“LOWERING land cost as a way to reduce new Housing Board flat prices is tantamount to raiding Singapore’s reserves This is because all land is sold at prices set by the Chief Valuer, and the land sale proceeds go into the reserves.” – Mah Bow Tan[Link]
Well a few day ago, he was saying that healthcare, defense and education expenditure will have to be cut for the govt to sell flats cheaper. Now we get to the heart of the issue:
1. Most of cost of HDB flats comes from the land cost component.
2. Land cost is determined by a Chief Value in the govt.
3. When this land is sold, the money goes to the reserves (GIC).
The bottom line is when Singaporeans take up 25 year mortgages to buy homes, they borrow money from the bank to pay HDB and most of the money ends up in the GIC. Minister Mah uses the phrase ‘raiding the reserve’ to describe the suggestion by Worker’s PAP to sell land at a more reasonable price. It is not true that the reserves are ‘raided’ because not a single cent needs to come out from the reserves to get this done – money will still flow from our pockets to grow the reserves albeit at a slower rate.
The next few questions we have to ask are:
1. How can land be valued fairly?
2. How do reserves benefit ordinary Singaporeans in their lifetime once they grow beyond what is needed for cushioning economic crisis? Who really reserves benefit?
3. How do we maximise the benefits of public housing for Singaporeans in the long term?
HDB’s mandate is to build affordable homes. Unfortunately, nobody bother with the definition of the word “affordable” which has become one of the most abused words in Singapore. Does affordable means median annual income times 5 or 10? Does affordable simply means being able to service your housing loan which have tenures of 10, 20 or 35 years? Because affordability was not defined, we have politicians arguing that it is still affordable after a 50% surge in prices.
“First the cost of new houses for 1st time buyers is about 23%…the cost of servicing the flat. That hasn’t changed very much over time and is significantly lower than Hong Kong and most other cities. It is significantly lower than the developed countries at large. It is cheaper to own and service a mortgage on a house in Singapore than it is in any other developed countries…” – Minister Tharman in CNA Forum, on Singapore’s future, April 2011 [[Video Link]
There are numerous flaws in Minister Tharman assertion in the recent forum but I put it up to show how determined PAP is to deny that serious problems faced by Singaporeans exist. To watch Minister Tharman say that Singaporeans have it good, homes are easily affordable….better than all other developed countries just add to the frustration of Singaporeans coping with the high cost of housing. I’m sure regular readers of this blog can pick out the flaws in Tharman’s argument easily but for those are having trouble figuring it out here is the explanation. When Tharman talks about the relatively constant average quantum (23%) that 1st time buyers use to service loans, it counts only people who can afford a home – many can’t afford homes give up looking for one. Also, they keep the quantum constant by buying homes smaller than what they want or need at less desirable locations and the tenure for loans has increased – in the past people finish paying their loans in 10 years or less now the tenure can be as long as 3 decades….there is a big difference between paying 23% of your income for 10 years vs 30 years.
He then goes on to say we are better off than Hong Kong which is no consolation given the housing misery there (unhappy Hong Kongers come out in force to protest every weekend for a good reason). He then goes on to make a very strange and really hard to believe assertion that the housing situation in Singapore is better than all other developed countries. Singapore has the 2nd highest population densities[Link] in the world and many cities in develop countries have suburban areas where housing is very cheap. Singapore is the 11th most expensive city in the world but is 43th and 49th in domestic wages and purchasing power respectively, along the likes of developing countries like Turkey, Slovakia and Qatar and far below the capitals of other Asian Tigers – Seoul, Taipei and Hong Kong[UBS Report, Temasek Review on the report]. Singapore has the highest income inequality among developed countries which means that the lower rungs of our society are more adversely affected by high housing costs than elsewhere in the world. Tharman’s denial that there is a problem with high housing costs shows that there is no interest in govt to solve what many Singaporeans think is serious problem.
The undisputable truth is housing is far less affordable that it was 20 years ago. The median income rose 111% (not inflation adjusted) while the price of housing as measured by the RPI rose 342%. That is the source of unhappiness among Singaporeans and it is a very real problem:
The huge surge in housing prices came after the PAP govt liberalised CPF for the purchase of homes. That single move resulted in billions in CPF accounts mobilised for the purchase of private homes and HDB flats. Most of the money ultimately ended up our reserves. Prior to that move, Singaporeans had enough in CPF for retirement and HDB provided what most people would consider affordable housing. Once CPF was used for housing, our homes became inextricably linked to Singaporeans’ retirement. In addition to this move, our CPF is also locked to low fixed returns – the GIC borrows our CPF at low interest rate to invest for higher returns…yes another reserve building scheme at the expense of’ retirement, Singaporeans. After adjusting for inflation, our CPF returns is way below other funds such Malaysia’s EPF. The situation is so problematic even pro-PAP writer Chua Mui Hoong called for CPF returns to be improved[Link]. The PAP solution now to all these problems is to ask Singaporeans to retire later….and later..and perhaps never.
Now back to the issue of land valuation. Land in Singapore is a scarce and precious resource most of which was originally owned or acquired by the govt using the Land Acquisition Act. We can reclaim some land from the sea provided our neighbors don’t complain but the total land area in Singapore won’t increase much over time. Given this situation, the decision to make public housing the main form of housing under the control of the govt is a correct one. We have seen what happened in many developing countries where free market for land allowed the rich buy up most of the land and the poor people become landless, sometimes homeless and trapped in a vicious cycle of poverty – the only solution left in places like Philippines was to carry land reform in which govt forcibly take back land and redistribute it to the lower classes. That is the bleak situation that public housing programs try to avoid – the dynamics of the free market for land which causes income gap to expand depressing your middle class and sending the lower class down to poverty. The purpose of public housing is defeated if we directly link the price of land for public housing to free market auctions to developers. The success of public housing is measured by affordability and progress is made when people take up less debt, have more disposable income, have a better quality of life and the effects of the income gap is mitigated through the public housing program. Under Minister Mah, the HDB failed to do all that and when confronted with WP’s manifesto to improve the situation, Minister Mah is worried that our wages will flow at a slower rate into GIC’s astronomical coffers – is he for more affordable housing or reserve building? Let’s not forget the high resale prices are caused by govt move to open the flood gates to the foreign influx and the BTO which limits supply.
The situation might be slightly better if the govt articulates a clear plan on how the Singaporeans will benefit from the reserves in their lifetime. Will part of it flow back to improve the quality of retirement for Singaporeans? The GIC today provide high paying jobs for a small number elites who manage the reserves. For a long time, Singaporeans have been asking for greater transparency and accountability in the management of the reserves…these are after all built from the sweat of Singaporean workers who have to get into heavy debt and delay their retirement to pay for expensive public housing.
Lucky Tan
* Lucky Tan is a popular Singaporean blogger who likes to “study the thoughts of Singapore leaders and the laws of Singapore”. His blog is located at http://singaporemind.blogspot.com.
Source : Temasek Review 17 Apr 2011
Lush Dream Home 