Archive for August, 2009

Why 1996 was used as a reference point

August 30, 2009

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?

August 23, 2009

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.

Stop selling hollow chestnuts

August 8, 2009

I refer to the letter by Mr Eric Brooks that was published by the Straits Times on 8 Aug 2009. Eric suggests that Canadian welfare isn’t very much by comparing the Canadian welfare sum of C$1,106 against a bachelor apartment starting at about C$800 and public transit pass at C$150. To put Eric’s figures into perspective, we compare them against their respective figures in Singapore. According to the Straits Times (19th Feb 2009), a family of four under public assistance gets $950 a month. Weigh that against a median rent of $1,000 (from HDB website) for a 1-room flat and $45 to $190 for an EZ-link season pass and we end up with a situation where Singaporeans isn’t any better off.

Eric emphasises the fact that it is in a prosperous part of Toronto that he gets to see 15 beggars on a five-minute walk to the train station, as though the situation would be worse in the less prosperous parts. I wonder why it should surprise anyone that beggars congregate in a prosperous district. Beggars are not stupid and they know where is the best place to beg. Canada is a big nation, if all the beggars in the nation were to congregate in the prosperous part of Toronto, you would see a lot of beggars indeed.

The fact that Eric doesn’t see any beggars in Singapore doesn’t mean they don’t exist. Every now and then, one would be approached at bus stops and food centres by people asking for money. You would see them sleeping at the void deck or on benches in the park very late in the night or very early in the morning. So whether one encounters them or not depends on the time of the day as well as the housing estate. Eric would encounter more such people if he were to visit the older housing estates very late at night or in the wee hours of the morning. Eric should also realise that his so-called truth is nothing more than personal opinion, coloured by what he saw but lacking in what he does not see.

Eric keeps emphasising homeless beggars freezing to death in the streets of Canada without realising that there are homeless people too in Singapore but they don’t freeze to death because Singapore is located at the Equator, a blessing given not by our government but by Sir Stamford Raffles who saw the gem through our tropical jungles.

Eric blames the homeless situation in Canada on the lack of government or private sector job creation. But job creation is highly dependent on salary levels, because citizens in Canada like most Western nations, enjoy high salaries. So looking at the overall picture, perhaps having high salaries more than compensates for the lack of job creation.

Eric laments that many Canadian citizens are turned down for generous subsidies which are then given to refugees. A similar situation happens in Singapore. Many Singapore citizens are turned down for university places while a substantial number of places are given to foreigners. Eric asks if the Singapore government denies benefits to its citizens while giving them to newly landed foreigners. He should ask the same of the Canadian government. Does the Canadian government not do more for its own people than foreigners? Does foreigners not pay a lot more to study in Canada than Canadians? While it is true that no government is perfect, it is meaningless to only compare the good of one country with the bad of another country. Because when you really consider all the good and the bad together, you would find that there is really not much to boast about.

While the previous letter by Mr Paul Chan specifically referred to Canada’s free education up to the age of 18, Eric has elected to twist the word ‘free’ to include university education as well. Even so, the Canadian government offers grants to students from middle income families, something you would never see in Singapore. Also, at nearly $7,000 a year, university tuition fees in Singapore is more costly than those in Canada. The fees are also out of the pocket and does not include textboooks or residence too.

Eric claims to know of many bright Canadians who would have qualified for full government scholarships had they been born in Singapore. The truth is, every year, many Singaporeans top their university courses overseas including Canada. Many friends from polytechnics who couldn’t get into our local universities end up getting first class honours degrees overseas, including Canada. So I wonder if Singaporeans were given equal opportunity to enrol into top Canadian universities, will we not sweep many of these ‘bright’ Canadians out of their university places.

While Eric laments that the Singaporean perception of Western social benefits is only based on ‘hearsay’, he himself has contributed much ‘say’ which is no different from any other ‘hearsay’ that he is referring to. On what basis does Eric brush off coffee-shop talk when one could be talking to another Canadian in a coffee shop? On what basis does Eric brush off foreign press statements while embracing the local ones? While he urges Singaporeans to compare ground level social conditions with those of the West, he must not forget that they are merely based on his personal observations which may not be representative of the overall picture and is thus only as good as any other ‘heresay’.

So comparing Eric’s so-called street level socioeconomic conditions in Canada to those in Singapore suggests that he is really making a mountain out of nothing very much at all indeed.

Be grateful, S’pore

August 2, 2009

I am writing to reflect my thoughts on the letter written by the Canadian Mr. Eric J. Brooks to the Straits Times forum on 31 Jul 2009.

Eric gave thanks to the Singapore govt for its years of budget surpluses that allowed Singapore to use more money than any other country to tide over this difficult time. Eric should also mention that much of the budget surplus comes from squeezing our people in the form of stupendously expensive public housing, COEs, ERPs and many other money making monopolies that the govt has kept for itself.

Eric forgot to mention that all the East Asian nations were able to inject sizeable funds to boost their respective national economies so budget surpluses isn’t a peculiarly Singaporean trait, it is an East Asian trait. If the property market is any measure of market exuberance, I believe it is China and Hong Kong that is recovering faster than Singapore. A recent snapshot of the STI trend together with the Hang Sheng trend showed almost identical rebounding. So again there is no strong evidence to indicate that Singapore is head and shoulders above its other East Asian counterparts. There is no rationale for exceptional exuberance as exhibited by Eric.

Eric laments that in Toronto, rubbish is only collected once a week. Once again, Eric is comparing a Western city with an East Asian city. Eric should try comparing Singapore with Hong Kong or any Japanese or Korean city. He will find that rubbish collection is not such a big deal in any East Asian city.

Eric laments that rubbish collection in the US and Canada is expensive. That is not surprising considering that these are sprawling countries with so much more ground to cover. The alternative would be to squeeze the whole of the United States and Canada into dots as tiny as Singapore. That would be most preposterous.

Most buildings in the US and Canada have no sheltered walkways because most Americans and Canadians don’t have to walk hundreds of metres to take public transportation. They just step into their driveways to get into their cars. Yes, we do not have people freezing to death here in Singapore as they do in US or Canada. But do we thank our govt for that? Or do we thank Sir Stamford Raffles for founding us right smack at the Equator?

Most North American cities are cutting public transportation because more can afford their own cars. Singapore is adding new MRT lines because the population is exploding yet they are restricting the quota of cars.

A person in the US or Canada seldom has a need for a lift, because many of them stay in bungalows which to them are just ordinary houses. Here in Singapore, our houses have all been stacked high up into the sky. So taking the lift is not a privilege, it is a necessity stemming from us being stacked high up into the sky. It is about time that lifts stop at every floor, because we are not like the US or Canada where you can just step out of the house and into your car.

If a person cannot pay the mortage for his HDB, his flat would be repossessed and he would end up having to move to a rental flat instead. So there is really no difference between here or the US or Canada. You pay for your property or you get out. They even cut off your electricity regardless of whether you are in the midst of bathing at night.

Eric should spend some time living and working in Japan, Korea, Hong Kong and Taiwan. Then, he would find that whether it is Singapore or otherwise, there is no country that takes care of its people any more than its people takes care of its country.