On housing and wealth creation

This author recently came across a 2009 Herald article which provided an excellent, incisive critique of the real estate bubble in the United Kingdom.

Singapore should learn from the housing situation in the United Kingdom:

“Between 1997 and 2001, house prices nearly doubled. They nearly doubled again by 2005. It was as if the government had given every homeowner an average of £100,000. No wonder they voted Labour. We were all corrupted by the housing boom, to some extent.

People talked endlessly about how their houses were earning more than they did, never asking where all this free money was coming from. Well the truth is that it was being stolen from the next generation.

Houses don't produce wealth, they merely transfer it from the young to the old - from the coming generation of families who have to burden themselves with colossal debts if they want to get a roof over their heads, to the baby boomers who are about to retire and live on the cash they make when they downsize.

MPs were the most egregious example of this, but in a sense we were all invested in the housing scam. Well, it's time to call a halt. Our property obsession has been an economic and political disaster.”

On foreigners owning property in Singapore

Local news reported today that resale prices for private homes have shot through the roof this year. According to one analysis, foreigners make up the majority (60 to 70%) of the buyers of private homes in Singapore, thereby propping the prices up.

Even foreign celebrities, such as Jackie Chan and Emil Chau, have gotten into the act, and purchased a number of condominium units last week, spending in excess of S$10 million.

But Singapore is land scarce, and many local citizens face great difficulty affording their own homes. The incredible rate at which housing prices have been permitted to go up compared to local salary rates is an extremely disappointing reflection of the PAP government’s understanding of the local populace’s housing difficulties.

This author is of the opinion that foreigners should only be allowed to purchase residential properties in Singapore if they actually live in them. Singapore is far too small a country to allow foreigners to speculate in and drive up the prices of residential properties beyond the affordability of the main local populace.

Actually, this author views that ideally, foreigners should not be permitted to purchase properties in Singapore at all. Given Singapore’s limited land area, there is no good reason why foreigners should be allowed to acquire property at the hardship and expense of Singapore citizens (who should be given a decent chance to aspire to owning a private home someday). The PAP government should not have permitted foreigners to purchase private homes, much less, the majority of private homes in Singapore.

On making HDB housing affordable

Singapore is a small country and the third most densely populated state in the world after Macau and Monaco. With a population of 5 million and barely 710 square kilometres of land area, the scarcity of land is acute and land planning is vital in order to maintain a decent quality of life for the people of Singapore.

The Housing and Development Board (“HDB”) is the official government body tasked to take on the issues of public housing in Singapore. Given the shortage of land, the HDB’s responsibility is no small one, and the HDB provides housing by building flats and leasing them out (in 99-year leases) to Singaporeans. More than 80 percent of Singaporeans currently live in these HDB flats. In recent times, however, many Singaporeans have expressed disgruntlement and dismay at how difficult it is to obtain a HDB flat, and how expensive it is.

Some relevant observations:

• Flat prices have risen far more quickly over the years compared to salary increases (one commentator has estimated that flat prices have increased by more than 30 times since the 1970s, compared to a mere 2.7 times increase in the median salary of a graduate since the 1970s).


• Many households today need to take long term (20 to 30 years) loans in order to afford their flat leases.


• In recent years, fewer flats are being built. Yet the population has increased more rapidly than before.


• New HDB flats are invariably many times oversubscribed, indicating that demand far exceeds supply.

These observations reveal that, from the face of it, there is a genuine concern that public housing today is not very affordable and not very available.

Two policies adopted by the HDB appear to aggravate the problem of public housing affordability and availability instead of alleviating it:

• The HDB deliberately restricts the supply of flats below the demand level, thus reducing the number of available housing.


• Since mid-1990s, the HDB prices new flats at the market rate instead of at the building cost, thus increasing flat prices and profiting from them.

It is indisputable that housing is an essential human need. If housing is unavailable or unaffordable to the people in Singapore, the HDB (as the government provider of public housing) should endeavour to build more flats and lower their prices (by reverting to the original and more reasonable cost-based pricing instead of a market-based pricing).

Can the HDB do this? Well, one fundamental concern is that if HDB flat prices revert to a cost-based approach, the tenants who had previously leased them at market rates and who are still living in the flats would be unfairly prejudiced and burdened with negative value assets. How can we address this concern?

What if (and let us think out of the box here and envisage a government who is serious in tackling the housing problem and who is open and willing to consider all options) what if the HDB were to refund its excess profits made from market-based leases back to the tenants who are still living in the flats? i.e., refund the difference between the market price and the cost price at the time of lease? The refunds may be made partly in CPF and partly in cash, depending on the actual proportions used to lease the respective flats at the time. Then there would be no prejudice to these tenants. The refunds will only apply to tenants who are still living in their flats. Previous tenants who have already sold off their HDB flat leases would have done so at market rates, and no refunds need to be provided to them since no negative equity losses will be suffered by them.

The mistake (dare we call it that?) of pegging HDB flat prices to the market rate could be corrected, and going forward, Singaporeans will be able to lease public housing at far more affordable cost prices.

Ideologically, the HDB, which is a statutory board entrusted with public housing, should not make a profit from Singapore citizens. After all, having a place to live is an essential need, and in land scarce Singapore where housing options are severely limited, Singaporeans should be entitled to public housing at affordable prices as a basic right.