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


Anonymous said...

Mr Goh, would you care to share your view on the BTO scheme implemented by Mah Bow Tan. Are first-timers being forced into the resale market because of the long waiting period for the completion of the BTO flats, which can take as long as four years (from the initial application) to be occupied?

Anonymous said...

Besides selling at cost in todays' context may be quite high for some couple/family due to high construction cost, A free to lease scheme should be implemented for all new flats afterall HDB flats only have a short lease of 99 years.
This scheme allow couples to use whatever amount in their current CPF to buy upfront short lease of 5 years or ten years without taking loan from CPF or the bank that incurs huge interest burden. They just renew the lease every 5 or 10 year. Subsequently, when they accumulate enough CPF they can take the options to buy the remaining lease just like buying a new flat. This will eliminate paying interest and save a lot for their retirement savings.

Anonymous said...

At today's price new BTO 3 room is S$125,000, 4 room S$250,000 and 5 room S$330,000, so the 3 room per year lease is S$1262, 4 room S$2,525 and 5 room S$3,333.
For a very low income family with low CPF they just fork out S$6,310 or S$12620 to pay for the 5 or 10 years'lease for a 3 room to start a family. During this 5 years they can accumulate more CPF of about S$25,000 (include interest) for a houshold income of $1,500.
The family can decide to use $18930 to pay another 15 years lease to form the equivalent of 20% downpayment just like purchasing a new flat. They can take a loan from cpf or bank to pay for the remaining portion of the lease (79 years) and start paying monthly instalments and entitled to sell away their flat after staying for another 3 years if they need to upgrade to a bigger flats. Or they can defer taking up a loan to pay for the remaing 79 years after the 20th year lease but they cannot resell during these 15 year new lease.
This scheme help first time home buyer to pay low during the first 20 years without incurring interest payment and at the same time allow them to build up their cpf savings to partial redeem or fully pay the remaining 79 years lease. It is very unlikely that he will default on future monthly instalment payments.
The second comment and this comment are written by David Goh

Kira said...

On a more micro level, we have to also look into the supply demand curve of NEW HDB flat and how the shortage pushes the young couples to buy a resale flat.

Balloting = try your luck. There are just people who are born 'unlucky'

Is balloting a meritocratic way to determine who get a chance to choose a flat?

So 'unlucky' young people are out.

It is also tricky to ask couples to get married first and the house comes later. So many who can't wait (for various reasons) resort to buying a resale flat.

*C'mon, we all know that a HDB flat doesn't comes off the shelf like in NTUC, but when Govt put their effort behind in building mega resorts, time line was super fast. A simple plot of land with a couple blocks of flats in it. Takes 3 years and more. We are not asking for a hotel right?

So its always a matter of priority.
YOG over rebuilding National Stadium. NDP celebrated over 'floating platform' no wonder the govt are shaky.

Just my 2 cents worth.
Kira Lau.

Anonymous said...

if u inflat the hdb prices. we owners will suffer.

dont make harsh comments

think before u talk

my vote for PAP

peregrine said...

I'm indeed very suprised by the comments made by GMs to the media. He says this is an internal matter which shldnt be reported in the media. I hold a different opinion. I mean this is really a matter of public interest, hw can it be settled behind closed doors, if indeed so y did Sin K T openly condemn his actions. Party constitution states it very clearly, u r to donate 10% of ur MP allowance to the party yet u donate $500, when asked repeatedly hw much u made, u chose to keep quiet, wht does tht means, I think it's pretty obvious. It tell u wht kind of person CST is, wht if he is the PM and he doesnt tell u wht's happening. Furthemore being the top man of SPP, this is wht he does, does not set a gd example to the rest.

peregrine said...

Why did SKT chose such a time to reveal all these since it was reported tht CST has been donating $500 for a long time. Does tht mean SKT has been closing a blind eye for a long time too? Cos it doesnt affect his chances to stand @ CCK he keep quiet, if tht's the case then we better be careful abt this man too. Nw tht his chances of standing in CCk has been affected then suddenly he feel threatened the he spill all these out. I mean if indeed u r a gd chairman of the party, the moment something like this happen, u dont say, wait till ur chances of standing in ur preferred ward r threatened then u act, wht kind of man r u?

market2garden said...

Just to say hi to you,
Merry Christmas and A Happy New Year.

Student said...

"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. "

This is rather similar to what HDB is doing at present, is it not? While the principle behind the cost-price new flats and laissez faire resale market is laudable, there is a distinct possibility that nothing will change from the status-quo.

These are my observations:
1) Risk-taking middle income families are selling their HDB homes to make a quick buck.
2) With existing HDB rules, resellers cannot purchase another new flat within x years.
3) The above result in social problems that we see today.

By widening the gap between purchase price and sale price of new HDB flats, the proposed policy in effect increases the INCENTIVE to take risks. I am afraid that such a policy may propagate the very problems that it attempts to solve. A delicate balance is indeed required and i have not found an ideal equilibrium thus far. I wish you luck in the search for yours.


jamesneo said...

Your ideas would work if our new flats are being bought with cash and not with our cpf. The pap has through their liberalization of the cpf to buy hdb started our complete dependence on ever rising asset prices to maintain our cheap buying of our government debts. To explain it clearer, the money we owned to cpf is placed in its assets side of its balance book which it uses to buy the government bonds(debt) issued by the pap at low interest rate. Unfortunately such ponzi like scheme eventually brings tears when the property market corrects and collapses.

Unfortunately your idea to sell new flats at cost price will cause this house of cards to fall down sooner rather than later in say 2013. The PAP will use this to blame those that suggested such a proposition.

The best time to implement your policy is only when the housing prices has corrected or collapse by itself because then the foolishness of the pap would be revealed and your idea would be able to gain more traction because of it more sound policy.

Anonymous said...

Mr Goh,

We are a young couple who is trying to get a flat and have a child. We are both in our early thirties. We can't wait for 5 years to get a HDB flat. So the next option is to buy resale flats. If you suggest to remove the grants for first-time buyers of resale flats, then how do you expect us to start a family? So we are completely against your second option. The only solution for the second option to work is if we don't have to wait 5 years for a new flat. And if we have to, we would of course, want it at cost but what's the point of it all if we have to wait 5-6 years from the moment we intend to go online and hunt for a flat? There must be transitional rental flats which are subsidized to allow young couples to stay and build a family while waiting for that key. But there isn't. And for this reason, many of us new couples and my fellow friends will not vote for PAP this election.