Flawed asset enhancement policy and potential property bubble

“It is partly the government’s fault for fueling the greed of such selfish citizens with materialistic ideas like flat upgrading, estate enhancements, controlling the property market by building fewer flats and opening the floodgates for more immigrants etc.”Gin Tai

“Public housing should never ever be a profit making vehicle. The core objective is to provide a roof for all Singaporeans and allowing market valuation of HDB homes is the current cause of many hidden problems. Many have abused this system and depriving the genuine needs of Singaporeans who need to be housed. Why cause such an artificial feeling of being wealthy on the high valuation of HDB flats and creating such notion of being rich when one is not! “David Tan

“Nimble and fleet-footed developers are dancing circles around our Government, whether it’s the executive condominiums or the Design, Build and Sell Scheme.”Heng Ngee Hai

 “See property as a home, not an asset” Yeo Eng Huat

[Askmelah’s Note]

Lowering land cost for HDB Flats is like raiding S’pore’s reserves?

See article 1-3 on the recent argument on the way to solve escalating housing prices in Singapore. The land belongs to the people and many parcels of lands were acquired cheaply in many cases [see Ngiam Tong Dow’s quote below]. Public housings should be made affordable to the masses and should not be traded like private properties as it is the case now. What is the point having lots of reserve when people do not have the sense of belongings to the country? Isn’t the founding fathers of Singapore wants Singaporeans to have a stake in the country regardless whether they are rich or poor? No one should be denied a chance to own a house no matter how poor they are?

Few know that the cornerstone of our vast low-cost housing programmes is the Land Acquisition Act. The Act allows the State to acquire private land for public purpose at pre-development prices. Dr Goh asked me, then a young officer, to draft the Cabinet memorandum proposing that the compensation to be paid for land acquired exclude its potential value.” – Ngiam Tong How

“If this is the logic – that by contributing less, I raid the reserves, then in fact the Government has been raiding reserves, because the current land cost of HDB flats is already lower” compared to what the private developers would have to pay in an open tenderIn the same vein, the S$3.2 billion Grow and Share package “to please the voters” is also tantamount to raiding the reserves as it means less contributions in terms of surpluses to the kitty” – Low Thia Khiang 

Asset Enhancement policy is flawed

“The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets” – Robert Kiyosaki, Author “Rich Dad, Poor Dad”

An HDB flat is a home first. To make asset enhancement a selling point in order to justify a hefty price is not wise. An HDB flat is an asset to only three parties: the sellers, banks* and property agents. It does not benefit Singaporeans who must bear 20-plus years of mortgage payments because an HDB resale flat costs half a million dollars.” – Chia Tok Whee, The Straits times 10May2011

*[askmelah’s note: not true see quote by Glenda Han, I will replace it with “quitters”, both born-locally and “new” citizens who would migrate eventually (Is this my Singapore? My home and my country? by GinTai). The other beneficiary is the Government who will benefit from higher tax collection, higher land prices and paper asset appreciation since the Government is the largest landlord.]

As for the Asset Enhancement policy, it only benefits those cash rich individuals who have a second home or more (see Article 3). Remember more than 70% of the households in Singapore owes only one a roof of their head. With the rising HDB prices, when they sell high and move to another unit, they are likely to pay much more. And how about the newly wed couples, with the escalating HDB prices, the mortgage repayment period has gone up from 20 to 30 years now. How does that benefit the young Singaporeans? how much will be left in their CPF when they retire? Can Mah guarantee that everyone will have a job that earns decently to service their housing mortgage for next 30 years? What happen if Foreigners start to dump their houses because there is a better investment elsewhere? Are we create our own housing bubble with these sky-high property prices?

“Technically your flat is actually a lease from HDB; not free hold, not lease hold but a lease. You can’t use it as a collateral to get a loan from the bank; even if you have fully paid for it. So how can it even be considered an asset?” – Glenda Han (read more: Minister Confirmed Value of HDB Flats At End of 99-year Lease Is Zero)


What causes the escalating property prices?

It is not the Asset eahncement Policy, Stupid! Three main factors cause the escalating property prices to rise from 2008-2011:

– The lax immigration policy (a surge of more than 1m new citizens/PRs and foreigners within that 4 years)
– The rise of China and the influx of hot money from China as a result
– The failure of Mah Bao Tan to reign in the demand

Due to ex-Minster Mah’s failure to curb the speculation, we have seen the prices continue to rise one year after the few rounds of the measures introduced by him, the HDB prices also continued to climb two months after he stepped down from his minister post showing the curbing measures are largely ineffective. He targetted Singaporeans and PRs but the real demands are actually the wealthy speculators and foreigners. See a barage of comments in the forum page (Straits Times 28 May 2011). More excellent report at Why Mah Bow Tan’s policy of high HDB flat prices is wrong.

housing woes letters2

In the Jun 26, 2011 The Sunday Times report titled “COV for HDB resale flats up again”, it was reported that the supply of resale flats is shrinking as the COV continues to rise as more owners are taking their home off the market thanks to the flawed policy introduced by ex-minsiter Mah Bao Tan, ‘flat owners are relunctant to sell as many have been affected,” said DWG director Chris Koh, referring to recent moves stipulating that bank can lend only 60% of a home’s value on a second property. Again, why penalise the small fish and the locals instead of the speculators and the foreigners?

I am also in complete agreement with Mr Conrad that the EC and DBSS schemes to be scrapped for now. A good intention policy dreamt out under Mah Bao Tan’s watch but is fast loosing its relevance and purpose when he failed to reign in the rapid rising propoerty market as a result of the ill-conceived open door policy in the last few years. The HDB should return to its root i.e. provide affordable housing to the masses, not a money making machine for the Government, PR (esp who do not have intention of sinking their roots here) or the citizens (esp those who are well off and those “quitters” who will be migrating or emmigrated).

[Updated 06 Oct 2011: Property bull charges on)

How to prevent a HDB property bubble?

One suggestion from the internet forumers is in order to control the escalating prices of HDB, why not let the sellers sell the unit back to HDB at the market prices rather than to private individuals who currently are paying crazy Cash Over Valuation (COV) for the cash rich individual which as a result pushing the prices of public housing in Singapore to a unsustainable level. And to prevent bidding wars, like all new applications to buy new flats, this pool of  resale flats will be allocated based on the lottery system as this is public housing not private housing, money should not buy you your choice home. While this will not curb the rising prices but it will certainly slow down the rate of rises in public housings quickly.

The second suggestion I will like to propose is to limit the eligibility of the buyers. Currently anyone who has been a newly converted Singaporean or Permanent Citizen can purchase the public housing and due to the liberal immigration policy of the Government in the last few years. It is known widely some PRs and new citizens (notably from Philippines, China and India) have no intention of putting their roots in Singapore but profit handsomely from selling their HDBs when they “exited” from Singapore for good due to the rapid rising prices of HDBs. The money they have made easily allowed them to retire comfortably in their home country due to the low cost of living in these third world countries. So by raising the bar higher say 10 years (may include their time working here as work permit/employment pass) staying here for PRs and New Citizens who are more likely to make this country their home and thus the right to own our public housings.

The Need to Tweak the Property tax

Property tax is a tax on properties in Singapore. All types of properties including HDB flats, factories, offices and vacant land are subject to tax. The amount of property tax you have to pay per year is a percentage of the Annual Value of the property. The Annual Value is the estimated yearly rent the property can fetch if it were rented out. Questions 1) why do HDB and other property owners need to pay property tax when they are staying and not generating rental income? 2) with the rapid rising of the property values over the years, the AVs have similarly escalated beyond the owners’ control and why should they be penalised for the rise in rent with have nothing to do with them (a reader of Straits Times 23Jan2011 reported that the tax increased by 2.29 times from Mar 2007 to Jan 2010 alone)?

The public housing policies currently are not well managed and many ad-hoc policies have been introduced to slow the rises without much success thus inviting the wrath of Singaporeans and making Minister Mah one of the most hated politicians in the internet forums. The suggestion made by the opposition party leader Low Thia Kiang merely reflects many of the heartlanders’ views and calls which many Singaporeans have claimed the millionaire ministers have lost touch with the ground.

Other related links:

Article 1: Lowering land cost is like raiding S’pore’s reserves: Mah

Soruce: The Straits Times, APR 16, 2011

Mr Mah was responding to a call from Workers’ Party chief Low Thia Khiang who had suggested that if the Government was prepared to collect less money for land sales, the savings could be passed on to first-time home buyers.

LOWERING land cost as a way to reduce new Housing Board flat prices is tantamount to raiding Singapore’s reserves, warned National Development Minister Mah Bow Tan on Saturday.

This is because all land is sold at prices set by the Chief Valuer, and the land sale proceeds go into the reserves.

In the latest salvo on the hot-button housing issue, Mr Mah stressed that as the number of new HDB flats is not a small, any lowering of prices will inevitably affect the value of existing HDB flats.

Mr Mah was responding to a call from Workers’ Party chief Low Thia Khiang who had suggested that if the Government was prepared to collect less money [Editors’ note: not zero or substantially lower] for land sales, the savings could be passed on to first-time home buyers.

Speaking to reporters on the sidelines of a ground-breaking ceremony for an upgrading programme for Tampines, which will see a new town hub with facilities such as a sports hall and a new park, Mr Mah said: ‘When he says that I’m going to finance this by lowering the value of land, basically what he’s doing is taking money from the reserves.

‘It is not a matter of left pocket to right pocket, it’s a matter of taking, dipping into the reserves.’

Mr Mah declined a debate with the National Solitary Party, which has announced it is contesting the GRC. He said there is ‘nothing to debate’ as his positions on housing and various policies are well known.

With the minister at the community event on Saturday morning were newly-introduced People’s Action Party (PAP) candidates Heng Swee Keat and Steve Tan.

Article 2: Workers’ Party locks horns with PAP over housing issue

Source: Todayonline Apr 22, 2011

A day after National Development Minister Mah Bow Tan described the Workers’ Party’s (WP) “dangerous” housing proposal as an illegal raid on the reserves, WP chief Low Thia Khiang yesterday tried to turn the tables on the People’s Action Party (PAP) by claiming that it is the Government which has been “raiding” the country’s coffers.

Speaking at the WP’s second press conference to unveil its candidates, Mr Low also claimed that Mr Mah’s statement was “calculated to confuse Singaporeans”.

Said Mr Low: “The minister accused the WP of raiding the reserves by suggesting that the Government lower the land cost of building HDB flats. His logic is very simple: If land cost is lower, it means less proceeds from sales of land contributed to reserves.”

“If this is the logic – that by contributing less, I raid the reserves, then in fact the Government has been raiding reserves, because the current land cost of HDB flats is already lower” compared to what the private developers would have to pay in an open tender, said Mr Low.

In the same vein, the S$3.2 billion Grow and Share package “to please the voters” is also tantamount to raiding the reserves as it means less contributions in terms of surpluses to the kitty, Mr Low charged.

While the WP has argued that its proposals will have minimal impact on the resale market, Mr Mah had pointed out that more than half of first- and second-time home buyers turn to the resale market and that lowering prices will see them flocking to buy new flats – which would not only lengthen the waiting period but also cause resale prices to fall.

To that, Mr Low responded that the Government controls the supply of flats. “My question is whether Mr Mah is overstating the effect and stretching his imagination too far,” said Mr Low.

Mr Low reiterated that the WP’s suggestion of pricing new flats based on median household income should not have an impact – in the short term at least – on existing flat prices for two other reasons: The number of new flats are small and buyers cannot sell their flats immediately.

Mr Low called on the PAP to release the total proceeds which the Government has collected from land sales in the last five years and to give a breakdown of how much of it went into the reserves.

He also maintained that the WP is not against the PAP’s upgrading policy as it improves the conditions of Singaporeans living in HDB estates. However, it is against the PAP tying the prospect of upgrading to votes during elections.

Said Mr Low: “Using the Government’s money to secure electoral advantage is termed as pork barrel politics. Is this what a First World government would do?”

Still, he felt that the Government has to be careful when its comes to asset enhancement policies – given that home owners are hard-pressed to find cheaper alternatives should they decide to sell their existing homes.

Reiterating the WP’s stand, Mr Low said the party is concerned that the high prices of HDB flats will “become the financial burden of a younger generation of Singaporeans” and “mortgage” their future. Pegging the resale price on prevailing market land sales price is not sustainable in the long term because HDB flat prices may plummet during a financial crisis, leaving people with “negative assets”.

Said Mr Low: “Can the Government guarantee Singaporeans this will not happen again since the Government is pursuing high asset price policy? The Government will do well in answering these concerns and questions squarely rather than sidetracking the issue and attacking the WP.”

Article 3: Housing not a make-or-break issue at GE: Mah Bow Tan

Source: Todayonline Apr 25, 2011

It is “highly misleading” and “mischievous” of Workers’ Party (WP) chief Low Thia Khiang to allege that the Government has been guilty of taking from the reserves for years, said National Development Minister Mah Bow Tan.

In the latest exchange of words between the WP and the People’s Action Party on how public housing should be priced, Mr Mah said the Government is fiscally prudent and has not drawn on past reserves for any of its budget spending. The only exception was in 2009 when the Government withdrew S$4 billion to fund the Resilience package to revive the economy. [Askmelah editors’ note: that is not what Mr Low said, he said: “If this is the logic – that by contributing less, I raid the reserves, then in fact the Government has been raiding reserves, because the current land cost of HDB flats is already lower”]

In a press conference yesterday, Mr Mah said the money was returned to the reserves earlier this year and pointed out that Mr Low “had even commended the Government for doing so”.

On Mr Low’s remarks that the Budget’s S$3.2 billion Grow and Share package is considered as raiding the reserves, Mr Mah said the money is from budget surpluses and is “completely funded from current reserves”. [Askmelah’s note: If pricing less is equivalent to raiding the reserve as claimed by minister Mah, wouldn’t the loss of potential revenue to be added to the reserve as a result of distributing the money tantamount to raiding the reserve? which is the point that Mr Low is trying to make. Both are for the benefits of the people, if anything Low Thia Khiang’s suggestion make more sense than the Grow-and-Share package which some had accused it an election sweetener.] 

Mr Mah also reiterated that the Government takes a calibrated approach to stabilise the housing market but the WP’s proposal to lower new flat prices is “ill-conceived and dangerous” as it would distort the market and destroy the value of flats owned by Singaporeans today. He added that it is “not quite right” to “deliberately implement policy to crash the market”.

When asked why he has repeatedly rebutted the WP on housing and not the National Solidarity Party, which also zoomed in on public housing in its manifesto, Mr Mah said the specifics of the WP’s proposal are “very clear” and “our duty is to point out the longer term implications and to get a response from them”.

Asked if he thinks housing will be a make-or-break issue in the General Election, Mr Mah said no, adding: “There are so many other issues. The most important issue is who can form the Government that can look after Singapore and secure Singapore’s future.”

The Government understands Singaporeans’ concerns about the recent rise in housing prices, he said, but unlike other countries, Singapore has more policies and programmes in place to deal with the issue. He cited housing grants, increased supply of Build-to-Order flats and market cooling measures to address concerns on housing prices.

As a result of these efforts, eight in 10 couples who bought new flats last year used 25 per cent or less of their salaries to service their monthly mortgages, meaning that they pay little or no cash, he said.

Mr Mah cited an example of how a young couple below 30 and earning a combined income of S$4,000 can pay the 5 per cent downpayment for a new four-room HDB flat with no cash after working for half a year to build up their CPF, and pay less than S$50 for their monthly mortgage payment.

He told reporters: “You would get a flat with zero deposit. Now, how many countries in the world can say that? How many housing ministers in the world can say what I have just said?”

Article 4: A different take on rising property values

source: ST Forums, May 5, 2011

WHILE I support the Housing Board upgrading scheme, I wonder if we should not have a more nuanced view towards the benefits of rising property values.

A new home buyer obviously does not benefit from having to pay a higher price as this translates to higher mortgage payments.

What about the family who purchased the apartment earlier at a lower price? If they choose to remain in their apartment, their quality of life stays exactly the same. If they decide to upgrade to a larger property in Singapore, they will make a substantial profit from the sale but, by the same token, they will have to pay substantially and proportionally more for the new property due to overall increasing property prices. Thus, there is no net benefit to them as well.

Indeed, the people who do benefit from rapidly rising property values are non-owner occupiers who do not need to buy an equivalent place to live in Singapore.

Unless incomes increase at the same pace as property prices, Singaporeans will spend increasing proportions of their incomes on a place to live, leaving correspondingly less disposable income for other areas.

The recent measures to cool the property market are a start. However, with the Government holding many of the control levers to temper property prices, more can and should be done.

Dr Jeremy Teo

See also Asset values are not everything by same author.

Article 5: The (Ireland) Property Bubble

[Askmelah’s Note: There are many parallels and lessons to be learnt to avoid similar property bubble burst in Singapore.]

source: The Straits Times, Mar 2, 2011

The Irish government was crushed at the polls last week, punished by voters for a housing bubble that bankrupted the country. A look at what led to the collapse in Ireland and efforts by governments elsewhere to avert similar trouble

By Jonathan Eyal

Classic tale of greed & govt bungling 

LONDON: On the road leading from Ireland’s main airport to Dublin, the country’s capital, a huge piece of graffiti scrawled on a wall in red and white letters carries a stark message: ‘Greed is the Knife & the Scars Run Deep.’

This is the latest form of protest by ordinary Irishmen against a gigantic property bubble that has literally bankrupted their country.

At last week’s general election, the Irish meted out heavy punishment on their leaders: The Fianna Fail, which has ruled the country for three out of every four years since the 1930s, suffered the biggest drubbing in its history. It lost a stunning 57 seats, with most of its ministers booted out, and now holds just 20 seats in Parliament.

Ireland now has a new coalition government, which has pledged to renegotiate its 85 billion Euro (S$149 billion) bailout by the European Union and International Monetary Fund, in the hope of reducing the debt burden. But it will not be easy, with the European Commission insisting last week that the new government stick to the promises made. And whatever happens, it will take more than a decade for the Irish to crawl out of their current misery.

As a result of the popping of a stupendous housing bubble, the average Irish family now faces an estimated Euro 3,900 (S$8,000) a year in extra taxes. Public services will be slashed and 90,000 jobs lost in a country where unemployment is already running at a steep 14 per cent. And even with all this, the cost of servicing interest payments on Irish bank debt will be eating up 85 per cent of people’s income taxes by next year.

The collapse, as it were, of Ireland’s house of cards is a classic tale of greed and government mismanagement resulting in a national tragedy.

The Fianna Fail government had in recent years given Irish banks free rein to lend recklessly to property developers. When property prices collapsed, it then offered an unconditional guarantee to cover all the banks’ losses, despite the fact that, as the authorities subsequently admitted, they had no idea how much money this entailed.

It soon found out: the total bill amounted to a whopping 32 per cent of Ireland’s gross domestic product, a figure seldom encountered by economists before. And to make matters worse, tax revenues also collapsed.

In effect, Ireland is ‘like a patient bleeding from two gunshot wounds’, says Dublin University economics professor Morgan Kelly.

By November last year, Ireland had no choice but to borrow from the EU and IMF.

The rise and fall of the ‘Celtic Tiger’ was fairly rapid. For centuries, the Irish survived as a small island nation, frequently occupied by the British and kept in perpetual poverty. Their biggest export was their own people, who migrated by the millions, particularly to the United States.

Matters began to change when Ireland entered the European Union, and particularly from the late 1980s when its economy began to grow by a yearly average of 10 per cent. That boom was the outcome of its real advantages, which included a youthful, English-speaking and highly educated population, low taxes, and a predictable legal environment. Foreign companies increasingly used the country as their European entry point.

But as Ireland’s wealth fast approached the European average, annual growth rates began to fall, a normal phenomenon in mature economies. However, its politicians, who staked their reputations on double-digit growth, refused to accept this decline. So they encouraged a property bubble instead.

Financial bubbles usually start as a result of real economic facts. It was true that Ireland needed more houses, as its young people left their parents’ homes earlier and married later in life. It was also true that, as Ireland’s prosperity attracted new immigrants, the demand on housing increased even more.

But as it is often the case with bubbles, they acquire their own momentum and assume grotesque proportions. In the early 1990s, only 5 per cent of Ireland’s national income came from house building. By 2006, however, a full 21 per cent of the national economy was dependent on construction. Property became Ireland’s ‘gold rush’.

Property prices shot up by 270 per cent during the last decade, but there were still plenty of buyers, since banks offered 100 per cent mortgages, with no deposit required and no questions asked.

And people who already owned a house bought another one as an investment. Soon, Ireland was building as many houses as all of Britain, which has a population 14 times bigger.

As the frenzy continued, the Irish government’s revenues from duties on house and land sales soared. ‘The government was addicted like a street crack cocaine user to all the revenues that came from the property bubble,’ says Irish commentator Colm Mac Eochaidh.

Anyone who dared to warn that this circus could not last was simply brushed aside. Mr Bertie Ahern, who was prime minister for much of the period by promising his countrymen that the ‘boom is getting boomier’, once publicly invited those who ‘moaned’ about the health of the economy ‘to commit suicide’, so that the rest of the nation could continue to enjoy its spree.

Mr Ahern also had other reasons to ignore the warning signs: a third of the political donations to his ruling Fianna Fail came from the construction industry. So, instead of trying to deflate the bubble, the government fed it, by offering even bigger tax incentives to home buyers. As noted writer Fintan O’Toole remarked: ‘Ireland blew it by ceasing to believe that you sustain prosperity by making things and selling them. Instead, it started to believe that there was a new magic kind of prosperity which was made out of basically selling bits of Ireland to each other.’

When the bubble finally burst, it spewed deadly venom. Housing prices have plunged by about 40 per cent over the last two years. A total of 621 ‘ghost estates’ are littered across the country, either left unfinished when developers ran out of cash or desperately awaiting buyers.

But the buyers will never come, for many of these estates were built for pure speculation, and in the wrong places. Leitrim, a small, sparsely populated region in Ireland’s north, estimated that it needed only 590 new houses to accommodate its population growth. Instead, it received 3,000, and they are now mostly occupied by stray cats and dogs. ‘I suppose we can hire the estate as a backdrop for a horror movie,’ said a local resident.

And as the economy nosedived, nearly one in 10 of all Irish mortgage holders got into trouble. And that, in turn, sent the country’s financial system into a meltdown.

Allied Irish Banks and Anglo Irish Bank – the two biggest players in the domestic market – led the mortgage rush and, when the going was good, saw their profits rise by about 40 per cent each year. Both crashed. Anglo Irish alone ended up with about €39 billion worth of bad debts.

‘Anglo Irish was the baddest bank on the planet,’ says Dutch financial expert Maarten van Eeden, who was recruited last year in the hope of saving something from the wreckage. ‘What you saw here at the bank was recklessness, no checks and balances; it was all a very nasty cocktail.’

The bailout plunged Ireland into a profound sense of national shame. ‘Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty,’ wrote The Irish Times, the country’s top newspaper. Few could understand why every Irishman should assume responsibility for the misdeeds of politicians and bankers. But pay they will, and for generations to come.

The only consolation for the Irish is that, unlike Greece, another European country which has had to be saved from bankruptcy, Ireland has already swallowed the bitter medicine and has started to tackle its difficulties, while the Greeks are still dithering.

However, at least for the moment, all the problems of old Ireland have returned with a vengeance. Unemployment has trebled during the last two years. The flow of Irish people out of the country has also resumed: 50,000 are expected to leave this year, a rate of about 1,000 a week. Ireland is back where it was: poorer than the European average, vulnerable and apprehensive about its future.

As the graffiti outside Dublin Airport aptly put it, the scars will run deep.

Article 6: Before the expectations bubble bursts …

We need to return housing policy to the fundamentals of home ownership and affordability

by Eugene K B Tan

In a flurry of announcements since he assumed office on May 28, National Development Minister Khaw Boon Wan has demonstrated urgent resolve to deal with housing concerns ranging from high prices to out-dated eligibility requirements and the inadequate supply of new Housing and Development Board (HDB) flats.

Housing was a hot topic during the General Election last month. The prevalent view then was that public housing had become less affordable and that private property was increasingly out of reach of HDB upgraders. Housing became the prism by which some Singaporeans saw the Government as having lost touch with the people’s basic concerns and aspirations.

Dealing with housing supply-side issues is vital. Ramping up the supply of new flats is crucial. But it is equally important to address demand concerns. Yet, this is not merely about curbing or tweaking demand – the Government will have to adroitly manage expectations, as well as re-orientate the fundamentals of our housing policy.

Singaporeans have come to regard affordable housing as an integral part of the social compact. Affordable housing is seen as an entitlement – a birthright, effectively.

Indeed, the typical Singaporean does not just think of real estate; it is also what he thinks with. Marriage and childbearing decisions often hinge on the prerequisite of a couple having their own home. Further, residential property is easily the largest asset owned by Singaporeans.

As residential property constitutes one of the largest financial assets in our economy, whatever happens in the property markets impacts upon our financial, social and political behaviour, social stability, and the larger economy. With 85 per cent of Singaporeans living in HDB flats, public housing prices intimately affect the private sector property market. Hence, in reviewing the housing policy, the Government will have to be cognisant of the interests of both existing home-owners and prospective ones.


The basis of home ownership in our society has evolved since the HDB was established in 1960. From the outset, public housing was not merely about roofs over our heads. For a fledgling nation-state, universal home ownership was, and remains, critical in forging a sense of rootedness and nationhood.

Since the mid-1980s, however, public housing was treated as “assets”. The humble HDB flat was no longer a mere abode but had become a tradable commodity whose value can be grown and, if need be, monetised.

HDB upgrading programmes reinforced this wealth-enhancement mindset. Property booms in land-scarce Singapore have made home-asset enhancement a wealth-seeking imperative for owners of public and private housing.

Such commoditisation has generated an insatiable appetite for homes to be a means by which quick profits can be churned. In turn, this has created a divide between the housing “haves” and the “have-nots”.

In addition, condominium living (or private housing) is immortalised as one of the 5Cs (the others being cash, car, credit card, and country club membership). This desire to move up the housing value chain, combined with the abiding fear of being priced out of one’s dream home (and/or investment), have contributed to property speculation and panic buying.

Being a home-owner is now necessary, but still patently insufficient, for the realisation of a middle-income Singapore Dream.


Compounded by a deep sense of entitlement of a new HDB flat or affordable housing for first-time home owners, this overriding emphasis on the home as a tradable asset has given rise to a spiral of ever-growing expectations among different stakeholders.

Further, the anxious self-interest in enhancing the value of one’s home is increasingly at odds with what is fair and sustainable in the long run.

For instance, prospective home-owners expect the Government to provide affordable and quality public housing. Existing home-owners expect, and almost depend on, the Government to ensure their properties have healthy increases in equity value. This obsession with growing real estate equity has resulted in an “expectations trap”.

The reality is, the Government will find it increasingly difficult to cope with and cater to this surge in ever-growing expectations. Economic prosperity is not preordained, especially since our economy is so heavily influenced by external economic forces. This perceived “performance gap” on the part of the Government is made worse by property prices being out of sync with the macro-economic fundamentals. What happens when the expectations bubble deflates or, worse, bursts?

Further, many prospective home-owners born after independence only know of a prosperous Singapore. Their housing expectations are invariably higher than their parents. What happens when their dream homes do not materialise?


With property as a status symbol, the fundamentals of housing a nation are significantly out of step amid a creeping culture of ostentatious materialism and affluent consumerism.

It is high time expectations of Singaporeans are recalibrated. We need to return to the raison d’etre of our housing policy for the masses: Home ownership as stakeholdership. Related to that is the need to underscore the importance of affordable housing. Together, they are necessary to sustain Singapore’s social compact.

Even if the expectations trap or performance gap does not materialise, we need to be mindful of the “treadmill effect” in which the marginal utility of apparent increased wealth from real estate declines. Notwithstanding the rise in absolute value in home equity across all residential properties, the relative wealth positions for most Singaporeans remain unchanged.

In short, a Singaporean may feel richer because of the rise in property values. But that is a mere paper gain. Realising that paper gain throws up the reality that a similar property cannot be bought at the same price. This only feeds into the cycle of anxiety. This means housing will persist as a hot-button political issue and generate significant angst.

Clearly, at the national level, housing-related interests may not just compete but may conflict. As such, a recalibration of our basic housing aspirations is urgently needed. The Government itself needs a fundamental re-think of its housing policy. Can we right-size our housing aspirations and reconcile the different needs and expectations among different stakeholders?

Eugene K B Tan is assistant professor of law at the School of Law, Singapore Management University.

Article 7: Consequences of govt inaction in the housing market….

Source: read full article at Diary of A Singaporean Mind“According to the latest issue of the ADB’s Asia Economic Monitor, the share of property-related loans in total loans is as low as 9 per cent in South Korea, 15 per cent or less in Indonesia and the Philippines, and below 20 per cent in Hong Kong, Thailand and China.

At 51 per cent of advances, Singapore’s banking sector’s exposure to property is the highest among the nine major economies of East Asia, followed by 42 per cent in Taiwan and 38 per cent in Malaysia, ADB data showed.The ADB report comes less than two weeks after the Monetary Authority of Singapore said in its annual Financial Stability Review that household debt has been growing at a faster rate in recent quarters – driven largely by housing loans which account for the bulk of household borrowing.”

Article 8: HDB should exert tighter control

Make housing affordable

Source: The Straits Times 6 Aug 2011

[Updated 6 Aug 11: The letter echoes many problems and solutions suggested in this blog.]

I FELT sad reading the two letters last Friday (‘Why couples delay parenthood’ by Miss Jenna Cai and ‘Loan quantum puts flat beyond reach’ by Mr Shi Weilong). The problems and concerns they highlighted are real. At the rate HDB flat prices are rising, future generations may not be able to purchase them.

The HDB should focus on its main objective of providing affordable flats to Singaporeans. It should take over the responsibility of building public flats and selling them at an affordable price.

And when the owner wants to sell the flat, it must be sold back to the HDB at a certain price, taking into consideration the age of the flat, depreciation and inflation.

A formula has to be worked out. This will ensure that future generations have a roof over their heads, which is a necessity when starting a family.

For those who can afford it and want to upgrade or invest in property, they can purchase private housing, which is subject to market forces.

There has been a lot of talk about asset enhancement, but the problem is that if you have only an HDB flat to live in, what will happen if you sell it for cash?

The other option is to downgrade to a smaller flat, but if you have been living in a certain area for a long time and are familiar with the surroundings and people, would you want to downgrade?

Tan Keng Hai

Article 9: Bold design? I’d prefer a liveable unit

Make housing affordable

Source: The Straits Times 6 Aug 2011

AS A Singaporean looking to buy a private apartment to live in, I am disturbed by the report (‘Moshe Safdie to design Bishan condo’; July 27), which suggests that ‘increasingly sophisticated buyers’ want ‘designer architects’ who ‘add that touch of glamour’ to developments.

Those buying a home to live in are not looking for bold, iconic designs with irregularly shaped rooms and living spaces. They want practical, usable and liveable spaces in their bedrooms, living areas and kitchens. However, in order to achieve higher prices per square foot, developers are building smaller units with less usable space.

New apartments now come with bedrooms that can barely fit a single bed, windowless kitchens unsuitable for Asian cooking, no laundry areas (besides ecologically unfriendly washers-cum-dryers fitted under the kitchen sink) and dark, narrow corridors in common areas and lift lobbies.

Yet, in order to maximise saleable strata space, developers are building units with balconies bigger than the bedrooms, planter boxes, long air-conditioner ledges and, until the recent change in Urban Redevelopment Authority rules for gross floor area, bay windows that virtually wrap around the entire unit.

After visiting numerous showflats with such designs, I wonder whether developers are building homes for people to live in, or to maximise their profits from foreign investors who wish to park their money here.

Foreigners are able to afford the high asking prices, and they will continue to buy without much concern about the impractical designs.

In land-scarce Singapore, where the cost of suburban condominiums is now hitting $1,400 per sq ft, housing agents are marketing our properties abroad and conducting property tours for foreigners who have been restricted from buying houses in their own countries by their governments.

With a lack of restrictions on foreigners purchasing private homes in Singapore, is there any incentive for property developers to build liveable units for Singaporeans to occupy? Can one blame developers for looking to market ‘a distinguished concept or lifestyle to a global pool of buyers’, even in the Singapore heartland?

Lin Xinsheng

Article 10: No room for honesty and filial piety

Source: The Straits Times, Aug 20, 2011
[Askmelah’s note: one example of an ill-conceived policies under the watch of MBT without proper consultation and caused pains to the non-speculators and did little to reign in the real speculators.]

I BOUGHT a house in Malaysia in 1995 for my parents to live in when my father retired from his job and needed to leave the company’s quarters (“Housing income ceiling raised for singles and elderly as well”; Tuesday). They have been staying there ever since.

I came to Singapore in 1990 and now call Singapore my home with my wife and four children. We bought our first three-room HDB flat as permanent residents in 1999. Now as citizens with four growing children, we wish to upgrade to a bigger flat.

Unfortunately, the new rule about private property makes it difficult for us to upgrade. We must appeal to retain the property in Malaysia as we cannot evict our elderly parents to sell it just because we need to upgrade.

We cannot transfer it to their names either as they do not wish the hassle after they pass on. Because we have appealed to retain the property in Malaysia, which cost not more than RM50,000 (S$20,275), we cannot obtain the HDB loan or the Central Provident Fund housing grant of $30,000.

Why am I being penalised for being truthful and declaring the private property and for taking care of my elderly parents?

I am a genuine upgrader who happens to own a cheap private property abroad. The $30,000 CPF grant makes a lot of difference to me as a father of four children.

I really hope something can be done for new Singaporeans like me who still have filial responsibilities.

Thana Rajan Verasalam

Letter from Henry Tan Seng Lee

Mr Raymond Chua is right, in his letter “What benefit from property investment?” (Dec 13), that Singapore needs to think clearly on why we want foreigners to invest in our housing.

It is not easy, as those with a vested interest in high property prices would have us believe that our future would be jeopardised if we take measures to restrain foreign ownership.

Given our limited land supply, we need policies that cater to the objectives and affordability for buyers in the three categories: Citizens, permanent residents and foreigners.

For citizens, it is housing; for PRs, a desirable alternative to renting; and for foreigners, investment.

For investment purposes, Singapore should be astute enough to designate a few high-end locations such as Sentosa and Orchard Road that are open to all, including foreigners.

Developments in these locations should have minimum restrictions and could be as tall and expensive as the market can bear.

PRs who have been working here for some time, say, three years, should have a choice of renting or buying one private apartment.

Citizens should compete among themselves for public housing or, based on earning capacity, choose private property. The wealthy could then invest across all segments except in public housing, which could be used for investment purposes by the rest.

A real estate gain tax should also be introduced for non-citizens. This would provide an incentive for PRs to really make Singapore their home by taking up citizenship.

Let public housing policy return to basics

Source: The Straits times 31 Dec 2012

IT IS not enough to suggest that developers should observe the intent and spirit of the executive condominium (EC) housing scheme.

If developers play by the rules to maximise profit for shareholders, then they cannot be faulted.

The real problem lies with the rules and the overall public housing policy, which is supposed to be about providing affordable public housing to the masses.

Over the years, the original intent and spirit of our public housing policy has been adulterated by variousinitiatives such as ECs, the Design, Build and Sell Scheme, the privatisation of HUDC flats, the Selective En bloc Redevelopment Scheme and so on, that have not only raised the prices of HDB flats but those of private properties as well.

It is time for a total review of our public housing policy and a revamp that will take it back to its original intent, particularly in the light of our growing income distribution gap.

I suggest a return to the single-mindedness of affordable public housing and the building of better Build-To-Order flats.

The income ceiling could be raised to include those who can qualify only for ECs.

It should not be the Government’s business to help HDB owners speculate in the open market.

In fact, one-, two- and three-room HDB flats should be made very affordable and be non-transferable, with a sell-back scheme to HDB for the balance lease. These flats should have a shorter loan repayment period of 15 to 20 years.

As family sizes are getting smaller, this could address the essential housing needs of the lower income group for life.

If their financial situation improves, they can then choose to upgrade to a bigger flat or private housing.

This scheme will ensure better moderation of prices at the top, and will also serve as a fallback plan for the less well-off or those wishing to downgrade.

Yeow Hwee Ming

HDB flat should not be for ride on the gravy train

Michael Tan Hoe Heng

Source: todayonline  25 Mar 2013

With home ownership crossing 90 per cent, it is difficult to understand why Singapore is building homes at a frenetic pace. Is there really a housing shortage?

The Housing and Development Board (HDB) sold 69,000 Build-to-Order flats from 2010 to last year. Where are these buyers sleeping while waiting for their flats? Do they all need a new flat?

There are 3.8 million citizens and permanent residents, with 82 per cent living in approximately 900,000 HDB flats – an average of 3.5 people per flat. What is a comfortable ratio before the HDB stops building more flats?

When prices are subsidised, there will be overconsumption.

A sign that we might have a misallocation problem, and not insufficient public housing, is that 43,500 whole flats had approval for subletting, not to mention there are flats being sublet without approval.

Why is the HDB wasting public money to build another 25,000 units this year? Why does one not permanently rent from these 43,500 owners instead of buying from the HDB?

The answer: One does not “get” money from the Government if one rents, and one cannot pay the rent using one’s Central Provident Fund.

When I started work, a colleague asked me why I was not queuing for a flat, along the lines of “the Government is giving you money; it’s stupid not to take it”.

I saw classmates applying for flats before they started work so they would not hit the income ceiling. An HDB flat was viewed as their first pot of gold.

We have been told of the perils of a welfare state: Once benefits are given out, they cannot be taken away. Subsidised HDB flats and various housing grants have become an entitlement programme, requiring substantial tax funding.

There is a temptation to appeal to voters by lowering flat prices. Young Singaporeans perceive that they are missing the gravy train of getting a flat that could sell for S$1 million but cost only a fraction.

While many who are applying for flats have genuine needs, how many young couples need a five-room flat? If we could filter out the investment demand, we would not waste resources building flats that owners are not interested in turning into a home.

Every country has limited resources. Should we spend more to build another flat, or use the same tax dollars to help an old lady who collects cardboard, or a child with special needs?

We complain that Singapore is a perpetual construction site, yet we are addicted to this asset enhancement. The HDB should continue to build homes for the poor, but should it aim to house 80 per cent of our citizens?

As the nation prospers, it is logical to expect that a smaller percentage, and not greater, needs subsidised public housing. I applaud the National Development Minister for reviewing the HDB’s role, which should not be to make people rich.



0 comments on “Flawed asset enhancement policy and potential property bubble
1 Pings/Trackbacks for "Flawed asset enhancement policy and potential property bubble"
  1. URL says:

    … [Trackback]

    […] Read More Infos here: askmelah.com/flawed-asset-enhancement-policy-and-potential-property-bubble/ […]