Why WP’s proposal will depress HDB home market: Mah

Dear Straits Times,

I refer to the 29 Apr 2011 letter by Mr Mah Bow Tan.

Mr Mah claims that a 20% price reduction on a $300,000 new flat will cost the government $1 billion for the 22,000 BTO flats.

But HDB resale index has shot up by 67% over the last four years. Since new flat price is pegged to resale flat price, new flat price would presumably have gone up by around 67% too. Discounting back, the price of new flats four years ago should be around $180,000.

An increase of 67% followed by a reduction of 20% is still a net increase of 33% over the $180,000 price tag four years ago. When multiplied by the 22,000 BTO flats, this brings an additional $1.3 billion into the government kitty instead.

Therefore, instead of costing the government $1 billion, new flat price with 20% off still nets the government more than $1 billion extra than before.

Mr Mah repeats the claim about BTO flats being affordable with a 20-year loan tenure. Many big tickets bought from Courts appear inexpensive when paid in small instalments over long periods of time. But when interest is factored in, paying in instalments is actually much more expensive than paying the full sum at one go. Therefore, while BTO flat instalments appear affordable, the full sum plus interest is not. Even if that unaffordability doesn’t appear evident now, it will eventually become evident 20 years down the road when the flat owner suddenly realises that 20 years’ worth of his CPF savings has vanished.

Mr Mah speaks of the $40,000 flat discount as being ‘substantial’. But the ‘substantial’ $40,000 discount is only about a quarter of the $150,000 increase in average HDB resale flat price over the last four years.

Mr Mah speaks of the additional housing grants. Even that doesn’t cover the $150,000 price jump over the last four years.

Mr Mah claims that affordable price is the reason why there is a strong demand for BTO flats. COE prices have shot through the roof due to strong demand but limited supply. Therefore, strong demand doesn’t necessarily mean affordable prices. Strong demand simply means that there are many people with an urgent need for a roof over their heads even if the price may be high.

Mr Mah reiterates the crashing of the housing market due to WP’s proposals. That is not true. When done gradually over a long period of time, the WP proposal will not crash the market but will bring prices back to more decent levels.

The lowering of HDB prices from its current sky high levels shouldn’t be viewed as depressing the market. It can only be viewed as bringing prices back to normalcy.

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