Disproportionate reality and disproportionate truth

Properties in Singapore are cheap, especially the high-end ones that are built for the super rich. At $3m or $5m a piece, it is too easily affordable. Many of the super rich will find properties at $20m or $30m a piece affordable as well. At the employee level, i.e. workers who earn a salary, this includes ministers and top civil servants, properties at $3m or $5m are actually as expensive as peanuts. They could buy one every year or every other year with their annual salaries. Isn’t that fun? Life is really good for these highly paid workers. Then we have workers, the genuine low down working class, complaining that a $300k flat is expensive and unaffordable. And the ministers and top civil servants are telling them it is not so. These flats are really and truly affordable. It makes sense when one could pay a $3m to $5m property with one or two year’s salary. But the disconnect is quite obvious. Why are the workers complaining? Simple, their incomes are just too little relative to the price of the flats they have to pay. And they need two incomes and 30 years to be able to pay that miserable $300k. So, is their complaint genuine or they are just a pain in the arse? To these low paid workers, their perspective of affordability must be different, and real. They think so anyway. The cheap flats are expensive, very expensive to them. And the reality of the cheap private properties is also real, as the buyers need only cough out a couple of years' income to pay them off. No need to take loans at all. The disproportionate reality and the disproportionate truth divide the real workers from the surreal workers in paradise. Quite funny huh?


Anonymous said...

by singazine
on 02/03/2010 09:30 pm

Both recent articles linked under, 'Housing'. Cheers Chua.


by Robert Tan
on 02/04/2010 01:36 pm

I just wonder if Singapore's HDB flats/situation is unique. In most if not all other countries, low cost(meaning "affordable"?) housing is for the poorer people, perhaps the bottom 20% percentile of the population. But in Singapore, maybe 80% to 90% of the population lives in HDB flats.

So, should the government be directly responsible for housing those who are in the 20% to 80% group as well? What about other countries, e.g., Malaysia, Thailand, Hongkong, Australia etc? Do their governments have to take responsibility for 80% of the population's housing needs? Once one includes the 20% to 80% percentile range, HDB flats would not be that cheap anymore because those in the 70%-80% percentile are not that poor and may well be able to afford the more expensive flats. And they can and willl bid up the price of these flats in the secondary market because to them, the flats may still be affordable.

Or should the main focus of the HDB be to help the bottom 20% and let the market determine the price of housing for the rest. Is this how the other countries do it? I am not saying what other countries do are necessarily better, just that we need to think about various options and issues. Things may not be so clear cut.

I don't have any immediate answers. This is just my observation.

by Chua Chin Leng
on 02/04/2010 02:01 pm

I will like to ask a few questions. What are the govt for? What are the reserves for?

Affordability is relative. What is impt is for the govt to set its goals/objectives and that the people are comfortable with.

What we have is a govt setting goals and objectives that the it thinks is good but the people don't think so. Housing, medical and in fact all the services, between providers and the users, there is a mismatch.

That is why some people are quite piss off.

by Chua Chin Leng
on 02/04/2010 02:12 pm

Oh, welcome to the blog Robert.

by Robert Tan
on 02/04/2010 04:20 pm

Thanks for the welcome, Chin Leng.

I have copied the above from Asian Correspondent so that we can continue to discuss here. Redbean.

Anonymous said...

by Robert Tan
on 02/04/2010 04:50 pm

I agree that affordability is relative. This is also one of the reasons why a blanket reduction in HDB prices may not be the best approach.

And if it is a confirmed fact that it is Singaporeans (or even if it is PRs) who are bidding up the prices of HDB flats, then prima facie, there may be certain groups of buyers who are willing and/or can afford to pay such prices.

Why are they paying such high prices, I don't know. Is it for investment, speculation owner occupation or a mixture of these reasons? Or is it because they have "no choice."

Since HBD flat buyers, cumulatively account for 80% or more of the population, this represents a very large portion of the population and therefore, there may well be a huge gap in terms of the wealth and income distribution for this group.

Perhaps greater financial assistance can be targeted at the "low down working class" by giving them a bigger housing grant etc. In fact, the level of housing grant can be decreased progressively for buyers with higher income and wealth levels. This may be better than lowering the price of HDBs as a whole as the financial assistance will then be more targeted to those who need it more. And, those who already own HDB flats would not face a higher risk of the price of their flats losing value because the HDB is lowering the sale price of its new flats.

This is just a in principle suggestion. The details of the practical implementation, including the details of the "how" , "who", "what" and "amount of financial assistance" will still need working out.

I am sure there may be different views or suggestions. This is just my contribution as food for thought.

by Chua Chin Leng
on 02/04/2010 06:07 pm

Hi robert, this asset inflation policy has gone too far and very difficult to unwind, and cannot be unwind overnight. Of course the solution should come from those who are paid handsomely to work it out. We can only kpkb and point out the flaws and the unhappiness of the people.

The things that need to be reviewed include:

1. The assumption that high public property prices is good and irreversible. It is bull to say that the govt cannot do anything to manage prices of public housing. They control the demand and supply and the pricing.

2. The definition of affordability is another big bull. It was affordable but now NOT affordable. 2 incomes and 30 years to pay for a miserable 3 rm or 4 rm flat is rubbish. It strains the limited resources of the people by having to sink so much for a roof when they could have more disposable income for a better quality of life for themselves and their children.

3. The govt must return to its basic objective of building homes for the people and not to profit as much as the people can pay or the CPF savings available.

4. Without a decent home, what the f is there for the people here? The average Singaporean must feel that life is good and worth it to slog and remain here. When it is a life time of slogging to make ends meet only to be cramped up in a tiny pigeon hole, people will wisen up one day and say what for?

5. The govt needs to rethink on what is good for the people.

Anonymous said...

by Robert Tan
on 02/04/2010 07:43 pm

Hi Chin Leng

I agree that if it takes 2 incomes 30 years to pay for a flat, this is far too unaffordable. Maybe the government should find out what portion of the population is in such a financial situation and give more housing grant to this group. Hopefully, this group is in the minority. If not, a larger portion of the population will need help.

I think increases in property prices are good as long as they are in line with the increase in wealth and income levels of the population as a whole and does not get out of hand. Otherwise, if our economy prospers and the property prices remain stagnant, properties may be bought up by foreign investors if they see that they are relatively cheap and give them high rental/investment returns. Or we will need to have various other measures to moderate this.

(Which also means that we should ensure that the S$ strength should also be in line with the economic health, which means that we must also be prudent with our reserves etc etc. I digress.....)

And a big caveat to this is that the income/wealth gap between the rich and the poor or less well off does not become too wide. Otherwise, we will have a section of the population that will be disadvantaged.

The other points raised are worth reviewing(if they have not already started reviewing them). Not that you (or anyone else)need any affirmation from me.....

Guess I will stop here. Seems like this is turning into a 2 way "conversation" between you and I....

by Robert Tan
on 02/04/2010 08:25 pm

My mistake-forgot that we were on the topic of HDB flats and not property in general. And HDB flats can only be purchased by citizens or PR.

By the way, as a tongue in cheek statement, given that Singaporeans are having such low birth rates(my understanding is that the birth rate is so low that in the long term, we are not even replacing ourselves) and if the HDB does a real long term planning, we don't need to worry about flat prices going up because on a one for one replacement basis(or family for family replacement basis), we should theoretically need less flats instead of more flats a generation or 2 from now. This means that in the country as a whole, the children don't need to buy any flats as long as they can take over or buy over their parents' flat. This of course ignores the effects of immigration and emigration. And it also ignores the depreciation and deterioration of the physical condition of the flat that may occur due to age and any funds that may be required to top up the lease. And it also assumes that the parents still have the flat to pass on to their children. Too many ifs and buts......? Unrealistic assumptions..?Tsk! Tsk!

redbean said...

You are right Robert. If not because of immigrants, we probably have already built enough flats for our citizens. And down the road it is more about upgrading and renewal.

The huge numbers of immigrants have upset the equation.

Robert Tan said...

Hi Redbean

Noted your new website. Will drop by to visit on and off.....

Anonymous said...

The assumption is that, in future, if the population falls or stagnate, the Government does not need to build that many flats by then, may be logical at face value, but you must remember that the building and supply of HDB flats are controlled solely by the Government, so building more or fewer flats will then become the factor that determines the price.

In fact I tend to associate price escalation with scarcity rather than pure speculation.

Chua Chin Leng aka redbean said...

I like the part when the govt said that they cannot control market prices.