the HDB at an adjusted price (not subsidised) higher than cost (subsidised) but lower than market price. If a second timer chose to buy from HDB, he should sell back to HDB again. If he buys from the open market, he sells back to the open market and not HDB.

Those who choose to venture into the open market should transact at open market prices later on. For choice units bought back from first timers, the HDB should be allowed to release them into the open market but these would not be purchased back by HDB at open market prices.

Those who already enjoy two times purchases from HDB should only be allowed to transact in the "open" market, i.e., they cannot purchase from HDB again.

This way, the fluctuation and escalation in prices should be contained.

The HDB must manage the first market by controlling buy-back and make prices reasanoable and affordable for average Singaporeans. The second market is left to free market forces for "stubborn purchasers" or "die-hard" speculators who prefer to take up such risks.

Once price is contained in the first market, it will start to dampen and hit the second open market. I am sure speculators will think twice about speculating if the idea is implemented.

We can see if people who demands to sell as high as possible will get marginalised and stuck in the second market to regret.

There would then be 2 markets for HDB flats. The HDB should not behave like a private developer. It should manage one market for first timers and also those who prefer to buy the second time from HDB and keep the prices in this market low and affordable.

At present the HDB is pushing out new flats at high prices, chasing after HDB resale flat prices by tagging its price based on market pricing, and they are catching up very closely with private property prices, be it under BTO or whatever marketing scheme,  These new owners also expect a ridiculuos appreciation in property 5 years later. This appreciation is causing the escalation and a "bubble" in HDB flat prices.

A national housing policy should not be capitalised by any persons or entities for the purpose of speculation. I believe my suggestion is practical and is fair to both existing and new HDB purchasers.

This is much better than "forcing" all to join in the speculation fray, capitlaised by parties, due to a restrictive national housing policy which was designed inherently to support unrealistic "asset enhancement" and "appreciation", but actually causing a "bubble" in the HDB housing market most of the time and affecting general affordability.


  1. This solution is even more complicated than the complex rules and regulations that the HDB already implements to ensure that housing is kept "affordable" for first-time buyers. How is it efficient for there to be 2 markets for the exact same product?

    HDB's rules are already excessive (i.e. racial quotas, minimum occupancy period, loan schemes, balloting etc).

    As long as they can address the gross undersupply that they have caused by allowing population growth to severely outstrip new supply of flats, all these problems would be solved. We would not need a primary and secondary market and more bureaucracy to mis-micromanage public housing.

    Back to the basics people! Econs101 - Supply and Demand!

  2. I think your proposal is good and a practical one, at least there would be little speculation in the first market and makes HDB flats truly affordable.

    But to stop the greedy ones including HDB to buy into your idea, that is the real problem.

  3. Hi Chee Ken

    The proposal sound complicated but is easy for HDB to implement.

    HDB can get rid of existing rules which are "excessive" and redundant at the same time.

    I cannot see how effective the current "complex" rules are in ensuring that HDB housing is kept "affordable" for both first-time buyers and 2nd timers.

    Having two markets would be fair to the 2 distinct groups. Those who prefer HDB flats which are affordable and those who strongly believe in true market forces of Demand and Supply to appreciate their HDB flats as you advocated