Resale flat prices – let market forces decide

Dear editor,

I refer to the letter by Irwan Jamil dated 29 Jan 2010.

Mr Irwan claims that his grandparents paid full in cash, the sum of $7,000 for their first HDB flat in the 1970s which can be sold for $200,000 today. That appears to be a handsome $193,000 windfall for Mr Irwan’s grandparents, not withstanding inflation.

But suppose Mr Irwan’s grandparents have a total of 20 grandchildren including Mr Irwan himself. Had there been no price appreciation, each grandchild would only have to pay $7,000 each for their flats. But because $7,000 has ballooned to $200,000, each grandchild must now fork out an extra $193,000 each. So the $193,000 windfall for Mr Irwan’s grandparents becomes a $3,860,000 debt burden for all the grandchildren. The extended family as a whole is now worse off than before.

While Mr Irwan’s grandparents can pay the full sum of $7,000 in cash, it would be difficult for any of Mr Irwan’s generation to pay the full sum of $200,000 in cash today. Compared to two generations ago, life has become tougher now. While price appreciation appears to be a bonus for one generation, it is actually a debt that has to be paid for manifold by future generations.

The Lease Buyback scheme merely shows that the high cost of flats have left Singaporeans with absolutely no money for retirement. If we have to sell our flats for retirement funds, it simply means we never made enough to truly own our flats in the first place.

The fact that those who bought at the peak of 1996-1997 are now back in positive territory doesn’t change the fact that they lost out compared to those who bought before or after the peak. It is no longer enough for us to focus on our jobs and our lives. We must also monitor the property market vigilantly to make sure that we buy at the right time. One bad timing can mean the wiping out of years of savings. Like it or not, we will become a nation of property speculators more focused on timing the market than making the next breakthrough in our respective fields of work.

The excess cash in an HDB resale transaction does not contribute to the GDP because it does not result in the production of a good or service. It is merely money changing hands much like that which happens at a gambling table in a casino.

So it is indeed unfortunate that many people like Mr Irwan fail to understand what is really happening in our system. It is a system that squeezes the people and yet the people doesn’t even know it.

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3 Responses to “Resale flat prices – let market forces decide”

  1. redbean Says:

    Who determines the market price and market forces? Who is the major manipulator of market forces and market prices?

    The market price in a small market that is controlled by a few developer and a monopoly of public housing is not the real market price. It is fictitious and subject to the tweaking by these big players.

    Don’t believe in market price when the supply and demand is managed by the developers and monopoly.

  2. Alan Wong Says:

    That is a good one bring one’s perspective to look at today’s flat value from a different angle.

    A flat costing S200,000 today would mean one is paying something like S$380,000 including interest compounded in 30 years time ?

  3. Mustafa Says:

    We really never were meant to own the flats. Not with a 99-year lease. Besides, they can always acquire homes/land at “market prices” anytime there’s a need for it. For the benefit of the whole nation, they would say.

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