Buoyant property prices a sign of rising wealth

Dear Straits Times,

I refer to the letter by Mr Benjamin Ching dated 20 Dec 2010.

Mr Ching claims that the spike in housing prices is due to the government’s quick pace at getting us out of the financial crisis. He is wrong. Housing prices started to spike at the beginning of 2007 even before the financial crisis hit us. It is not that we got out of the financial crisis but rather, the financial crisis was resolved by the United States without which there can be no way for us to get out of the financial crisis.

90% home ownership doesn’t mean that 90% of Singapore residents own homes. According to the 2009 Singapore Statistics:

– there are 1,119,600 Singapore resident households
– home ownership rate = 88.8%

Therefore, number of Singapore resident owned homes = 0.888 * 1,119,600 = 994,205

Assuming each home is owned by a couple, number of Singapore resident home owners = 2 * 994,205 = 1,988,410

According to the 2009 Singapore Statistics too, number of Singapore residents = 3,733,900

Therefore, number of Singapore residents who do not own homes = 3,733,900 – 1,988,410 = 1,745,490

In other words 1,745,490 out of 3,733,900 or 47% of Singapore residents do not own homes. These Singapore residents, comprising mostly children and unmarried adults will not benefit from rising property values and will be forced to pay higher prices in the future. There is thus no reason for almost half of Singapore residents to be happy about rising property values.

The great rise in property prices only means wealth increase on paper for about half of the Singapore resident population. To realise this paper wealth, home owners must sell their price inflated homes without buying another price inflated home. That would mean putting up with other households or quitting Singapore altogether. For the other half of the Singapore resident population who do not own homes, there is no wealth increase but only increase in future mortgage liabilities due to increased prices.

So there is no net credit due because for every credit due, there is another discredit to be accounted for.

Property prices will rise as long as there are more people than current housing can adequately cater to. But that doesn’t mean that the situation is healthy or that it cannot be changed or controlled. The mass import of people has been going for years already. It will take more than the current slew of government measures to repair the damage already done.

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