ST : INCOME CEILING FOR HDB FLATS

Jan 12, 2010

INCOME CEILING FOR HDB FLATS

It limits price hikes

MS YVON Lim's unhappiness in her letter last Wednesday ('How realistic is $8,000 income ceiling for flats?') probably echoes the sentiment of many first-time home buyers who feel priced out because of the rapid and relentless price spike of HDB resale flats.

But the issue is one of affordability. So suggesting that the $8,000 income ceiling be raised, so that one can avoid the 5 per cent cash down payment and be able to afford the exorbitant cash-over-valuation (COV) amount that sellers demand, is naive.

The only outcome of removing the income ceiling will be ever higher resale prices and even heftier COV demands.

In any exuberant market, the combination of fear and greed will always push prices higher, regardless of the rate or quantum of increase over earlier prices.

The two major factors that might reverse such situations tend to be successful regulation by the authorities to prevent further price appreciation, or if prices have exceeded the ability of the general population to afford the flats.

In view of this, potential buyers should be glad that the somewhat irrelevant income ceiling is still in place, limiting the rate of price escalation; the 5 per cent down payment and COV are pricing out more buyers like Ms Lim and, in the process, slowing down and preventing even higher resale prices.

If I were a buyer, I would keep my fingers crossed, and hope the Government will impose drastic measures to rein in market exuberance.