Tag Archives: housing

Battleground Tampines

It seems that the 5-member ward of Tampines GRC will be a key ‘battleground’ ward in the upcoming elections. One reason is that as early as 2009, NSP secretary-general Goh Meng Seng was hammering the anchor minister, Mah Bow Tan, for his ‘failed’ HDB policies. This is part of their minister-specific strategy, in which they will zoom in on ministers and their policies, besides raising municipal and national issues.

The assumption of the strategy is that 1) S’poreans link their GRC to the anchor minister (they don’t care about the rest of the MPs), and 2) they identity the minister by the portfolio which he is holding, 3) if policies e.g. housing fails, that means the minister-in-charge is at fault, 4) so the minister with his team should be voted out. I’d believe that govt policies are not made by specific ministers, but crafted by consensus in the Cabinet with the Prime Minister setting the direction and holding the veto on issues. Hence the minister of transport can object to policy-making regarding housing etc. This is because ministers can and are rotated anyway; and some also hold dual portfolios. To be in the Cabinet means they should be able to handle everything, by virtue of their leadership or EQ etc. Furthermore, in a parliamentary system (and perhaps others too), the Cabinet is bounded as a collective leadership, so even if some ministers personally disagree with the policies, ALL of them have to stand united in public.

So if one policy fails, by right the whole govt should change, and not just the minister-in-charge. The govt can simply replace the minister and continue its policy. Hence I don’t really understand NSP’s minister-specific strategy of whacking the minister just because he’s in charge of housing. But then again, Mah Bow Tan has been the minister for national development for a VERY long time, such that housing issues are easily linked to him. According to the S’pore Cabinet Office website, he’s ranked No. 8 out of 21, so if he’s voted out, that would be a symbolic hit on the PAP.

If everything goes accordingly, Goh Meng Seng and his best candidates will be fielded in Tampines to take on Mah Bow Tan and his team. On the top of the table will be housing, housing and housing. Again, this leads us to the question of what voters are looking for. Are they voting for the party to form the govt or a group of candidates to take care of their municipal needs? Are they concerned about national policy-making and its intricacies, or do they put their confidence in people whom they can relate to, trusting they would act in their best interests? It’s likely to be a combination of everything. Whether Goh can use his minister-specific strategy effectively depends on how correctly he reads voters’ moods in Tampines.

Results of Tampines GRC since 1988:

1988: PAP vs. NSP (61 to 39 percent)

1991: PAP vs. NSP (59.48 to 40.52 percent)

1997: Walkover

2001: PAP vs. NSP-SDA (73.34 to 26.66 percent)

2006: PAP vs. NSP-SDA (68.51 to 31.49 percent)

As you can see, the PAP has won Tampines consistently, with margins between 19 to 47 percent. One reason is that Tampines has an above-average percentage of Malays, and as a community, they have thrown their support behind the PAP. However, the NSP inaugurated its Malay Bureau last year to attract potential Malay candidates, and if they don’t disappoint, a candidate who can allow the Malays to relate to him or her will be fielded, so that the team can draw more votes. But it might not be a vote-winner, of course.

Since NSP has attacked Mah Bow Tan since 2009 and probably done several walkabouts in Tampines, that means they are entering the elections with greater expectations to do well. Furthermore, if Mah Bow Tan is voted out, the NSP could claim their minister-specific strategy works, and the PAP probably will have to change its HDB policies (for good or ill, no one knows). But in any case, a win for the NSP is likely to be marginal, given that this is a GRC, and that Mah Bow Tan has been in politics and a minister for more than two decades. If the NSP loses, it should ideally lose marginally too i.e. garnering more than 40 percent of the votes to have one of its candidates qualify as a NCMP. A worse defeat means that their minister-specific strategy is not working or simply because S’poreans agree with the housing policies, and think they are fine.

For the reasons above, Tampines GRC is likely to be a battleground GRC, because the NSP has set the stakes high by assaulting a minister’s policies, and indirectly, the entire PAP. The WP didn’t fight like this in Aljunied by accusing George Yeo of mismanaging foreign affairs, and they probably won’t. That brings us back to the list of priorities which voters have, and if Goh Meng Seng can interpret them correctly during the campaigning period (probably 9 days) to sway most of them.

Lastly…the PAP might just shift Mah Bow Tan out of Tampines, if they feel they have a chance of losing at all đŸ™‚ So no more minister-specific strategy huh.

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A (long) thought on public housing

Today the headlines on The Straits Times declared “Resale HDB flat prices hit new high”. See here for a shorter report. It got me thinking so hard that I surfed the Net for articles on the topic, before I decided to write something here. I wrote a short note last year on the same subject, but I didn’t get into much detail. So, on this cloudy Saturday afternoon, I hope to surgically cut this topic.

Firstly, why are resale flat prices increasing so fast? Between 1998 and 2006, the resale flat price index was stable. But from Q2 2007 onwards, there is an upward trend in the price index – a 40 percent rise between Q2 2007 and Q2 2010. How is it possible that resale flat prices can rise so fast within three years? The flats have gold-plated toilets and basins, lol?

Secondly, will prices continue to rise and never fall? I was amazed that some ‘analysts’ on The Straits Times agreed! Always be skeptical of so-called experts.

Thirdly, what is exactly the long-term impact of the continued rise in resale flat prices?

Lastly, what’s the govt’s role in public housing, especially with its stated policy of ‘asset enhancement’ for HDB flats? What are the possible solutions, and how to implement them at a minimum cost?

A market pretending to be free

In a free market, property can be bought and sold at will. If I own an apartment in London, I can choose when to sell it i.e. a few months or few years, and whom I can sell to i.e. a local or another foreigner. However, if the economy isn’t doing well, I won’t sell it, because I can’t reap a good profit. Furthermore, I’ll feel ‘poorer’, because if my apartment’s value drops, my total wealth will decline. I’ll probably be prudent in my spending.

In contrast, a HDB resale flat market isn’t free – it’s highly regulated. Flat owners must satisfy a MOP (Minimum Occupation Period) before they can sell their flats, even if they did not apply for grants or loans. There are ethnic quotas in all blocks of flats, limiting flat owners’ ability to sell their flats to others. Now there’s even this PR quota, so that no single block becomes a mini-Mynarmar or mini-Philippines. More importantly, newly-married couples and families enjoy more grants and subsidies than other groups when they purchase flats. So, really, the resale flat market isn’t ‘free’.

I’m not suggesting that the HDB should change its rules to make the market more free. That’s not desirable, because flats are built with public money, and buyers are given grants and subsidies. Hence rules such as MOP ensure people fully utilise the flats – by staying in them, and if possible, make babies. Secondly, while the problem of ethnic enclaves isn’t unique to Singapore, the govt has the power to ensure none emerges, because most people live in HDB flats. Up till here I agree with what the govt is doing, because of the social benefits it has provided in terms of mass public housing and social stability.

The problems start when people in the resale flat market sell and buy flats. Now, if you purchase a car, and you resell it to a second-hand dealer, you expect to have a lower value than that of the original, because of depreciation. It’s similar for other goods, like handphones, laptops, and of course, factory machinery etc. But when you purchase a property or apartment or a flat, you expect to have a higher value than the original price i.e. you expect and look for a profit. Why is this so?

The answer probably lies in the price elasticity of demand in the resale market. In the resale market for cars and handphones, there are more substitutes for them, that being their newer and presumably better quality counterparts. For flats and properties, there are fewer, if no, substitutes – a flat has its specific location, storey and fengshui. So obviously the demand for resale flats is inelastic, and prices may indeed be higher if a premium is attached.

What about the supply side? Obviously it is inelastic too, because of the MOP and ethnic quotas, which prevent resale flats from, well, being resold. And of course, not everyone immediately sell their flats when prices rise. I think this is a recipe for a perfect storm.

Hence something took place in 2007 (and still happening now) which increased demand so much that prices naturally rose sharply. Almost all the factors suggested by critics have been thrown aside by the govt. They have ranged from an influx of PRs to govt lack of foresight in building sufficient flats. And why did the sharp rise begin in 2007, not in other economic boom years like 2004 or 2002? I don’t know the answer, but I suspect the economic boom in 2006-2007 played a significant part in creating an environment for resale flat prices to shoot up. It’s more a case of monkey-see-monkey-do, or herd mentality. When a few people think their flats are worth that much, and when a few others anticipate stable or increasing income, their influences spread throughout the market, resulting in the rapid rise of prices and transactions.

Up and up…?

Here comes the golden question: will prices keep rising and never fall? Some analysts believed so. Their conclusion was based on land scarcity in Singapore. Small land area, more and more taken for development, less and less land area, resulting in an eventual scarcity which forces buyers to bid up the prices of the remaining land. Fine, sounds logical. But to me it’s a Malthusian-based argument. As we know, Malthus predicted that an ever-increasing human population relative to food supply will result in a catastrophe which turns the world into another Stone Age. However, his calculation on the increase of human population was not realistic, and he did not foresee that productivity gains in agriculture meant a hectare of land can support a greater number of people.

Robert Shiller, an economics professor at Yale, rebutted this notion:

But we do not really have a land shortage. Every major country of the world has abundant land in the form of farms and forests, much of which can be converted someday into urban land. Less than 1% of the earth’s land area is densely urbanised, and even in the most populated major countries, the share is less than 10%…

…The kinds of expectations for real estate prices that have informed public thinking during the recent bubbles were often totally unrealistic. A few years ago Karl Case and I asked random home buyers in US cities undergoing bubbles how much they think the price of their home will rise each year on average over the next ten years. The median answer was sometimes 10% a year.

If one compounds that rate over 10 years, they were expecting an increase of a factor of 2.5, and, if one extrapolates, a 2000-fold increase over the course of a lifetime. Home prices cannot have shown such increases over long time periods, for then no one could afford a home.

And it’s true in Singapore. Earlier this year, the Minister for National Devt suggested that new townships can be developed in Simpang and Tengah – once Punggol is fully developed. Furthermore, blocks can be built higher to contain more flats.

Since there is no land scarcity problem in Singapore, at least in the near future with a population of 6million, then prices shouldn’t rise forever. In other words, both resale and new flat prices CAN fall once demand drops drastically, or supply increases.

Long-term effect

As Robert Shiller explained, no one can possibly expect the prices of homes to rise. Let’s say I purchase a 4-room-flat in Punggol now for $200k. Ten years later, taking into account inflation and enhancements to the amenities i.e. schools, playgrounds etc, I then expect to sell it for $400k (!). Suppose some sucker really buys it. Again, ten years later, in 2030, he will expect to sell it for more, maybe $500k. And it goes on and on.

This is precisely what’s happening now. Valuations of flats seem to be increasing. That’s another difference between a real, free market and a HDB resale flat market. Economic sentiments play a part in determining the drop in value of my London apartment, while in Singapore, HDB valuers assess the value of my Punggol flat when I decide to sell it, regardless of the economy. So the economy may really be pit-bottom, but my flat is worth $400k because the MRT is just next door. Coupled with COV, I may be earning quite a good profit.

And the next owner, fueled with expectations, will sell at a even higher price with higher COV too. Clearly this is unsustainable for the future flat owner, who will find that resale flats are beyond his reach.

The govt has also talked about ‘monetarising’ HDB flats. A retired couple, according to them, can sell the flat to downgrade or shift to studio apartments or choose the Lease Buy-back scheme. But if resale flat prices rise everywhere, then the so-called profits will be reduced. So the monetarising, in my opinion, is kind of a scam.

Lastly, I’m quite a socialist in public housing. According to Maslow’s hierarchy of needs, the individual needs to feel secure, and a shelter is one of the contributing factors. In Singapore, our healthcare and education systems greatly contribute to this security tier, because they empower the individual. Now, if healthcare and education are pretty affordable, then I think public housing should be made similar, if not even more affordable, since without a secure shelter one can hardly think of education.

We shouldn’t be worrying about housing at all, but the fact that I’m writing this shows that most people and I are concerned about it. Hence when it comes to solutions, I think something drastic must change so that HDB flats become more affordable.

Possible solutions

As I’ve illustrated, the HDB resale flat market is a regulated market fueled with false expectations. A decisive factor in boosting these false expectations is the govt’s policy of ‘asset enhancement’. The govt believes flats should grow in value, especially when amenities surrounding them are getting better. But a flat is NOT a strictly private good; it is heavily subsidised and regulated. Hence the confluence of govt policy, market structure and people’s expectations have resulted in the present situation of ever-rising resale flat prices.

To halt the expectations that resale flats can continue to fetch high prices, the govt should cease its policy of ‘asset enhancement’. HDB does not have a mandate to ensure flat owners feel ‘rich’. It should just stick to building public flats, and maybe stop the so-called premium DBSS or ECs.

Next is the building of new flats. When a block of new flats goes up in, say, Choa Chu Kang, the prices are valued by using the values of surrounding, comparable flats. The govt then maybe cuts $80k or so and sells to buyers of these new flats. Note that unlike private developers, HDB (I think) does not take into account land or building costs (since land is basically owned by the govt, and only opportunity cost is incurred). Thus valuation of new flats is dependent on valuation of existing flats.

So if the govt wants to reduce the resale flat prices in the area, it can sell new flats at dirt-cheap prices i.e. 4-room-flat at 10-storey to be $100k only. This should be consistent in all new flats it builds. The result, I predict, is a revision of valuations of existing flats. If a new block of flats in a semi-matured estate like Choa Chu Kang has 4R, 10-storey flats costing like $100k, there’s no reason why similar flats will command $200k or $300k. This will be a forced downward pressure on prices, which is definitely unfair to existing owners. Well, to make them happy, give them more subsidies for their next flat, lol.

Oh, we can also slap a big, fat slimy tax on profits. Using a previous example, I’d be making a $200k profit if I sell my $400k flat in Punggol. A 50 percent tax means I gain a profit of $100k only – which may force me to reconsider my decision to sell.

If I were the Minister for MND, and I’d implemented these policies, I’d probably be voted out in the next general election. But the idea is there – flats are kept cheap, and people are discouraged from thinking prices of their flats will keep rising, because their flats are not really their private properties.

Wow, surely my longest note so far in FB. Maybe if I’ve the time I’ll develop it into an essay. But not as if I’ll have any impact on the govt. Unless I give a chance to the opposition in the next elections, of course (:

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