Earlier this month, the Singapore Democratic Party released a housing policy paper proposing a new class of flats that it envisaged could be priced significantly lower than new Build-To-Order (BTO) flats offered by the Housing and Development Board (HDB).
This is because these “non-open market” (NOM) flats would be priced only to recover the cost of administration and construction, and not the cost of land.
The catch is that NOM flats could only be sold back to the HDB – presumably at replacement cost less the consumed lease and with little or no capital gain. NOM flats will be offered to citizens for purchase together with the BTO flats.
Are NOM flats worth considering? If anything, the scheme sounds really attractive and is worth a second look because it offers housing at a steep discount from current BTO flat prices.
While this class of flats may not appeal to those with brighter income prospects, others with lower income earning potential may want to consider it. More importantly, NOM flats will offer a choice to those who do not wish to spend too much of their savings on housing. This choice is currently not available.
Some may choose to treat housing as just a roof over their heads rather than as a form of investment. For these unconventional households, there are other priorities in life and other interests to pursue.
And there are some who may simply want to pay up their housing loan in a shorter time to save on interest costs. With the NOM flat scheme, at least the options are available.
For astute investors, they may even earn more on the unused CPF savings in the stock market than the potential capital gains they may receive when they sell their normal flats.
Also, for the same price that households need to cough up to buy a BTO flat, they can now consider buying a much larger NOM unit or opt for a similar-sized home in a better location or a mix of the two – a slightly bigger flat in a slightly better location.
NOM flats may even be a popular option with downgraders and retirees.
I envisage such a scheme to be more popular during periods of high prices than when the market is sluggish. In that sense, it may run into problems depending on how the buybacks are handled and re-sold.
Also, the greater the volatility in normal flat prices, the greater will be the interplay in the demand between normal and NOM flats.
As long as there are enough people who perceive current BTO flat prices as being too high, we can continue with this potentially endless debate arguing the pros and cons of the NOM scheme.
However, the debate can end suddenly once BTO flat prices return to their long-term sustainable levels.
It is this conclusion that I suspect most of us want.
By Colin Tan – Head, Research & Consultancy at Chesterton Suntec International
Source : Today – 16 Nov 2012