Saturday, December 18, 2010

Elaboration on answers to Housing Issues @ TOC Forum

I was invited to be one of the panelists at TOC end of year event, Face-to-Face Forum on 16 Dec 2010. Housing issues became one of the hottest again.

Due to time constrains, I have given key points and short answers to the questions asked. I would like to elaborate further here on what I have said during the forum.

The first question asked was whether HDB should be privatized. My first response is that it should not. HDB is part of a socialist Land Reform program. Due to scarcity of land in Singapore, it is important for us to avoid land hogging by a small group of landlords while the masses and future generations suffer. The fall of the ancient feudal systems was basically due to the income and wealth inequality partly exaggerated by the unequal distribution of land.

Thus it is important for the government to act as an arbitrator in making sure that land can be recycled over generations for public usage like housing. The 99-year leasehold HDB flats are part of this scheme to maintain sustainability of land usage across generations. Privatizing HDB will not do us good. It will most probably result in higher prices for HDB flats due to the profit maximizing nature of a private entity.

The second question about HDB is on what will happen to those who have paid hefty prices for their HDB flats but now I am advocating lower HDB prices. I explained that the HDB has two market segments. First, we have the NEW HDB flat market and second, the resale market. The government, via HDB, is the sole monopoly of supply in the NEW HDB flat market. The demand comes from citizens only. The resale market is basically a free market where sellers are those who own HDB flats (both PRs and Citizens) and buyers from both PRs and citizens as well.

The government has FULL CONTROL over the New Flat market as the monopoly. It should sell these flats at cost to Singaporeans as I have explained earlier that our forefathers have sacrificed their land for the development of this Nation. It is the unwritten social contract that the government in return should take care of Singaporeans' basic public housing needs.

On the other hand, the government should not meddle or distort the resale market, which is a free market by giving grants to first timers. This is a bit "counter-intuitive" which results in people calling it a "radical view" but it is not!

The rational is very simple. Just taking an analogy of a fireman trying to put out a fire. Will he add oil to the fire? Obviously not. If there is a pipe leaking oil to the fire, what will he do? Obviously, it is to stop the leakage.

Money and easy credit are just like fuel to the fire of high prices. Giving grants to first timers to buy resale flat is an act of market distortion to increase the demand of resale market. There are a few implications:

1) The present system is such that the NEW HDB flats prices are pegged at the resale market prices. It is naturally for the government to want to maintain a high Resale prices.

2) The grants given to first timers have to come from somewhere. i.e. from the higher prices of New HDB flats. At the same time, resale levy is charged on those who sold their flats and apply for new flats.

3) It is basically a scheme that goes round about, self-feeding itself to maintain or push up the prices of HDB flats, both resale and new HDB flats.

4) Such grants coupled with easy credit and low interest rates will encourage more young couples to OVER COMMIT themselves. If these young couples, in spite of low interest rate of 1.5% or less from private banks need to commit 30 years loans to buy their resale flats, they will be in trouble if interest rates rise in future! That will become Singapore's Subprime!

My proposal of a new system is:

1) Sell NEW HDB flats at cost.
2) Don't meddle in the free resale market by removing the grants.

Many youngsters may scream at the second point. I would advise them to take a step back and ponder. The proposal is a package. New young couples will have a far CHEAPER OPTION of having their first new HDB flat when it is sold at cost.

After you get your first HDB flat at CHEAP price, it will provide you a good financial position to get your resale HDB flat later on. My concern now is that too many young couples are over committing themselves by going for resale HDB flats. This will add financial burden to the new families and in the end, you may not have enough finances to have babies.

It is also an important thing to show to young couples that it is more worthwhile to buy NEW HDB flats with a big difference in the prices. If young couples are to be lured into resale HDB flats with the HDB grant and resulting in over committing themselves, a 30 years mortgage loan starting at low interest rate but going up later one, most people will be forced to sell their flats for retirement in the end!

However, I also caution that our only HDB flat is OUR HOME and SHOULD NOT BE VIEWED AS INVESTMENT. A HOME is not something you can sell off that easily. Each and every corners of your HOME are embedded with the collective memories of your family members.

I am asked about how I am going to make such "unpopular" idea to Singaporeans. I just replied, we just have to make it "popular". We should be careful about politicians trying to sell you GREED and be populist. My generation as well as my father's generation has been hoodwinked by PAP's sales of GREED through "ASSET ENHANCEMENT SCHEME". Who suffers in the end? My generation, the younger generation as well as future generations.

Two years ago, nobody would have thought that the campaign on HDB issues would be fruitful. Nobody believes that I could convince so many people that the HIGH HDB PRICES IS BAD FOR THEM. Nobody sees the bad points of 30-year mortgage for HDB flats. With the help of the online media, blogs and networking tools, we have managed to get the message viral. Many people are talking about the ills of the 30-year mortgage. I strongly believe that I can go a step further to bring forth my point about my "instinctively unfavorable" or even "politically incorrect" policy views that this is the best way for Singapore's future generations.

Of course, for those who have committed at high HDB prices, I just have to remind them that it is PAP who makes them suffer with such bad policy. Look on the bright side. Just like many people of my generations who were caught in the late 1990s property boom and subsequent bust, as long as we treat our flat as our HOME, whether the price went up or down, it didn't affect us, even when we became negative asset holders. On top of that, in my proposal, the resale market will be allowed to grow on its own. In the long run, the HDB resale prices will still grow although in a relatively slower pace.

One sensitive HDB issue was raised by M Ravi on the ethnic quota. It is a well-known fact that ethnic quota restrictions affect the minority races adversely.

I went a bit further to say that the present restriction may have impact on ethnic economy. Look at Tampines. It has a bigger proportion of Malay community of 24%. Tampines has the most number of Muslim coffeeshops as compared to other places. There are even shops selling Malay traditional clothing. A critical mass congregation of the minority ethnic group will provide more opportunities for their ethnic entrepreneurs to strive.

Thus in my view, I have no problem with any precincts or groupings with less than 50% composition of the minority races. Why not more than 50%? If the minority race becomes the majority composition of a precinct, that would mean statistically, it has become a big outlier!

I have not mentioned the lower band. My proposal is to have a band, instead of a tight rule of 25%. The band will range from 15% to 45%. It also means that the Chinese majority race cannot exceed 85% of the composition in any precincts.

Many people would suggest to get rid of the ethnic quota once and for all. I do not favor that but instead, take a progressive step towards that aim. I have spoken to foreign visitors from Australia, Sri Lanka and other places on Earth and they admire our racial policies in this aspect. It is something that we may have taken for granted for all this while. But a relax of such rules may foster better ties and lessen the price that any ethnic groups may suffer as the result of the ethnic quota rule.

I hope that these elaborations on my comments and responses given during the TOC Face to Face Forum will provide more insight into the policy rationale behind them.

Goh Meng Seng

Tuesday, December 14, 2010
































最新的报告显示新加坡的房贷已经占了我们经济所有贷款的51%。这比香港的20% 还要高!如果房地产市场崩溃的话,整个金融体系将会承担超重的坏账!





Saturday, December 11, 2010

Unsustainable Policy : HDB

Minister Mah Bow Tan has continued to claim that HDB flats are "affordable" inspite of the 30 years mortgage. He has however, made a few interesting points lately.

One of the points he made has somewhat RETRACTED from his earlier position that it is alright to have high HDB prices because we could "monetize" or sell our HDB flats for retirement. He said that we may not need to sell our flats and downgrade for retirement.

I have explained why selling flat for retirement is NOT A WORKABLE and SUSTAINABLE OPTION at all.

Before I talk about why this scheme of "selling flat for retirement" is not sustainable in the long run, I would like to address the basic fundamentals of why such HIGH HDB PRICES under the guise of "asset enhancement" is the deliberate policy direction of PAP government.

High Property Prices to solve Aging Population Problems

Since early 1980s, PAP has suddenly realized that their aggressive "TWO IS ENOUGH" policy is flawed and it would create unprecedented acceleration of an aging population. By doing a demographic projection, it would mean that the CPF scheme may not be sustainable in providing adequate retirement financing for this aging population.

The burden of providing retirement financing lies on the government to give constant returns to CPF account holders. If less and less people are going to work in the work force while more and more people are going to withdraw their CPF money in future, it would create cashflow pressures on CPF. This problem will aggravate in time to come.

The brilliant idea of maintaining high HDB flat price comes about to solve a lot of these problems derived from aging population. The followings are the reasoning:

1) If Singaporeans have less savings in CPF, the government won't be burdened by interest payment to the account holders. i.e. the government will wash its hands off from retirement financing of an aging population.

2) How or who will finance the future retirees then? A 30 year mortgage plan will DEFINITELY force Singaporeans to sell their flats for retirement! This is basically because their CPF accounts will have very little amount of funds left! By allowing HDB prices to increase, these future retirees could well "withdraw" their "retirement funds" by selling off their HDB flats at high prices! This would solve their retirement financing!

Impact of HDB flat for Retirement Financing

Such simplistic thinking will have a few impacts. All of these impacts are unfavorable to Singaporeans but very favorable to the Government.

1) The Government could benefit from selling HDB flats at high prices to citizens and they no longer need to fork out money for any subsidies. All so call subsidies are basically on paper accounting, market subsidies.

2) The first adjustment is to raise land prices. HDB, on paper, is in deficits because it has to buy land from SLA (both under Ministry of Development) at market prices. Please note that SLA has become the biggest land owner in Singapore through forceful acquisition of private land with monopoly power to determine prices.

3) All proceeds from Land Sales go directly into the reserves and that is why our reserves grow at rapid rate since 1980s.

4) The government earns interests, instead of paying interests, from making loans to HDB buyers. This also means that while Singaporeans are paying higher HDB prices using almost all their CPF monies and they are also incurring mortgage interests.

5) The prices of HDB flats MUST increase substantially over time in order for this scheme to be sustainable. If not, the whole system will collapse.


What are the implications?

Apparently, the government benefited the most from such scheme. It relinquishes its responsibility of providing retirement financing for an aging population. It basically transfers this burden to the future generations in terms of HIGHER HDB PRICES. It MAKES PROFITS from these higher HDB prices which transferred into reserves which make them look good. On top of that, it makes money from interests collected from HDB buyers

What the government gains will be what the citizens will lose. HDB is the MONOPOLY of the new HDB flat market and it is also the lender who earns interests from all outstanding loans.

What the government gains will be what the citizens will lose. HDB is the MONOPOLY of the new HDB flat market and it is also the lender who earns interests from all outstanding loans.


This model is NOT sustainable in the long run. The reason is pretty clear. In order to preserve the purchasing power of the amount of money Singaporeans have put into their HDB flats, the future price of their flats has to increase tremendously to cover the interest cost as well as inflation throughout the 30 years period.

However, wages of the working class will normally grow at the rate just enough to cover inflation. That is why we are witnessing this impact of wages lagging behind HDB price growth for the past two decades. From the following graph prepared by Lucky Tan .

Wage doubled while HDB prices grow by FOUR folds during the period from 1990 to 2009. It corresponds to the increase in the mortgage payment period from 15 years to 30 years. In time to come, our future generations may have to pay for a 40years or even 50 years mortgage for just a decent HDB flat

Is this sustainable?

There are CONFLICTING policy objectives. On one hand, in order for the scheme of utilizing high HDB prices as a means for retirement financing, we need HDB prices to outstrip wage growth but in order to maintain "AFFORDABILITY" for all generations, we need to maintain the price increase according to wage growth! How could these CONFLICTING policy targets be met simultaneously?

Nobody can guarantee property prices will grow forever at such rapid rate. With an aging population, demand will be lower while supply will be increasing due to the increasing number of elders trying to sell their flats. This will have downward pressure on relative prices.

This is really an ill-thought out HDB-retirement scheme by the PAP government. This scheme benefits only the present government by alleviating its burden to provide for the retirement funding needs for the citizens while benefiting from all the higher HDB prices and interests earned from loans to HDB owners. This is in the expense of Singaporeans both present and future.

Almost all present Ministers will not be around in 30 years time to take responsibility for the effects of their policies. It is important for Singaporeans to understand the great implications of this HDB-retirement scheme upon our present generations as well as future generations.

I have come to this realization of this scheme ever since PAP started to embark the so call "Asset Enhancement Scheme" back in early 1990s. I have written a number of articles in protest of this scheme but many Singaporeans were overwhelmed by the immediate gain of paper capital gains. There were even Singaporeans trying to capitalize on the sudden increase in their flat value by upgrading or multiple upgradings. In the whole process, they committed higher and higher debts.

The latest report has indicated Singapore's housing debt has constituted more than 51% of total loans from our financial loans! This is even higher than Hong Kong's 20%! We will be doomed if there is a property crash! The whole financial system will be burden with unperforming loans!

An economy cannot invest too much of its financial resources in assets like properties which are not "productive" for the economy. If the property sector takes up too much of the financial resources of the economy, it will crowd out resources for financing investments by our local entrepreneurs. It would also mean that the financial sector would be over-exposed to a potential bubble which would wipe off our wealth when it bursts.

Experiences from Japan, Ireland and even US have shown that over-exposure of the financial sector to the bubble-prone property sector will destroy the economy. Japan has hardly recover from its collapse of economy due to property bubble since 1990s!

It is up to every Singaporeans to judge on whether what I write here make any sense. It is easy to sell greed to the masses but it will create irreversible damage to our future generations. It is not easy to convince people that high property prices are BAD for them. I have waited this long for the opportune time to explain what I have learned throughout these years. I urge every reader who agrees with my views to help me to spread this message to your friends and relatives.

This unsustainable and potentially damaging HDB-retirement scheme must be stopped and ceased else our future generations will suffer in vain for our inaction.

Goh Meng Seng

Friday, December 10, 2010

The Battle of Tampines

Yes, I know, I am supposed to write about the unsustainable policies of PAP. But the Straits Time's constituency report on Tampines is just too interesting to be missed.

I have made a comment on The Online Citizen Facebook with regards to Minister Mah's column on TodayOnline and it is as follows:

Two years ago, before TOC went into the homeless issue and I banging on the unaffordability of HDB flats, many people think that HDB under MBT is great. When I first started the fire on HDB issue coupled with my minister-specific strategy aiming at MBT Tampines, many people say I am crazy. They reasoned that Tampines has the best flats which is appreciating, why would they want to vote for someone who tell them their flats are too high a price?

I am glad that after one and a half year of banging on housing issues with the help of New Media blogs and websites like TOC (and Temasek Review), we manage to change people's mind and get this very important point across. So much so that even hardcore PAP supporters have to admit that high HDB prices are a grave concern.

We have successfully completed half of the mission of political education, raising issue like Housing into hot topic. Now, according to ST, there are still 28 out of 30 who thinks MBT shouldn't be blamed for this HDB blunders. The other half of the mission is to convince voters that we must safeguard MERITOCRACY as our CORE VALUE by voting out those ministers who have screwed up.

I have written an article entitled "Basis of Meritocracy: Competency and Accountability" for the next issue of NSP North Star. This is to address the second part of the campaigning. I will put up this article in January 2011.

It is interesting to note from the ST report that "about half" in Tampines support PAP. To me, it actually means LESS THAN HALF supported PAP because if the figures are that great, it would have reported "MORE THAN HALF" supported PAP. This is in spite of the fact that 28 out of 30 don't "blame" Minister Mah.

It is also interesting to note the fact that the question of affordability of HDB flats is "no longer there": i.e. apparently, EVERYONE, including PAP supporters, has accepted that affordability of HDB FLATS IS AN ISSUE. This is a vast different from two years ago whereby people would pour scorn on me for raising high HDB prices as an issue.

The strange part is this: according to Mah Bow Tan's write up on Today, he is open to debate about HDB issues. I have requested a live debate with Miniister Mah but till now, no response from him just yet.

It is also interesting to note that Minister Mah has shifted his position subtly from his earlier assertion that "you could sell your flat for retirement" to "most probably you don't need to sell your flat and downgrade for retirement" because they have "savings, CPF" etc... BUT WAIT! With a 30 years mortgage payment to the max, how much money would an ordinary folk has in his CPF when he reach 60 years old? Well maybe the million dollar paid minister would have lots of other assets and savings, but for an ordinary folk, this is DEFINITELY NOT THE CASE!

The blatant truth is, with a HDB flat to be liable for a 30 years mortgage, Singaporeans would be FORCED to sell their flat and downgrade for their retirement financing!

It is quite surprising that after I have declared that Minister Mah's HDB policy is TOTALLY NOT SUSTAINABLE in the long run, he insisted that to remain "SUSTAINABLE" he needs to keep the present pricing policy! Scarcity of land is the reason he cited. But as I have mentioned before, this is NOT an issue when all LAND sold by the government comes with a 99 lease!

Minister Mah also claims that there is "hefty subsidies" for HDB flats. It is already a well known fact that HDB only gives "discounts" NOT ACTUAL SUBSIDIES to buyers. In fact, they overpriced the land which they have acquired DIRT CHEAP from Singaporeans. Then, they give discounts based on that price!

Contrary to what Minister Mah's assertion, pricing new HDB flats at COST WILL NOT COMPROMISE the BUDGET. This is basically because whatever revenue they gained via LAND SALES, go straight into the reserves, not the Budget revenue! Thus, by cutting down the price of the LAND sold to HDB will NOT compromise the BUDGET at all!

The Battle of Tampines is about the future of our children. It is also about defending our core values of Meritocracy, especially so when we are pay the HIGHEST SALARY in the world to our ministers.

Goh Meng Seng

Wednesday, December 01, 2010

建屋局违背社会契约 祸害子孙后代

I have just written a Chinese article on the ills of HDB policy which is not sustainable. I will be reconstructing this article into English article soon as part of my promise of posting on the unsustainable policies of PAP government.

Goh Meng Seng

建屋局违背社会契约 祸害子孙后代








Source: Data compiled by Lucky Tan,