In Singapore, if you buy a piece of property at the wrong time, you end up with a decade or more of pain servicing the loan. We have these bubbles once every 10 years....1985, 1996, 1997. It takes about a decade to climb back to the old peaks. For all the young fellers who just join the workforce and planning to get married....its seems like HDB is best, start small and keep your obligations manageable. HDB is best....hmm....until you check the recent HDB prices. I heard that Pinnacle@Duxton is going for an eye-popping $645K. Young couples are complaining that even a 4 room flat costs $400-600K on the resale market. The average American home even after the massive property bubble cost US$238K (S$333K)....that is freehold, landed, with a garage.
In the 80s the govt liberalised the use of CPF for the purpose of buying private property. In 1993, they decide to have it further liberalised so that it can be used for HDB purchases. At the same time HDB allowed purchasers to borrow up to 80% (of market value) for resale flat. These policy moves to expand financing directed large amounts of CPF savings for the purchase of property. One of my relatives bought a property in 1969 and he told me this story about how he tie up the cash in bundles using a rubberband and paid in full to the developer for his landed property - a landed property cost something like $20K in those days. In 1980s, the Japanese banks created a 99-year mortgage loans so that the Japanese can pay for their property over 2 generations - boy did they have a big bubble then. In 2005, Americans banks expanded subprime mortgage landing which we now know what that led to. What I'm getting at with all these examples is that property bubbles and property prices is directly linked to how property is financed. How property is financed can lead to problems down the road...the price levels and swings are the result of changes in the way property is financed.....in Jul 2005, MAS relaxed the financing of property even further leading to a 2 year surge in property prices - downpayment reduced to 10% . The end result of this boom bust cycle is a lot of pain that Singaporeans have to bear....however the boom bust is only one aspect of this issue. The large and more long term issue is high property prices have left many Singaporeans with insufficient to retire.
Consider this logic:
- If CPF is not liberalised for the purchase of property, Singaporeans would have sufficient for retirement without CPF Life.
- Since the mandate of HDB is to provide affordable housing, they have to price it at a level Singaporeans can afford without touching their CPF.
What about allowing only home loans that have to be repaid within 10-15 years instead of 30 years? That would allow Singaporeans to pay fully for their property within 10 years and start saving for their retirement after that. It will be a lot healthier if the price of HDB flats is link to rise in income level because that is the best measure of affordability rather that the market price...a market in which HDB itself is a participant. See the problem with these solutions is it does not maximise the revenue of Singapore Inc - the govt with HDB along with the banks are prime beneficiaries of high property prices - prices that Singaporeans have to spend a lifetime to pay up....work longer and work harder for a roof over your head.