What a change one week made. The new 3-year wait for fresh permanent residents (PRs) before they can buy resale flats turned out to be the one cooling measure that had real bite. Sellers are now panicking, according to property agents, "Some sellers are so desperate for "whatever they can get" that they are even agreeing to sell their flats at zero COV." According to the Singapore Estate Exchange (SRX), the had trend started earlier: The number of zero COVs was 14 in January, and tripled to 49 in July.
National Development Minister Khaw Boon Wan once said that the cash over valuation (COV) - cash premiums - for Housing Development (HDB) flats cannot be scrapped as such payments are set by buyers and sellers themselves. Khaw explained it thus:
"COV is the difference between (a) price of flat as agreed between buyer and seller and (b) the valuation of the flat given by a professional valuer. (b) is done by an objective professional. (a) is between buyer and seller. Abolishing COV means removing (a)? Then who sets the price? The professional valuer? Years ago, it was tried. COV then went underground as 'under counter cash payment'."
The "under counter cash payment" scam is traceable all the way back to "cash-back" schemes in 2001, wherein buyers and sellers over-declared the agreed selling price in order for the buyer to get a higher loan either from a bank or the HDB - also referred to in the trade as "over invoicing". The cash surplus would then be illegally divided among the parties involved. Such offences are punishable by a jail term and/or a fine.
What the minister refused to address about the legality of COV, the free market has managed to tame. Khaw's last words on the subject were: "Clearer rules and regulations with penalties and strong enforcement will be enough to check any under counter cash payment." Khaw may have the luxury of time to come out with the penalties and strong enforcement, but ordinary folk can only hold out for so long.
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Why are we even paying millions for this bunch of eunuchs who are clueless on what goes on in the real world? The mandarin system started by the dying old man to get his appointees into power is much to blame for the terrible situation we are in. Time for change.
ReplyDeleteBecause I trust them more than I trust you
DeleteThis concept about COV is wrong to begin with. Why should there be a cash supplement when the deal should be done at valuation? What then is the valuation for? Wrong valuation? The valuer under-valuing the property? As long as there is a willing buyer and a willing seller, the transacted price should be the market price, and hence the valuation.
ReplyDeleteYou are right our COV concept is wrong to begin with because it goes against the very concept of 'market value'.
DeleteWhat we know in any willing buyer & willing seller transaction, whatever final transacted price becomes the market value where valuers will use the trend to base on for their next valuation, taking different individual factors into consideration.
What we also know is that for unknown reasons that only HDB (or our PAP Govt) can explain, HDB valuers are not alowed to take COVs into consideration for fear of losing their approved valuer status. Hence the mess where a cash value is demanded over the approved valuation.
Because of this current COV mess resulting in lopsided valuations, now the GOvt has no choice but to rope in the runaway housing prices by taking these tough measures because of widespread unhappiness.
But on the other hand now with falling property values spread across the country, is this not a slap for our leaders when they use to joke that properties in opposition held constituency areas will drop in value if we vote in the opposition ?
Do they not look like they are both God & the Devil now?
Let's look at this "willing buyer, willing seller" situation in another way.
DeleteRecently a friend visiting wanted to see the Phantom of the Opera before he flew back. Checking the SISTIC booking service, he found that there was only one seat left, at $125. He also found out there was a "lobang" to buy two tickets for the same show at $180 per seat. He paid up. We recognise that as a clear case of touting.
Nothing wrong with COV. I think what is wrong is the government's obsession with COV and using it as an indicator of the market situation instead of just ignoring it and focus on the resale price index.
DeleteThe reason is because the government cannot and do not intend to reign in the property bubble, allowing the price to double in five years. They just want to look at the COV since they control the flat valuation and indirectly control COV.
So, to trick Singaporeans, they can declare that their "cooling" measure is working because COV is falling. But, if you look at the bigger picture, which is the resale price, no, it need not be the case. Resale price do not correlate with COV. They can reduce COV by increasing flat valuation. This does not affect the resale price at all, which is determined directly from market situation.
Let's not be fool by the PAP government. Look at the resale price index, not COV. Thanks.
I actually dont think there is anything wrong with the COV mechanism. The same thing is done in the US but not called as such. When applying for financing (mortgage) on a property, the bank and the buyer appoint an independent (arms length) appraiser to appraise the property. The appraiser who has to go through a fair bit of certification and regulation comes up with the value of the property. If the value appraised is less then the loan amount seeked, the buyer has to come up with the delta. This is effective in keeping prices in check and not letting it get too frothy. Now during the housing bubble in the US, the checks and balances were fairly loose and the appraisers rubber stamped the transaction price. But with the crackdown post bubble, it helps prevent potential fraud and limits the risk for the lending agencies as they do not need to extend credit beyond what a professional estimates the value of the property is.
ReplyDeleteThe comparison is wrong - in the US, you OWN the house and property you buy. In Singapore, we are talking about public housing here, and all you get is a 99year lease.
DeleteThere's one more unique difference in Singapore. We have this mysterious government servant called "The Valuer" who slaps the price of land on the public housing property, and passes the profit to an organisation called the SLA, who hides it in the similarly mysterious and opaque "reserves."
DeleteWhy should we pay for the land costs when we buy a flat, since HDB is still the rightful owner of the land, unlike private condo.The land should be listed as asset in HDB accounts rather than reflected as a deficit for payment to SLA . At any time we are subjected to HDB rules and regulation.eg.SER.
DeleteFor private property owners they can enjoy a windfall which is rightfully theirs when they enbloc.
Indirectly, we are recognizing that we have attracted more PRs than required. Similarly, we have denied the presence of the co-pilot system for too long than required. Cheers 2016!
ReplyDeleteIn the very first place, why are we EVEN taking in PRs who can only afford to buy HDB resale flats?
DeleteWhy take new residents that will put pressure on and compete with the average Singaporeans for HDB flats, for hospital beds/care, for university place, transport seats, middle class jobs etc? Whatever happens to having top end executives/foreigners in the likes of FB cofounder who are here only to create jobs and values to economy?
Since when did "complement" (complete) become "supplement' (add) the workforce to what is becoming now a "level playing field" (compete equally) ?!! What kind of passive and slumbering citizens would allow a blatant government a full expediency and intellectual dishonesty because they convinced you the silent majority to leave it to the highly paid 'experts' and 'politicians' to do their jobs and thinking for you?!!!
1.22, you are being too kind. I will use the word Replacement in place of supplement.What do you think why they do it? My opinion is, because of competitiveness.When costs of doing business in Singapore become too high due to rentals,energy and related costs(eg transport, COE,ERP,),how to cut down the expenses to maintain profits? Flood the market with cheaper labour in the form of all kind of FTs.
Delete8.10, these are not my words. These are lingo used by our politicians and mainstream media. Did you ever read anything about replacing your local jobs?! But the reality is there for everyone to see..their hidden agenda has come to be exposed. But it will be even a big shocker if singaporeans find out what is the REAL ratio between PR vs Singaporeans...that which MOM will never voluntarily revealed...it must be exposed.
DeleteThe pool of PRs is quite static, about 350,000. But you must bear in mind every year they give citizenship to 25000 from this pool, giving space for new PRs.
DeleteIf you talking about 1st generation citizens, probably more than 500,000, what actual nos only G knows.It is really an uphill task for the oppies to overcome this and the state machineries.
350000 should read 530000 from Singstat
DeleteWhy are 40 - 50 year flats value at almost the same as 5 - 10 year ones? when these flats are sitting on 99 year leasehold.
ReplyDeleteBecause they are candidates for SER. They will want to keep scheme going to sell you a dream. Happy Dreaming.
DeleteThere is no "free market" in public housing and to answer the minister's rhetorical question, the price is not "set" by normal buyer-seller negotiations because of the "highly visible hand" of the garmen in following ways:
ReplyDelete1) demand is deliberately distorted by the garmen's immigration/political objectives
2) supply is distorted by the garmen's desire to pump prime the economy (as is the case since 2008) or cool it (as was the case between 2005-2007 when MBT deliberately slowed building of HDB flats) and
3) the valuer's valuation is influenced by among other factors, last transacted prices in same vicinity - hence it is always "self-referential" or as all good Excel manipulators in garmen will have encountered in their regular data massaging, "circular error".
As someone already pointed out, once any of the above distorsions are removed, you see self-reinforcing trend downwards. Bubbles are like condoms, nice to blow, but not so nice when it deflates. I can have sympathy for the naive wet behind the ears Admin service directors because they have never blown one, but for a 60 year old horses and cows to blow, its truly Irresponsible. If only there is some accountability in the voting system, now how come no one is bothered with discarded ballot boxes?
If foreigners (including PRs) are not allowed to buy HDBs, HDBs will become affordable again.
ReplyDeleteIt is not in their interest to do so They have to keep the wheel turning. Anyway rental will pick up and demand will not let up.
DeleteIn additional, PRs will be more readily to take up citizenship and their sons have to serve NS rather than cash out and return to their homeland once they have milked enough money.
ReplyDeleteBingo!, I have one such neighbour. Send both sons to international schools instead of neighbourhood schools, put up their country flag during sons birthday and putting up their property for "sale", and later withdrawing bkz offer not high enought. What do you think these tell tale signs indicates to you?
DeleteThis is nothing new. I have made many foreign friends, and have seen at least a dozen come and go. Come empty handed, but Went with load bags full of money made from property investment, job titles inflated for them and their family's benefits. They are mostly just a bunch of economic opportunists and vampire. Sucked our countries' resources and living the good life. They have nothing to offer back, other than consumer spending. But the trade offs == we gave them plots of land to build up to 30+ international schools on our limited land space. And some pretend their children "may" eventually serve NS, but most will finally not. Why are we not imposing that they PRs who overstayed 10years (taking up jobs) but won't become citizens should have their permit discontinued. PRs between 5-10 years should start donating blood to bloodbank at least twice a year as national service. Why is MOM still dithering? The difference between PRs & Citizens cannot just be measured in dollars and sense.
DeleteSupply & demand.
ReplyDeleteToo little supply will drive up prices.
So why is there a shortage of HDB flats in the first place?
Did PM Lee forget to tell Khaw Boon Wan about his desire to achieve 6.9 million population through a massive immigration programme?
Did Khaw forget to read the Straits Times?
If PAP gahmen own & control 90% of the land supply in Singapore, why can't they figure out the supply of HDB flats needed?
Why do 60% of our family, friends & relatives keep voting PAP?
60% should be dropping a bit to high 50s. What do you think when the gahment grant citizenship to 25,000 each year? For the last 10 years we have at least a total of 200,000 new citizens. Who do you think they will vote in GE?
DeleteDespite their assurances, are they not planning the new townships @ Bidahari, Paya Lebar Airbase, etc. to cater for the targetted 6.9m population ?
DeleteIf true, looks like PAP couldn't give a damn to the people's protests against the White Paper ?