Thursday, 20 January 2011

Speculation, really? - A Belated ex-PM's Dream

I refer to the attached letter (Reference #01) by Mr. James Chi Han-Hsuan to TODAY (Jan 17, 2011).

I agree substantially with his argument except the portion striked out by me, vide "In fact, the high prices of new condos are, to an extent, the result of the growing size of bids under the Government Land Sales programme, rising construction costs and the high development and other charges tied to en bloc projects."

As I had pointed out before in this bloc, the inherent problem lies with the Govt Land Sales bidding system and the final pricing of DBSS and EC.

As for construction costs, it is not really rising. Many are often misled into thinking they are. In fact, some trades are still clinging onto historical low prices. When compared to the high construction costs in 2006 / 2007 due to high "steel prices and then sand ban", current construction costs are really a blessing. Not forgeting that the weakened Euro$ also mean cheaper finishing materials like high quality marbles and tiles.

The problem lies with the integration of "Design and Build" contractors up the value chain into the "development process". It is supposed to provide a cheaper package altogether and more competitive prices for the end purchasers but instead "Design and Build" contractors were bidding excessively for land bids and added to that even if their construction costs were reasonable, would still not press down final prices. Instead the buyers ended up paying higher prices and generally in Singapore, the individual Financial Quotient is not there. Instead buyers take for granted the GOVT has a good system in place to push the price even higher and would save them at the end of the day. This is the fault arising from the "asset enhancement" scheme for public housing. This wrong mindset, I believe is the greatest risk to our Bubble. Imagine "Dell Computers" after cutting the middleman's costs and still selling you at "SONY Computer" prices directly.

I had written about The New Millennium Dream In Retrospective. The present EC Euphoria is a Belated PM's Dream of SM Goh. I tend to agree with what this TODAY online commenter (ERG) said :-

"If there's one man to be blamed for decades of rampant, escalating property prices, it must surely be goh chok tong.

He spoke incessantly, during his seat-warming years, about 'asset enhancement' and how even HDB dwellers were becoming 'half-millionaires'.

Mah Boh Tan has had the unenviable task of trying to put the genie back into the bottle."

And imagine and look at how this "multi-million" boss of our GLC developer (Reference#02) is crying foul himself when they also play a part in the bidding process and join the speculation fray:-

"We are amazed at the prices that come out (in government land tenders)," he said. "Not that we are jealous but when we look at the numbers, we know that we can't do it. So in a way, we agree that there is some speculative chasing for land."

You should ask him how the D' Leedon at Farrer Road is priced?

Spiralling Towers, Spiralling Prices.

As a "pre-emptive" measure, even if they came slowly, the new measures are necessary. Unlike China, where the property market is in a Bubble but the stock market not relatively heated up last year. Most China property speculators are into a few properties, and they are hoarding to hedge against inflation. If one Chinese owns 3 properties, I can bet you, he has at least paid up 2 of them. So only the last property is at risk. In Singapore, many are just owning one and the richer one is trying to have 2 but both not paid up. Few own as many properties as the Chinese mainland investors. This exposes another risk in our property Bubble.

Our stock market is very much heated up right now and as S$ appreciates further, more capital inflows are expected into our "safe haven" and our Govt will take it positively as a plus for Singapore as a financial centre. Nothing will be done to curb such captial inflows. The Govt may even allow to appreciate the S$ at the expense of our costlier exports. As I explained before, after the stock market is played up, the gains will be re-invested in properties and then inflate the property market further. If the condo resale market heats up further, the EC market will climb to new heights although new buyers have to observe a MOP of at least 5 years. It will push prices higher in the long-term which our Govt proudly calls "asset-enhancement".

So cutting short-term gains by pushing up the SSD rates to 16%, 12%, 8% and then 4% is a way to stop further price escalation. But I see prices as still high until new benchmarks are set in with a consolidation of prices in the current property market. Prices of "leftover" units should fall. No control measures can be more effective than banning speculation in sub-sales before actual physical completion of residential properties or obtaining TOP. This has a better impact to prevent spiralling prices in the long-term.

Reference #01 :-
TODAY Jan 17, 2011
Letter from James Chi Han-Hsuan

I refer to the property cooling measures, which are supposedly aimed at curbing market speculation. Between the last cooling measure on Aug 30 and the latest one, there is no clear data to show that the upward movement in prices has been due to speculative activity of any sort.

The latest price hikes can be attributed mainly to the new property launches by developers, and since the prices are not within the control of buyers, how could the uptrend in transacted prices be deemed a sign of speculation?

There is also no way it can be proved conclusively that buyers of properties after Aug 30 were speculators, since few who bought a property then would likely have sold it off before the latest measure. In fact, the high prices of new condos are, to an extent, the result of the growing size of bids under the Government Land Sales programme, rising construction costs and the high development and other charges tied to en bloc projects.

Resale property prices are in part influenced by prices of new launches, as valuers would factor in transacted prices of condos in the vicinity when valuing a property. In short, rising property prices are not just a matter of "willing buyer, willing seller".

Reference #2:-
Yahoo News
Propertyguru - Monday, January 17

1 comment:

  1. We are slowly turning into a banana republic like USA with this asset enhancement nonsense. Lets just hope we do not totally destroy our exports to build a totally useless financial sector that will only lead to even larger income disparity. And pray the collapse do not cause extreme losses to our banks which will be followed by bailout by the pap at the expense of us when they increase the gst to more than 10%.