Archive for October, 2009

The great public housing debate

October 18, 2009

I refer to the Straits Times report “The great public housing debate” dated 17 Oct 2009.


In her report, Ms Tan concluded that the PR effect on resale flat price is not strong because only one in five resale flats are bought by PRs. There were a total of 30,928 resale flat transactions from third quarter last year to second quarter this year. One fifth of that number is 6,186 flats bought by PRs. So out of the 55,000 newly minted PRs, only 6,186 supposedly bought flats. What happened to the remaining 48,814 PRs? Did they disappear into thin air?

The remaining 48,814 PRs and many more foreigners must have either bought a condo or have been renting a flat or condo. All else being equal, this large influx of buyers or renters would have taken a huge chunk off the supply of available units from the housing market leaving less for Singaporeans.

For example, when PRs or foreigners buy condo units, they help to prop up condo prices so Singaporeans who could otherwise have bought condos would end up buying resale flats instead which tends to push up the price of resale flats in turn.

The same goes for PRs or foreigners renting flats or condos. Renting provides good income to the investor / owner who then has no need to sell his flat or condo. So all the housing units that are profitably rented out becomes unavailable for sale to the masses and with the depletion of supply comes price increases.

Therefore, we cannot isolate the HDB resale market and examine it on its own since all segments of the property market are invariably linked to one another like a jigsaw puzzle. We cannot appreciate the larger picture just by looking at one small piece of the jigsaw puzzle.

Flats heavily subsidised?

Economist Liu Yunhua from NTU reportedly said that it is fair that the capital gain from land price appreciation goes to the govt and not to individuals. But land price appreciation is not some bag of gold that drops from the sky. It will invariably be borne by new buyers who would then have to cough out even larger sums of money for the same living space. This would have been acceptable if land price appreciates slowly over time in tandem with inflation and salary increases. But now, under the “sensibly watchful eyes” of the HDB and its minister, the price of flats has gone up by $100,000 to $200,000 overnight. Where is the fairness to new buyers?

Prof Kim Kying-Hwan says that the HDB hands out real subsidies. But he is only considering a snapshot view of the price situation at any particular time while ignoring the wider price considerations over time. Because when the price of a flat goes up by $100,000 overnight while the subsidy remains at $30,000, the subsidy becomes as good as no subsidy.

HDB has chosen to compare the sale price of new 4-room Punggol flats with their 7-year old resale counterparts that range from $310,000 to $357,000. With this comparison, there appears to be a 10% to 15% discount on the sale price of new flats compared to old flats. But as mentioned earlier, such a snapshot comparison fails to capture significant price increases over time.

Consider instead that from the second quarter of 2007 to the second quarter of 2009, the median price of a 4-room resale flat in Punggol increased from $252,500 to $334,500, an increase of 33%. So even though the HDB gives a 10% to 15% discount on new flats sold, this discount is based on the price of old flats that are now 33% higher than two years ago. So on the whole, the buyer of a new flat doesn’t get a discount but a net price increase of 13% to 20% instead. This is the good old business trick of increasing the price first and then giving a discount to make people feel good about buying a discounted product that is actually more expensive than before.

Income ceiling distorts buying decisions

Ms Tan also says that raising the income ceiling now will introduce even more competition for subsidised home seekers. But Mr Mah has been proudly proclaiming that 8 in 10 applicants for BTO flats are successful first time round. With such good performance, I see no reason why a little bit more competition in the BTO market would hurt.

NUS professors Fu Yiming and Lum Sau Kim reportedly found that households nearing the $8,000 income ceiling “over consumed” by buying bigger flats directly from the govt compared to similar households that bought from the resale market. But think about it, is a household that earns $7,500 and buys a 5-room flat directly from the HDB for $300,000 “over consuming” compared to another household that also earns $7,500 but buys a 4-room flat from the resale market for $400,000? It is obvious who is “consuming more” and it isn’t the couple who bought directly from the HDB. So what the professors found does not seem out of the ordinary. It simply refects the exhorbitant prices charged by the HDB resale market that needs reining in.

Ms Tan also sounded alarm bells by pointing out that while only 20% of first time resale flat buyers bought 5-room flats in 2007, that percentage has increased to 30% by 2009. Similarly, first time buyers of resale executive flats increased from 13% to 21%. But does that necessary show that first time buyers are throwing caution to the wind and “over consuming”?

We first note from the HDB website that demand for 4-room flats is much higher than 5-room or executive flats. Even demand for 3-room flats is higher than that for 5-room flats. The greater demand for smaller flats is understandable given the steep rise in HDB prices since 2007. This greater demand for smaller flats has led to steeper price increases for smaller flats resulting in bigger flats becoming more ‘worthwhile’ compared to smaller flats. So it’s no surprise that first time buyers who can afford it would go for the more ‘worthwhile’ flats.

So once again, what we see is rational consumer behaviour, not irrational “over consumption” to the steep rise in resale flat prices caused by inadequate HDB supply.


HDB deserves praise

October 17, 2009

I refer to the letter “HDB deserves praise” dated 10 Oct 2009.

In his letter, Dr Lee urged Singaporeans to be thankful and to not forget what HDB has done for us. But the gargantuan problem Dr Lee refererred to occurred four decades ago. Why should we continue to pay tribute to an organisation that no longer serves the needs of the people as it did four decades ago? If we adopt this attitude, wouldn’t we be condoning current bad practices on the basis of past good performances?

Take the case of TT Durai. No amount of good work he has done in the past can prevent him from going to jail for the misdeeds that he subsequently committed. Take too, the recent case of Dr Martin Huang, who has to answer for the medical malpractice he was found to be guilty of regardless of the good work he has done in the past. Similarly, if Dr Lee is ever found to be guilty of whatever medical malpractices, he can be rest assured that the law of this country will not be thankful or remember the good work he has done in the past.

Dr Lee compares a HDB to a condominium and concludes that the HDB is cheap. So if the prices of HDB and condominium both increase by a million dollars overnight, Dr Lee will still think that the HDB is affordable. His thinking betrays the ignorance that is unbecoming of a medical doctor.

He can only blindly quote Mr Mah’s findings but he doesn’t even suspect let alone question the validity of Mr Mah’s findings. Unless Dr Lee sells his house now and moves to the second floor of an HDB, he is not qualified to criticise those who do not wish to stay on a low floor.

All in all, I would say no thanks to an ill thought letter from Dr Lee that contributes absolutely nothing to this discussion.

Watching HDB price behaviour, sensibly

October 11, 2009

I refer to the Straits Times editorial “Watching HDB price behaviour, sensibly” dated 23 Sept 2009.

The writer wonders why buyers don’t exercise their democratic right to avoid paying a premium by looking at towns less “prime”. Because towns less “prime” aren’t exactly cheap either. The writer doesn’t understand that the rise in property prices is across the board, prime and not-so-prime. So whether one is looking at prime or not-so-prime, one cannot avoid paying a “premium” for nothing.

The writer denigrades the people’s concerns as being “grouses” while applauding Mr Mah’s address of those concerns as being timely. As has always been the case, the wretched people’s concerns are always grouses in the eyes and ears of our elites who have long taken for granted their million dollar salaries and can never understand let alone appreciate the citizens’ fear and panic of watching the cost of buying a flat increase by $100,000 overnight.

The statement “affordability influences supply” tells us that the writer knows absolutely nothing about what he is saying for there is one and only one pre-eminent supplier, the HDB, who monopolises and hence determines the overall price and affordability of flats.

The writer has chosen to parrot Mr Mah’s 30% rule for housing loan payment but fails to justify the use of such a rule. We are left to wonder why the government chooses to follow international benchmarks when it comes to extracting money from its citizens but when it comes to paying themselves, they choose not to follow international norms, but to pay themselves obscene and astronomical millions instead? Under what circumstances are international benchmarks adhered to becomes arbitrary at best.

The writer has little doubt that state housing is affordable. Nevertheless, many old folks have to sell their houses now for retirement funds despite having poured all their hard earned money into their homes all their lives. And that’s what “affordable” means in Singapore, you can “afford” to pay all your life and still end up with nothing in the end.

The writer is sure that HDB has every conceivable flat type and location for every budget. If only the writer can explain what that means in light of the expected 20,000 applications for the 2,000 flats released recently.

The writer puts the blame squarely back on us wretched citizens for creating problems for ourselves by buying biggers places than we can afford. But would banks or the HDB have lent us money if there had been serious doubts about loan repayment in the first place? Sounds just like the US sub-prime crisis isn’t it? Whereas in the US, banks are being blamed for lending money to folks who can’t afford housing, here in Singapore, we the wretched citizens are being blamed instead.

The writer blames us wretched citizens for selfishly wanting to stay near parents for child minding convenience. But as far as child minding convenience is concerned, nothing beats having a maid. With maids, what need is there to stay near parents? So surely there must be something altogether different for wanting to stay near parents? But the writer probably wouldn’t understand. He probably doesn’t care if his children stays in Siberia or Zimbabwe as long as there is Internet connection for him to see them via facebook.

The writer reasons that the farthest points on this island are reachable inside an hour by public transport. I wonder if the writer has ever used public transport in his entire life. I take more than an hour to travel to my workplace via public transportation and that’s not even half the distance from Changi to Tuas South. This must be the loudest bullshit the writer has managed so far. Or he could be thinking that every spot in Singapore is within 2 min of walking to the nearest MRT.

But the writer would go even further, by chastising us wretched citizens to stop hectoring the HDB for impossible concessions due to our own obstinance. Of course concessions are impossible, since when has it been possible for the government to give concessions? Bus concession for children and old folks perhaps but little else. Notice that the writer uses the word “hectoring” which means “bullying”? Wow, we wretched citizens of Singapore have started bullying the authorities. Now that is something new, like lambs bullying the big, bad wolf. But lambs will never be smart enough to come together to bully the wolf. Lambs can only scream for help when being pushed into a tight corner.

Singapore cheaper than Stockholm

October 11, 2009

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

October 11, 2009

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

October 8, 2009

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.