Do go through this video and you will know why Singapore is on track for a recession.
A quick summary that sums up the factors in Singapore’s HDB context:
1) Trigger – Lack of buyers. Income growth lagging behind growth of home ownership, and since nobody in Singapore buys a HDB flat in cash, home ownership = debt. This is the trigger that resulted in the domino effect of foreclosures. When housing prices starts falling, people will realize the amount of debt they are servicing are higher than the value of the house and in turn this will cause panic selling, further worsening the falling price trend.
2) Bank Leveraging – Greed of the banks. A low interest environment resulting in hot money from both foreign investors and Singapore Bonds flowing into property prices resulting in a delusion that Singapore properties are always going up. Singapore’s low interest-environment is even more extreme, with banks having tonnes of cheap credit and loading themselves up with leverage(as explained in the video). Current SIBOR rate is at its lowest ever. [Source]
Point to note for Singapore:
1) It is not known if the PAP government learned anything from the US financial crisis to ensure that Singapore banks are regulated from leveraging to the extent where a single lost bet could bankrupt them.
2) How much should HDB flats be priced? The PAP government do not use the income approach – valuating housing price as a ratio to income – hence that explains why housing prices are getting more unaffordable to the average Singaporean. The PAP government apparently do not use the cost approach either – otherwise why wouldn’t they give a cost breakdown of the housing price. So the real question to ask the PAP, is what approach do they adopt when pricing the HDB? How do we know what is affordable or expensive? The PAP government has been silent on this issue, but it is evident, that their approach, is the free market approach – housing prices be subjected to supply and demand regardless if citizens can afford them or not. The end result? Unaffordable, overpriced and the very same illusion that HDB prices can rise forever(a common fallacious propaganda promoted by the PAP government, the PAP calls it “capital appreciation” and intends to pervert the term to make up for the CPF’s incompetency to address retirement).
The current housing solutions are still ineffective because the only measurement of success is through the Resale Price Index, which is still rising albeit at a slower rate. The only way we know when will the housing solutions be successful is when we see a U-turn.
Some may argue for a moderated U-turn because they believe a nose-dive U-turn will result in panic selling. This is true, but only when we introduce a new classification of housing category – one that is truly nationalized and befitting the term “Public Housing”. Abolish the “capital appreciation” concept and ban profiteering. You buy from the HDB, you sell back to the HDB at the same price factoring inflation, and the HDB adopts a income or cost approach to mandate the price. Oh and don’t call them BTO, let the existing BTO scheme stays and die out like the Design, Build, Sell Scheme(DBSS). BTO owners will of course complain like the DBSS owners today, but we all know this is for the better of the future generations.