The last election cycle was a tough one for the property market.
According to SRX Property research, when the general election was held in May 2011, the market cap for resold HDB flats was $63.9 billion. Today, as of last week’s election, the market cap stood at $64.3 billion. This is a 0.7% increase, which translates to an annualized increase of only 0.2%.
Meanwhile, over the same time period, the market cap for resold private apartments appreciated from $202.2 billion to $208.5 billion. This translates to an overall capital appreciation of 3.1% or a paltry 0.7% on an annualized basis.
In comparison, according to SINGSTAT data, inflation grew at an annualized rate of 1.8%, Gross Domestic Product (GDP) increased 3.6% annually, and median income improved 5.6% annually.
This means that the housing market, as a whole, did not keep up with inflation, which is not good for those who have earmarked their homes for retirement or those who see their homes as an investment hedge against inflation.
Furthermore, there are many industries tied to property – from construction to banking to home furnishings. When the market is down, those industries suffer.
As the table below illustrates, some districts and HDB towns have outperformed the market and done well. However, those in the heartland and non-mature estates, particularly in Punggol and other towns in the northeast, did not do so well. Market cap has dropped in these areas due, in large part, to an increase in supply from newly constructed Built-to-Orders.
These tables underscore the challenges of balancing housing affordability with market growth.
In many respects, the two objectives are diametrically-opposed and, thus, in conflict.
As we have learned from the Cooling Measures, the most effective means for making homes more affordable is to increase supply by constructing more homes while dampening demand by restricting access to financing. These policy measures favor first-time buyers at the expense of homeowners, especially those who bought at the market’s peak, before the Cooling Measures took hold.
In other words, in making housing more affordable for some, the overall market finds its net worth diminished and not keeping up with inflation, as demonstrated above.
So what can be done?
In my opinion, granular data and targeted policy solutions are the answer.
As the market cap tables suggest, the property market is far from monolithic. As such, one-size-fits all policy solutions can be blunt, in practice, and unnecessarily result in winners and losers.
The Singapore property market is highly-segmented. At the macro level, there is HDB resale, BTOs, Private Resale Apartments, New Projects, and Landed Homes. Within each of those segments, there are sub-segments and sub-sub-segments like districts, planning areas, neighborhoods, towns, mature estates, non-mature estates, and individual buildings. Each one has its own characteristics.
Two years ago, when the most significant Cooling Measures came online, the market – as a whole - did not have the capability to measure those different segments. As such, in order to improve home affordability and protect the financial system against interest rate risk, the Government had no choice but to apply macro-solutions to stabilize a complex market of many micro-segments.
This no longer has to be the case. Now it is possible to use big data and software to drill down to the neighborhood, the building, and the unit level. This means policy analysts can now identify local solutions to supply and demand mismatches. At the same time – and this is important – all market participants can better assess the performance of each neighborhood and collectively guard against irrational, over-exuberant market behavior.
For those HDB resale and private apartments that have had transactions and can be measured, their market cap stood at $272.8 billion as of Friday’s election. This is the start of the next chapter for the real estate market.
As a market consisting of homeowners, agents, valuers, analysts, banks, developers, policymakers and data aggregators, it’s now possible to unify the market around big data and analytic tools that bring transparency to the different segments in the market. This, in turn, allows the market to offer affordable housing while increasing household net worth and the economy.