The Housing & Development Board (HDB) recently unveiled policy changes designed to hurt speculators and make it more expensive for non-Singaporeans to buy government-subsidised flats. These changes include:

1) It will now be possible to apply for a second concessionary loan, even if you are downgrading. However, the quantum of the second concessionary loan will be reduced by the full CPF proceeds and part of the cash proceeds from the sale of the existing or immediate past HDB flats.
2) Minimum occupation period for resale of non-subsidised flats has been increased to 3 years.
3) Lease buyback scheme extended to those who previously owned 4-room and bigger flats.
4) In case of Singapore PRs who marry citizens, HDB will withhold $10k of the housing subsidy until the SPR takes up citizenship or they have a Singapore citizen child.
5) New non-Malaysia SPR quota of 5% at neighbourhood level and 8% at block level.
6) Ethnic limit for Indian/Others raised to 12% at neighbourhood level and 15% at block level.

We are now starting to see more and more measures being put in place to prevent a runaway increase in HDB and private property prices.

Prices have already gone up a lot mainly because the increase in HDB supply over the past couple of years was insufficient to meet the increase in demand from a fast growing population. Price is always a function of demand and supply – as simple as that.

When all these changes take effect (and our population starts to decrease due to more stringent criteria on foreign workers), HDB prices should stabilize and perhaps even drop. However, I don’t expect a drastic drop as the cost would be too huge for the government to let it happen.

MAS, MND and MOF made a joint statement on Friday announcing the following measures to ensure a stable and sustainable property market:

1) Introducing a Seller’s Stamp Duty (SSD) on all residential properties and residential lands that are bought after today and sold within 1 year from the date of purchase; and

2) Lowering the Loan-to-Value (LTV) limit to 80% for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore (MAS)

The steps are essential (and probably insufficient on its own) to prevent a bubble from forming in our property market.

Full details of the changes can be found here:

http://www.mnd.gov.sg/newsroom/newsreleases/2010/news19022010.htm

Fresh data from the Housing Board (HDB) showed that the median cash over valuation (COV) for HDB resale units rose to $24,000 in the fourth quarter of 2009. That is double the $12,000 median in the previous three months and breaks the COV record of $22,000 achieved in the fourth quarter of 2007.

The top three towns had medians of $50k, $50k and $38k for executive units; $40k, $33k and $31.5k for 5-room units; and $35k, $35k and $30k for 4-room units respectively.

There was even a 5 room resale HDB unit sold for $730,000 with a whopping COV of $85,000.

For those who did not study statistics, median is defined as the numerical value separating the higher half of a sample from the lower half.

Say, if there were a total of 7 transactions with COV of $10k, 15k, 17k, 19k, 22k, 25k and 30k, the median would be the 4th value or $19k. This is different from the average which will take the total of all transactions divided by seven.

The ever rising COV is driven by a mismatch of the number of families with immediate housing needs compared to the number of sellers and new units. The problem is accelerated by the fact that only 11,000 HDB units were built over the last three years.

History has shown time and again that asset prices cannot go up indefinitely. Yet, human tendency is always very much inclined towards following trends – more so when the trend is very strong. This behavior is a common factor towards the formation of asset bubbles.

If prices are rising, people will believe they will continue to rise and rush to buy.

At the end of the day, it is always prudent to buy something that is affordable than to overstretch the budget. After all, a HDB unit is just a 99 lease – you do not even own the unit and technically, the price should depreciate back to zero at the end of the 99-years lease!

There was this article Cool Response to Smaller HDB Flats which stated that demand for smaller HDB flats is not as strong as expected.

The numbers from HDB show the application rates for smaller flat types ranged from about 40 per cent to three times the number of flats offered – less than the typical four to five times seen for four- and five-room units.

The article prompted a response from Leong Sze Hian, which was only published in the online version of Strait’s Times forum and not in the print version.

Cool response to smaller HDB flats: It’s not just a matter of preference – Leong Sze Hian

Mr Leong explained that the lower demand could be due to the household income cap of $2000 and $3000 for 2 and 3-room flats respectively.

He also questioned HDB’s argument that HDB flats are generally affordable as most people spend no more than 30% of their income to service their mortgage. Mr Leong pointed out that this argument is fundamentally flawed as it failed to take into account those who could not afford HDB flats because buying one would leave them with too huge a loan to service (more than 30% of income). Or those who give up their flats because they couldn’t service the loans.

If the people who own landed property spent only 30% of their annual income on their property, does that mean that landed properties are affordable?

A better indicator of affordability could be median and lower incomes as a multiple to HDB prices. Generally, the income levels have been lagging behind the rise in HDB prices.

As of September 2009, 30770 HDB loans were in arrears of over three months. This is 7% of the total number of HDB loans.The default rates for HDB bank loans are not available.

Fake gold can be produced by using another cheaper metal and coating the surface with real gold. This can be easily detected by weighing the object as the density of different metals are different.

For example, gold has a density of gold is 19.3g/cm3 while that of steel is 11.4g/cm3.

Therefore, a piece of real gold measuring 10cm x 10cm x 10cm would weigh 19.3kg while steel of similar size would only weigh 11.4kg. The standard gold bar held by central banks weighs 400-ounce (12.4 kg) and must be stored in recognized and secure gold bullion vaults to maintain their quality status and ensure maximum resale prices.

If the gold is of an irregular shape, the volume can be found be finding the displacement of water in a graduated cylinder.

The issue gets a bit more problematic when a fake material that has a close density to gold is used.

Uranium has a density of 19.1g/cm3 and would fit this criteria. However, it is radioactive so it is not that suitable.

Another metal is tungsten which has a density of 19.25g/cm3, almost similar to gold. Thus, a gold-coated tungsten would pass the density test with ease. However, tungsten is extremely brittle and has the highest known melting point of any non-alloyed metal at 3422 degrees Celsius, which makes it difficult to work with.

Nevertheless, gold-coated tungsten is being sold openly, one example is this China company, China Tungsten Online.

One author even suggests that fake tungsten gold is being widely circulated in the market, sometimes deliberately.

Short of cutting up a gold bar to see whether it is tungsten at its core, other ways of testing for gold fakes would be to use sound (sound travels at twice the speed in tungsten compared to gold), electrical resistance or thermal conductivity.