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Using demand and supply analysis, explain why the prices of old HDB flats in Singapore have risen more than threefold over the last twenty years.

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Introduction

2. Using demand and supply analysis, explain why the prices of old HDB flats in Singapore have risen more than threefold over the last twenty years. ________________________________________________________________________ Demand for old HDB flats is reflected by the demand curve, which is an indication of the number of people willing and able to buy at particular prices. The supply curve of old HDB flats is thus an indication of the number of people who are willing and able to sell their HDB flats at the particular prices. For example, in the above diagram, the demand for old HDB flats is originally at DD, with equilibrium price at P and quantity at Q. An increase in demand from DD to D1D1, will, ceteris paribus, cause the equilibrium price to shift to Pl, and the equilibrium quantity to shift to Ql. ...read more.

Middle

Relaxation of rules enabling permanent residents and singles (over a certain age) to own flats also encouraged further demand. The close substitutes of old HDB flats are new HDB flats, and, to a lesser extent, private housing. The demand for new HDB flats and private housing has also risen drastically due to the population increase and increasing affluence, leading to higher prices. Thus, with the increase in the price of substitutes, the demand for old HDB flats has also increased. Furthermore, with the provision of new road facilities and amenities like schools and swimming complexes in some of these old estates, demand has increased. The recent HDB upgrading programme by the government to increase the value of such old HDB flats also caused a great surge in demand. ...read more.

Conclusion

Furthermore, if a seller sells his flat to the open market and subsequently buys a new flat from the HDB, he must pay a percentage (usually 10% to 20%) of the selling price of the previous flat to the HDB. These legal restrictions make it less lucrative for the sellers. Also, most Singaporeans regard their flat, bought with CPF funds, as part of their nestegg. Some of them have not even finished their monthly installments, as most flats are bought with housing loans. And lastly, Singapore is a rather nice place to live in, and most people do not emigrate. Hence, those who want to sell their flats because of emigration are very few. Therefore, in land scarce Singapore, where housing has to compete with other alternative uses of land (like industries, golf courses, office blocks etc.), it is little wonder that the price of old HDB flats has increased so much. ...read more.

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