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Monday, 9 May 2011

TODAYonline | Voices | Asset values are not everything

TODAYonline Voices Asset values are not everything [TODAY May 09, 2011]

Reference #01
Asset values are not everything
TODAY  May 09, 2011
Letter from Teo Chin Ghee Jeremy

I REFER to recent comments by Mr Mah Bow Tan and various PAP ministers on how rising property values have benefited Singaporeans and in particular, his thoughts that this is an issue for new property buyers but that once they become property owners, they will change their views.

While I support HDB upgrading because it provides for renewal and better conditions for Singaporeans, I wonder if we do not need a more nuanced view towards the benefits of rising property values.

Consider a hypothetical property market where a 1,000-sq-ft apartment appreciates in value from S$800,000 to S$1.2 million over five years because of market factors rather than physical improvements like upgrading.

A new home buyer obviously does not benefit from having to pay a higher price as this translates to higher mortgage payments, leaving less disposable income for other activities like vacations, movies and dining out.

But what about the family who purchased the apartment earlier at S$800,000, do they benefit? From a pure net worth perspective, the family is now richer but if they choose to stay in their apartment, their quality of life stays exactly the same.

If the family now decides to upgrade to a larger property in Singapore, they will make a substantial profit from the sale but by the same token, they will have to pay substantially and proportionally more for the new property they purchase because of rising overall property prices. Thus, there is no net benefit to them in this instance as well.

Indeed, the people who do benefit from rapidly rising property values are non-owner occupiers who do not need to buy an equivalent place to live in Singapore - emigrants, property developers and investors.

Unless incomes increase at the same pace as property prices, Singaporeans will spend increasing proportions of their incomes on a place to live, leaving correspondingly less disposable income for other areas.

This is a challenge not simply for first-time home buyers or for the lower income group, but for all Singaporeans aspiring for a better quality of life and is true of both public and private property owners.

I hope the Government can shift its mindset on the value of supporting property prices and look into the issues more deeply. The recent measures to cool the property market are a start but more can and should be done.

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