Singapore cheaper than Stockholm

I refer to the Straits Times article “Singapore cheaper than Stockholm” dated 26 Sept 2009 which featured Mr Mikael Huss from Stockholm telling us how much cheaper Singapore is compared to Stockholm.

Mr Huss vouched that back in Stockholm, it is nearly impossible for a household to survive on a single income, so he found it ’surprising’ that his family could get by on a single income after moving to Singapore. He concludes that “Stockholm’s living cost is much higher”.

But according to the UBS comparison on prices and wages, which is the subject of the accompanying Straits Times report “How much is a burger worth?”, the price level in Stockholm excluding rent is only 87.0, not “much higher” than Singapore’s 82.0, contrary to what Mr Huss says.

Mr Huss added that “everything is cheaper here except maybe rent and childcare”. The question we want to ask Mr Huss is, what is the point of counting the price of everything except rent? Will that exclude Mr Huss from paying rent? Certainly not! So if we consider rent as well, UBS’s findings tell us that the price level in Stockholm is actually 65.5, lower than Singapore’s 70.7. Therefore, Singapore is in fact more expensive than Stockholm, contrary to what Mr Huss or the title the article would like you to believe.

Furthermore, what is the point of comparing price levels without also comparing wages? The UBS findings show that Stockholm’s wage level is 74.5, way above Singapore’s wage level of 26.8. In other words, while prices of goods are similar between the two countries, Stockholmers earn three times as much as us! So it is indeed unthinkable how Mr Huss should find it nearly impossible to survive in Stockholm yet finds it easy to do so here when the average wage in Stockholm is three times that in Singapore!

Mr Huss also claims that taxes in Stockholm were higher. But according to UBS findings, the net wage level (that is net of taxes) in Stockholm is 71.0 while the corresponding figure for Singapore is 31.3. In other words, despite Stockholm’s higher taxes, their take home pay is still much higher than those in Singapore, more than two times that of Singapore’s in fact.

All in all, it is hard to believe what Mr Huss says. And that is the problem with personal anecdotal evidences, they are not necessarily reflective of the general situation at large.

Hard to get that first flat? Not so

I refer to the Straits Times report “Hard to get that first flat? Not so” dated 8 Oct 2009.

Mr Mah reportedly said that some of the assertions made by home seekers are “not entirely truthful”. According to Mr Mah, it is not that buyers aren’t getting their flats but rather buyers have gotten them but have rejected them. To support his case, Mr Mah cited HDB figures which showed 8 in 10 first time buyers of build-to-order flats getting their flats on their first try.

However, a Straits Times report on 7 Oct 2009 showed 12,728 bids for 2,132 flats with analysts predicting the number of bids to hit 20,000. How can 8 in 10 buyers get their flats first time round when there are 10 buyers for every flat on sale? More likely than not, 9 in 10 buyers will be left disappointed instead. So it is probably Mr Mah himself who is “not being entirely truthful” by focusing only on build-to-order flats which forms only a fraction of the total demand for new flats.

Mr Mah also highlighted the case of Mr Soh Say Kiat, who claimed to have applied 18 times since 2001 but HDB records since 2002 showed only 12 applications. Since HDB records is from 2002 onwards, is it not possible that the 6 unaccounted applications were filed in 2001? So it may be Mr Mah rather than Mr Soh who is “not being entirely truthful”.

Furthermore, in the case of Mr Soh, out of 12 “recorded” applications, only 3 resulted in invitations for viewing. So the success rate is only 3 out of 12, hardly the 8 out of 10 depicted by Mr Mah. So again it seems like it is Mr Mah who is “not being entirely truthful” rather than Mr Soh.

To Mr Mah, as long as a flat has been allocated to you, it means his job is done, never mind if the unit is facing a rubbish dump or on the second floor. Mr Mah should set a good example by choosing one of those unwanted units for himself to show us what it means to be “not choosy”. And in the spirit of “willing buyer, willing seller”, as far as Mr Mah is concerned, whether you’re willing or not you better “take it”. “Leaving it” would be tantamount to giving up your opportunity to a flat.

Mr Mah also advised couples to plan ahead to cut waiting time as though people can plan when to meet their future spouse and when to fall in love. Perhaps we should have build-to-order brides and grooms too.

Mah: Make meaningful comparisons

I refer to the Straits Times report “Mah: Make meaningful comparisons” dated 2 Oct 2009.

Mr Mah reportedly said that it is “not meaningful” to compare prices of flats today with those 20 years ago because that would mean going back 20 years.

But MM Lee said in a speech on 12 Sept 1965: “Over 100 years ago, this was a mud flat, swamp. Today, this is a modern city”. Is Mr Mah going to tell MM Lee that his comparison is “not meaningful” and that he is trying to bring Singapore back 100 years?

In his 2006 National Day message, PM Lee said that “many years ago, Singapore was just a fishing village …” Is Mr Mah going to tell PM Lee that his comparison is “not meaningful” and that he is trying to bring Singapore back to a fishing village?

In the Straits Times report “How much is a burger worth” dated 26 Sept 2009, MP Seah Kian Peng was reported to have said that the key consideration in deciding how affordable or less affordable goods have become in Singapore is to see if life is better now compared to that in the past. Is Mr Mah going to tell MP Seah that his comparison is “not meaningful” and that he is trying to bring Singapore back to life in the past?

So Mr Mah is not being very meaningful when he says that it is “not meaningful” to compare with the past. Because everyone compares with the past, even our leaders do so. While our leaders readily compare with the past to show progress and achievement, comparisons that show price increases or deteriorating levels of affordability is deemed “not meaningful”.

Mr Mah brushes off “all sorts of arguments” about prices being too high today, not with sound counter arguments, but by simply saying that this is part and parcel of our system. In that case, he and the HDB might as well not give any explanations to the public. They can just answer any query from citizens with the phrase “this is part of our system”. No further explanations needed. Wouldn’t that be eaiser?

Mr Mah says that our HDB can be monetised by selling it or leasing it back to the HDB for retirement funds. But what is the point of paying for an HDB all our lives only to give it up at the end of the day?

Mr Mah says that our HDB remains affordable because it does not exceed the 30% international benchmark. But he and the HDB always insist on saying that our HDB is heavily subsidised. How can the HDB flat be simultaneously heavily subsidised and priced according to the international benchmark? That would mean that everywhere in the world that adopts the international benchmark enjoys heavily subsidised housing.

Why we peg to market rates

I refer to the letter “Why we peg to market rates” published in Today on 25 Sept 2009.

Mr Lourdesamy wrote that the HDB incurred an average deficit of $1,045 million a year on home ownership programmes. However, if we refer to Page120 of HDB’s 2008 annual report, $625,102,000 was spent on “upgrading, improvements and demolition”. Surely upgrading doesn’t count as home ownership but perhaps home improvement instead? It gives the false impression that the HDB is subsidising new homes at a cost of $1,045 million when in actual fact the amount is much less.

On the same page is another $783,757,000 item called “provision for loss for properties under development / for sale”. Presumably, HDB foresees the price of unsold HDB flats to fall short of construction costs by $783,757,000. But by claiming to price HDB flats at market levels, its hard to imagine how HDB can foresee prices of unsold HDB flats to dip below costs by so much.

If we put these two items aside, HDB actually made a profit of $363,859,000 instead.

Instead of repeating its market pricing rationale yet again, it would be more helpful if HDB can address the issue of positive feedback between resale flat price and new flat price. As market price of resale flats soar, so too does the price of new HDB flats since the latter are pegged to market prices. But the increasing price of new flats makes them less attractive to buyers and does nothing to abate the demand for resale flats and so demand for resale flats continues and the whole cycle repeats itself.

The price of many resale flats have jumped by $100,000 in a matter of one, two years. Can HDB explain why the $30,000 government subsidy is considered ’significant’ compared to a typical $100,000 rise in flat prices? HDB claims that market pricing allows all to receive similar subsidies regardless of market movements. But the $30,000 subsidy is not even enough to make up for the loss incurred by a would be buyer when the market goes up by $100,000.

HDB claims it is illogical for Mr See to attribute property price increases to the HDB because the recent asset appreciation is not unique to Singapore. This is like saying that the banks in Singapore are not responsible for losses arising out of the recent Lehmann Brothers collapse since similar losses have occurred elsewhere too. But banks here have been ordered to put their houses in order. Surely there is something that the HDB can do as well?

HDB should explain what being below the international benchmark of 30% means in terms of how much one gets to keep in one’s pockets. For example, HDB has demonstrated that a 3-room flat costing $150,000 and sold to a household with income of $2,000 only requires a monthly instalment of $460 and a resulting ratio of 23%. But for a typical family of four with a monthly sustenance need of $500 each perhaps, the total cash required is already $2,000. Where is the family going to find money for the $460 monthly instalment? So the 23% ratio is meaningless as far as one’s own pockets are concerned

How family’s fortunes have grown over the years

I refer to the letter “How family’s fortunes have grown over the years” by Ms Mabel Tan dated 26 Sept 2009.

Ms Tan’s bemusement is understandable. She is bemused because she and her family are totally unencumbered by the recent sharp increases in property prices. Like the person watching a fire from the safety of the opposite bank of a river, she feels neither anxiety nor pain.

She shares with us her good example of being able to stay with her in-laws for 8 years and so she expects everyone else to be able to do so. But I know of a colleague whose husband slept in the living room of his parents’ flat before their marriage because his family was too big. Does Ms Tan expect my colleague to sleep in the living room of her parents-in-laws’ flat? Ms Tan shouldn’t have moved out after 8 years but should have continued to stay with her in-laws to uphold the example she had been setting.

Ms Tan claims that her family’s fortunes have ‘grown’ over the years, but she provides no details as to how it has actually grown. Let’s see, there is no doubt that from a one-room flat to a four-room flat, Ms Tan’s parents have benefitted from asset inflation. But has Ms Tan’s extended family benefitted as a whole? Let’s say for simplicity’s sake, Ms Tan’s parents’ flat appreciated from $30,000 to $300,000, that’s a cool $270,000 that Ms Tan’s parents pocketed over the years without doing anything. But what about Ms Tan and her siblings? If the price had stayed at $30,000, Ms Tan and her siblings would have been able to snap up units at $30,000 each only. But because of asset inflation, Ms Tan and her siblings now have to fork out $300,000 each. In fact, Ms Tan and her two siblings would have to fork out a total of $900,000 instead of $90,000. Collectively, they would have paid $810,000 more. The extra burden of $810,000 that Ms Tan’s generation has to bear far outweighs the gain of $270,000 that her parents pocketed.

So that is the truth behind the fallacy of asset appreciation. We can of course adjust all prices for inflation but what this simple example illustrates is this: the so-called gain from asset appreciation of one generation will be borne by the future generation. It becomes a debt for the future generation to bear. Unless salaries can keep up, that debt will keep increasing and increasing until it becomes totally unbearable.

People should be free to decide what a flat is worth: HDB

I refer to the letter “People should be free to decide what a flat is worth: HDB” dated 14th Sept 2009.

HDB claims to be responsible for sustaining flat prices over the long term. Looking at resale flat prices from 1990 to the present, sustenance of flat prices hardly needs worrying about as increases in flat prices have far outstripped increases in peoples’ incomes. Conversely, shouldn’t it be HDB’s responsibility instead to ensure that increases in flat prices do not outstrip the people’s capactity to pay for them?

The title of the letter itself suggests a misconception surrounding the myth of “willing buyer, willing seller” so often perpetuated by the HDB. The fact that HDB is claiming to be responsible for sustaining flat prices means that it has the means to influence the overall price level of HDB flats. That is the crux of the issue. While people are free to decide how much to price their flats, their decision cannot deviate significantly from market conditions that are largely controlled by the HDB itself, through such mechanisms as controlling the amount of land that it releases to the public and the number of new flats that it builds. Ask ourselves, how can we sell our flats at a premium when the govt is building one exactly the same right next door to be sold at cost? It is because the govt isn’t building them or isn’t pricing them at cost or is choosing to release the land for private condominimums for example that resellers are able to command the premium that they are getting.

The situation is not unlike the case of a sole importer monopolising the rice trade. If he opens up all his warehouses and distributes the rice to all the shop keepers, there will be plenty of rice for everyone and no one will have to pay a premium for rice. But the moment the importer restricts his supply of rice such that supply barely meets demand, people will start to fight over rice and the shop keepers will now be able to command a high price for rice. That is exactly what is happening to our HDB resale market. By not supplying enough new flats, the HDB creates the conditions for the resale market to heat up.

The HDB claims that the total number of bookings for HDB flats with grants amounts to 13,000 to 15,000 units each year, which far exceeds the 8,000 new flats HDB is building this year. So isn’t this clear evidence that the HDB is not building enough new flats to satisfy demand?

The HDB claims to have enabled 80% of the population to own their own homes. But going by the exhorbitant price people have to pay for house ownership, house ownership becomes a terrible liability rather than a proud asset that the people can be proud of.

Within a family’s reach

I refer to the HDB’s letter “Within a family’s reach” dated 12 Sept 2009.

The HDB claims that one of its key responsibilities is to sustain flat values over the long term. The first of HDB’s four mission statements is to “provide affordable homes of quality and value”. There is nothing in that statement that says that it is HDB’s responsibilty to sustain flat values over the long term. In fact, none of the four mission statements or even the vision statement remotely suggests that it is the HDB’s duty to sustain flat prices over the long term. So where did HDB get its mission of sustaining flat prices over the long term?

Next, sustaining flat prices over the long term is different from letting it rise faster than salary increases because clearly, salary increases hasn’t been keeping up with increases in flat prices.

The notion of generous housing subsidies is unconvincing. In the span of months, HDB prices shot up by $100,000 easily across the island. Can the $30,000 HDB subsidy make up for $100,000 increase in flat prices?

Affordability

The HDB claims that it is reasonable for a couple earning $4,000 to pay for a flat costing $300,000 with a monthly instalment of $920 + $81 = $1,001. Let’s see if this sum is truly reasonable by taking into consideration the daily as well as retirement needs of a family of four.

Suppose each member in a family of four requires $500 for basic sustenance. That will take $2,000 away from the monthly income. Take $1,001 HDB housing loan away from the remaining sum of $2,000 and we are left with $999. If both husband and wife were to set aside $500 each for retirement purposes, they would have perpetually nothing left for utilities, education and all other purposes. Is this HDB’s so called “affordable”? Seems like HDB’s so called “below the international benchmark of 30%” means having absolutely nothing left over for spending. No wonder Singaporeans have little to spend or if they spend, have insufficient funds for retirement.

Only new flats count

HDB says that the figures quoted by me is not reflective of Singapore’s situation. According to the HDB, the true figure should only be based on the price of new HDB flats. In other words, HDB is saying is that housing affordability in Singapore should solely be judged by the price of new HDB flats only, the prices of resale flats and condominiums don’t count. Is this a reasonable assumption?

According to the HDB website, there were 16,630 resale flat transactions in the first half of the year. Assuming the same number will be transacted in the later half of the year, the total number of resale flats to be bought this year would amount to 33,260 units. This is more than four times the number of new flats that will be built this year. In other words, HDB’s definition is only confined to less than 20% of Singaporeans’ needs for HDB flats. Yet HDB is claiming that that this 20% reflects the true housing affordability in Singapore. This is akin to picking out the poorest 20% of Singaporeans and saying that that they represent the general income situation in Singapore.

While no one is disputing that DSR is simple, no one can appreciate where Singapore stands unless Singapore is ranked against other developed countries using the DSR. Also, HDB shouldn’t only compare the DSR of the cheapest 20% of Singapore’s houses against the DSR of all houses in other countries. That simply wouldn’t be comparing apple to apple. If HDB is bent on comparing so-called new HDB flats only, then comparison should be made against similarly “subsidised” housing in other countries.

Flat supply

HDB claims that it is responsive to rising demand due to immigration and new marriages. But it still hasn’t shown us how the 8,000 new flats to be built this year is sufficient for Singaporeans when the number of resale flats bought in the first half of this year is already 16,630.

Having admitted that the HDB cannot build sufficient flats where and when citizens want them, the HDB should then refrain from always saying that resale flat prices are determined by “willing buyer, willing seller” since the willingness of buyers will always be constrained by the inability of the HDB to build new flats where and when citizens want them.

The HDB says there are plenty of resale flats available in mature estates which are affordable. This is again another myth. Are there hundreds of thousands of empty resale flats waiting for people to buy and occupy? Obviously not. For every resale flat that is sold, another house has to be provided for unless the occupant is emigrating from Singapore. So the fact that there are hundreds of thousands of HDB flats in Singapore doesn’t mean that there are hundreds of thousands of HDB flats available for people’s choosing. Just like there are 400,000 cars in Singapore doesn’t mean that there are 400,000 second hand cars available for people to choose and buy from.

How HDB keeps it affordable

I refer to HDB’s letter “How HDB keeps it affordable” dated 31 Aug 2009.

HDB claims that flat prices are determined by “willing buyers, willing sellers”. But in the context of land scarce Singapore, “willing buyer, willing seller” has little or no meaning. Suppose I want to buy a flat in Ang Mo Kio to stay close to my parents and the HDB is not building any new flats there, what choice do I have but to buy from resellers in Ang Mo Kio? Suppose I need to set up a family now and cannot wait for BTO, what choice do I have but to buy from the resale market? So “willing buyer, willing seller” doesn’t depict an honest picture of what’s happening now. If there is an abundance of new flats available for people to choose from where and when they like, who would be “willing” to buy from the resale market? So we should recognise that “willing” buyers actually stem from the HDB not building enough new flats where Singaporeans want them.

The statement that the market value of flats is determined by professional valuers is also meaningless. How do valuers value flats? They base their valuations on recent transactions, which is as good as being determined by “willing buyer, willing seller” with all its associated problems as explained above.

While HDB has claimed to be supplying new flats, they should also furnish the public with the number of immigrants Singapore has admitted over this period as well as the number of marriages in the same period. Can supply meet demand is a question unanswered by HDB’s reply.

HDB’s claim that flats are affordable because they are priced well below the international affordability benchmark is also questionable. The international poverty line is commonly defined as $1 per day. If Singaporeans earned $10 per day, can we consider Singaporeans to be well above poverty levels? Clearly, $10 per day is extreme poverty by Singapore standards yet it is well above the international poverty line. So comparing against the benchmark doesn’t necessarily paint the correct picture.

If we refer to international city rankings of property price to income ratios, a similar indicator to what HDB is using, we obtain a more accurate picture of our situation in comparison to other cities. The table below refers to first world cities according to IMF standards. As can be seen, compared to other first world cities, Singapore has one of the most priciest property prices compared to income, comparable to extremely expensive London. We are even more expensive than Tokyo, Toronto and New York.

S/No City House Price To Income Ratio
1 Seoul, South Korea 21.29
2 Hong Kong, Hong Kong 21.19
3 Paris, France 16.15
4 Athens, Greece 15.97
5 Ljubljana, Slovenia 15.2
6 Rome, Italy 15.13
7 Bratislava, Slovakia 15.1
8 Prague, Czech Republic 14.89
9 London, United Kingdom 14.73
10 Singapore, Singapore 14.35
11 Tel Aviv-yafo, Israel 12.4
12 Tokyo, Japan 10.5
13 Barcelona, Spain 9.32
14 Milan, Italy 9.24
15 Dublin, Ireland 8.25
16 Helsinki, Finland 8.22
17 Toronto, Canada 8.03
18 New York, United States 7.88
19 Geneva, Switzerland 7.87
20 Lisbon, Portugal 7.75
21 Lyon, France 7.4
22 Oslo, Norway 7.32
23 San Francisco, United States 7
24 Rotterdam, Netherlands 7
25 Sydney, Australia 6.52
26 Vienna, Austria 6.36
27 Stockholm, Sweden 6.33
28 Amsterdam, Netherlands 6.24
29 Montreal, Canada 5.29
30 Zurich, Switzerland 5.09
31 Brussels, Belgium 4.28
32 Nicosia, Cyprus 3.97
33 Copenhagen, Denmark 3.21
34 Berlin, Germany 2.7

Why 1996 was used as a reference point

I refer to Mr Kit Wei Zheng’s letter “Why 1996 was used as a reference point”, ST forum, 29 Aug 2009. Essentially, Mr Kit is comparing the current high property prices with the peak of 1996 to determine if we are indeed having a bubble now. This is akin to comparing K2 with Mount Everest to see if K2 is indeed a mountain. The fact that K2 is shorter than Everest doesn’t mean that it isn’t a mountain. Similarly, the fact that the current situation isn’t as bad as 1996 does not mean that it isn’t a bubble. So Mr Kit’s comparison is both inappropriate and meaningless. It is only when we are on the lowlands that we are able to appreciate both K2 and Everest for what they are, huge mountains. Likewise, it is only from the perspective of those years of stable property prices that we are able to appreciate the current boom and the peak of 1996 for what they are – bubbles. So even though the current boom hasn’t reached the levels of 1996 yet, it is close enough to warrant concern and shouldn’t be dismissed as being not near enough.

Mr Kit should also know that average income is easily skewed by rising income gaps so the median income is a better gauge of the average person’s earnings. Also, compared to individual income, household income is a better gauge of home affordability because it is mostly the household that buys properties rather than the individual. Furthermore, since individual income is lower than household income, using the former to calculate home affordability would paint a bleaker picture. So it is surprising that Mr Kit used individual income but ended up with more rosy conclusions. But whether average or median income is used, the conclusion is the same, in five of the last nine years, property prices outgrew income.

While Mr Kit is right to say that the average condo buyer will have higher than average income, this is true both now and in 1996 so if he is comparing now with 1996, this factor should cancel itself out and should not feature in any argument here.

The fact that households have seen significant increase in financial assets doesn’t mean anything for new households or future generations who have nothing to fall back on and would have to bear the burden of whatever property price increases that creep in throughout the years.

Mr Kit has in effect justified the current boom as being within the tolerable limits of the previous bubble. This is like someone who says that even though he is only 20 kg overweight, there is no cause for concern because he used to be 50 kg overweight.

Homes more affordable as incomes rise?

I refer to the report “Homes more affordable as incomes rise” by Joyce Teo, Straits Times, 22 Aug 2009.

It is meaningless to compare the current property boom with the peak of 1996 and then concluding that things are better now compared to then. This is akin to comparing the current sub-prime financial crisis with the Great Depression of the 1930s and then concluding that things aren’t so bad. Likewise, it is meaningless for Citigroup economist Kit Wei Zheng to conclude that things are better now than in 1996. The fact that the current property boom isn’t the worst doesn’t imply that it isn’t bad.

To get a better appreciation of our current situation, we take note that from 1990 to 2008, condominium prices increased threefold whereas during the same period, median household income grew by only 2.1 times. In other words, there has been a 50% increase in condominium prices over and above salary increases over this period. So we are indeed worse off now compared to 1990.

Dr Chua’s affordability calculations are misleading too. First, it is wrong of him to just use per capita GDP as only about 40% of our GDP is attributable to wages. Furthermore, in absolute terms, the 22% increase in last year’s per capita GDP over its 15-years average is only $9,156 whereas the 38% increase in condo prices over its 15-year average of say $700,000 amounts to $266,000! So even before considering interest, it will take an extra 29 years for the extra income to pay for the increase in condominium prices!

Mr Kit’s statement that out of the past 11 years, growth in wages has outpaced growth in property prices is also incorrect. Comparing median income and property prices for the last nine years, there were five years when property prices outgrew income.