A serious proposition by a blogger

Below are some recommendations by Gerald Giam on how to solve the high prices of housing. The full post is at his blog http://geraldgiam.sg. It shows that bloggers can put up serious articles that are as good as those in the paid media or papers submitted in Parliament. Here it is. I have a few suggestions on how we can lower the cost of public housing for Singaporeans, without causing asset destruction or panic selling. Sell new flats at cost-plus pricing The first thing HDB should do is to reduce the price of its new flats. HDB maintains that flats remain “affordable” and that it still provides a “market subsidy” for buyers. The market subsidy simply means that new HDB flats are priced lower than existing resale properties in the same area. It is not based on the cost of construction and land. Mr Leong Sze Hian from The Online Citizen has calculated that HDB could be making a profit of over $170,000 per flatin the new Punggol development. Mr See Leong Kit, in a letter published in TODAY, also arrived at a similar estimate of $140,000 profit per unit for the Pinnacle@Duxton development. For a start, in the spirit transparency, HDB should disclose the profits it makes from each project ─ by showing how much exactly it cost them to build the flats alongside the prices that they are being sold for. HDB is a government agency. It should not behave like a profit-maximising corporation. There is no reason why new HDB flats cannot be priced at cost plus ─ no more than 5% above the cost price of building the flat and acquiring the land. Reducing the price of new flats will immediately make it more affordable for many more lower- and middle-income couples who do not have the savings to pay over $300,000 for a new flat. It would also have a knock on effect of slowly lowering the price of resale flats, which would also benefit home buyers. Perhaps HDB is concerned that these homeowners will sell their flat 5 years later for an obscene profit in the open market. To prevent this from happening, HDB could require that the flats cannot be sold for more than 10% above the cost price (adjusted for inflation) for the first 10 years. This will prevent home owners from profiting excessively after receiving the government subsidy. Another way of reducing costs is to build flats without all the frills. In recent years, HDB seems to have taken on the mindset of a private developer, coming up with ways on how to meet the apparent demand from yuppie Singaporeans for condo-style living. This is treading down the wrong path. HDB flats should remain no-frills public housing. There is no need to provide posh condo lookalikes and price them like private apartments. Those who want a more high-class living environment should consider buying private properties. Build more new flats During a parliamentary debate in September, opposition leader Low Thia Khiang questioned whether HDB is under-building flats to meet the demand of flat buyers. Mr Mah Bow Tan dismissed it, saying simply that there was “no basis to say HDB is under-building”. He fanned out statistics that showed that the HDB built 2,400 flats in 2007, 8,000 in 2008 and another 8,000 this year. As always, government statistics don’t tell the full story. Just last week, the Sale of Balanced Flats launched by HDB received over 20,691 applications for only 2,132 available flats ─ almost 10 times oversubscribed. The recent Punggol Residences Built-to-Order five-room flats released in August were also 10 times oversubscribed, with 1,587 balloters for just 154 units. The PAP government has dismissed these clear indications that there is a shortage of flats by suggesting that most of those people who applied were just trying their luck and not really interested in buying a place to stay. This is an insult to the thousands of home buyers who have tried numerous times but failed to find a flat that fits their basic requirements. It is likely that the main reason why the HDB does not want to build more new flats is because it will lower the overall price of even the resale market, which may be politically troublesome for them. The HDB needs to examine whether it’s mandate is to provide affordable housing for Singaporeans, or feed voters with unsustainable promises of constantly increasing home asset prices. PRs increasing flat demand Part of the reason for the high prices of resale flats is the large influx of foreigners who take up permanent residency, thus making them eligible to buy HDB flats in the open market. A recent ERA report revealed that 40% of resale flat buyers are permanent residents (PR). This is a phenomenal proportion, considering that HDB flats were built to house Singaporeans, not foreigners. It’s questionable whether all of these PRs intend to sink their roots in Singapore or whether they see Singapore as a stepping stone to better opportunities in the US, or Australia, or back in China when conditions there improve. I welcome foreigners to come to Singapore, to contribute to our economy and add to our social diversity. Many of my friends and colleagues are foreigners, and I have seen the benefits many of them have brought to Singapore. However, I am strongly opposed to the government’s policy of allowing in so many foreigners in such a short amount of time, as this has put a severe strain on the housing market, the public transport system and the job situation. The immigration policy is so liberal that within weeks of arriving in Singapore, a foreigner with the right qualifications can apply for PR and get it approved within three months. Without having contributed even a year to Singapore, these PRs are eligible to buy public housing and benefit from a system which Singaporeans have spent a lifetime building up. Impose waiting period for PRs to buy flats To rectify this, I propose that all PRs must have lived and worked continuously in Singapore for at least three years before they are allowed to buy HDB flats. This would filter out all those PRs who have shown little commitment to our country and are just taking up residence in order to be able to buy a subsidised flat, save on rental and sell it a few years later for a huge profit. Lest this proposal causes alarm to skilled workers who are considering applying for PR, I would point out that under this proposed policy, HDB should look at the entire duration that the PR has been in Singapore, not just the period since he got his blue NRIC. Skilled foreigners who have demonstrated a commitment to making Singapore their home should have no worries about this new policy disadvantaging them. Conclusion I have laid out in this article just a few suggestions on reining in unaffordable public housing costs for home buyers. It is a work-in-progress and by no means comprehensive. I hope that policy makers will consider some of these suggestions for the sake of the thousands of Singaporean home buyers ─ including future home buyers ─ who are just seeking for a decent roof over their head.


Wally Buffet said...

Having sold my pathetic 3 room to the PRC, I especially like the proposition about imposing a residential requirement on PRs before they are eligible to buy. When the market is dampened somewhat maybe I can buy it back at saner prices and use it to store memorabilia.

Chua Chin Leng aka redbean said...

wow wally, you made a fortune from the PRC!

not to pour cold water on your head, the property prices cannot come down. it must be kept high or else many people will lose their fortunes, public and private flat and property owners.

the next one you buy will more than what you sold. you can only opt out once to make money. then run as far away as possible unless you have several properties here.

Ⓜatilah $ingapura⚠️ said...

Mr Giam though well-intended, does not understand economics nor is he aware of the politicisation of HDB, its joined-at-the-hip nexus to CPF... i.e. it is a bit fat mess.

The reason HDB prices are so high is due to one fundamental reason only: inflation of the money supply and the growth of CREDIT pyramided upon the newly created money

This expansion of the money supply and credit give the ILLUSION that the nation is more prosperous than it actually is .

China has expanded its money supply too -- by around 30%... and remember the banking system in China is FUBB (fucked up beyond belief) .. although it has improved over the years.

As long as "bail out mode" is adopted by all states to "keep away deflation" or to "avoid social unrest" (which has already occured in China)... money and credit will keep on EXPANDING, and prices in various sectors will rise more than others creating "bubbles" in those where people are RUSHING to put their money into and thus driving up prices.

Sale of HDBs are over-subscribed by some order of magnitude... i.e. there is strong demand for them.

Strong demand + people willing to pay ==> higher prices

No govt "policy" or any man-made"law" can ever shake market natural law (like the law of gravity or thermodynamics). The only way is to return to natural law by NOT INFLATING the money supply and causing misallocations of resources, dislocation in capital structures, and destruction of the price profit and loss mechanisms -- which are essentially signalling mechanisms which transmit fundamentally important information to address questions:
"Was your investment the right one?"


"Does this look like a profitable investment?

The only way to tell is to look at the price and the story the prices tell -- in the medium of exchange -- MONEY. If the MONEY is fucked-around by govt, that puts in an "error" in the prices.

Chua Chin Leng aka redbean said...

you are talking about misallocation of resources. the amount of money put into properties, as homes or speculation, is a huge misallocation of resources.

as a home, people should not put so much money just to have a roof over their heads. the money can be put to better uses if not sunk into housing at inflated prices.

Ⓜatilah $ingapura⚠️ said...


The point is this: if the govt central bank and their "kakis" in the financial sector keep fucking around with the purchasing power of the medium of exchange -- which is MONEY -- there will be SEVERE MISCALCULATION of resources toward inflated prices, sometimes ever-inflating prices.

Once the price mechanism is screwed, decision making is based on erroneous data, mistakes are made, bubbles created etc etc to an end scenario where huge amount of money are lost.

Remeber the "good old days"? When we were told to word hard, live to a budget, save in order to create the "capital" needed to invest in or toward some "objective".

For the last 35+ years... savings are unnecessary —— simply print and create money by credit.

Big money supply ===> higher prices.

This is natural law.