Apr 22, 2011

Mah Bow Tan is so Disappointing

The Workers Party had a few ideas about how to make public housing cheaper for Singaporeans. The main idea was to peg the prices of new HDB plans to the median incomes of Singaporeans applying for them.

I did not find this idea impressive. By that, I mean that the idea did not make me go "Wow, brilliant!". I did feel that the idea was generally okay - it was reasonable; sensible; not terribly exciting; and some gaps needed to be filled in. But overall, the idea was at least worth further consideration.

What appalled me was the PAP's reaction to the idea. More specifically, Mah Bow Tan's reaction. It was an utterly misguided, defensive and insecure reaction. The worst part was when Mah accused the WP of trying to "raid" the nation's reserves, as the government would have to sell land at lower prices.

To some extent, I can understand Mah's defensiveness. After all, he's been doing a terrible job at managing public housing. For years, Singapore's population had been rising sharply (due to the open-door policy to foreigners), but Mah forgot to build more flats. Consequently, HDB prices spiked massively, and lots of people couldn't afford a home anymore.

 Nevertheless, Mah's "raid" comment was entirely unjustified. (You can imagine that if Mah's and Low's positions were reversed, the PAP would have launched a defamation suit and sued Low to death or bankruptcy, or maybe locked him up under the ISA for speaking words to incite social unrest).

Firstly, "raiding" the reserves means that you're like a thief or a robber, taking out money from the national reserves in a dishonest or unethical manner. However, the WP's proposal has nothing to do with taking money from the reserves. It has nothing to do with the reserves suffering any loss. At worst, it means that the land sales give the reserves a lesser gain.

For those of you who are not clear, let me elaborate. Suppose that in a given year, the PAP ministers give themselves a 20% pay increase. The next year, they give themselves a 10% pay increase. This isn't a loss. This isn't a pay cut. This is a pay increase. The increase is 10% lower than the previous year, but it is still an increase, not a decrease.

Secondly, if you look carefully at the mechanics of the WP's idea, you will understand that in principle, it doesn't even necessarily mean that new HDB flats must become cheaper. Instead it just means that the price of new HDBs should move in tandem with Singaporeans' median incomes.

Thus if the average Singaporean earns less, then the price of new HDB flats should decrease. If the average Singaporean earns more, then the price of new HDB flats can increase. The WP formula is not meant to make the government poorer, or even "less rich". The WP formula is simply to ensure that public housing remains affordable at all times, for the average Singaporean.

Sounds fair and reasonable, right? LOL, no wonder Mah objected.

44 comments:

Anonymous said...

That's because the median wage of Singaporeans hasn't been moving up much for the past few years. If HDB flat prices were pegged to the median wage, then obviously the profits will not be as much. Why would our current leaders want that to happen? :)

YCK said...

Points nicely put across =)

Care to comment on his point about asset enhancement by the HDB? A separate post when you are up to it I guess?

Anonymous said...

Like you, I did not find the Worker's Party's proposal to be exceptionally brilliant, but a reasonable suggestion that merits further study and fine-tuning if necessary.

In my view, the fatal flaw with the PAP's policy of pegging prices of HDB flats at "market value" is that market value depends on demand and supply, and the government is 100% in control of the supply. The government can artificially inflate the "market value" of flats by limiting supply relative to demand.

By building far too few flats to meet demand (caused by uncontrolled immigration), the "market value" rises. HDB then pegs prices of new flats at this artificial market value. This in turns encourages prices of resale flats to go up higher than fundamentals. Why? Because speculators are assured that new HDB flats will be priced higher with PAP's misguided "asset enhancement" policies.

This feeds a vicious cycle of ever increasing prices for HDB flats.

It this bad? Of course! HDB flats are on 99 year leasehold. As HDB flats become older, the value of flats will decline in tandem with the remaining period of lease. So the existing one million HDB flats owners cannot expect to have an ever-appreciating "asset" on their hands.

At some point in time, the property bubble will begin to burst, and I fear that at that stage, the PAP will lose far more seats than it would if it took the Worker's Party's suggestion a little more seriously now.

Anonymous said...

That's not quite how accounting works.

There is a market for land in Singapore (which there is) where the government could sell the land to a private developer for $X. If the government instead chooses give the land to HDB and only requires $X-1,000,000 as a compensation, the value of reserves has gone down by 1,000,000.

Given the reserves are belong to all Singaporeans, this means that we have just raided our savings account by 1,000,000 and given it as a subsidy to people wanting to buy a HDB flat.

If this is what we want to do then it's fine - but it is absolutely equivalent to just taking 1,000,000 cash from the reserves and giving it as a cash grant to all HDB buyer wannabes.

The risk is - where does this end? Why stop at 1,000,000? Why compensate the reserves at all? Actually - why not just distribute all the reserves to the people as a big lottery win and hope for the best?

And to imagine that the decrease in cost of new HDB flats would not affect the value of existing flats - what lunacy! If everyone could suddenly buy a Ferrari for $100, do you think anyone would pay more than $10 for your old Hyundai?

Anonymous said...

Agree, this so called reserve is highly inflated because immigration policy pumped up demand while mbt under supplied the market for so many years.

Now mbt is telling us to assume the artificially high land value as reserves. What a joke.

Anonymous said...

Disappointing or not, the chances are that Mah Bow Tan will still win his seat.

And chances are the Workers' Party will not win much, if any at all, seats.

So it is OK for Mah Bow Tan or any other minister to make those comments.

To be frank, if I were Mah Bow Tan, I would also be tempted to make those, or even worse comments.

Because I know PAP is and will remain as solid as a rock, as far as winning elections is concerned.

Due to the fact that majority voters "bo pian" (no better choice).

Anonymous said...

There we have it. There we have the reason why the PAP will win the election once more, and will be able to celebrate by increasing its salary: PAP has educated the Singaporeans to look at their $10 Hyundais as assets; PAP has forced them to buy them at $50, and made them hopeful of selling them $60, when they are just worth $5 after a few years.
Everyone knows they bought a hyundai at the price of a Ferrari, but no one wants to be called dumb for having believed in the speech.
This is how bubbles are formed.
Every Singaporean thinks "I am Singapore, Singaporean" because the PAP shows the way: you are only worth if you earn loads of money. Morality doesn't earn you money.

Amused said...

@Anon 11:46am,

I am not sure if you were serious at all. There is a lot of misinformation in your comment.

The price has risen so much largely due to imbalanced supply and demand (Econ 101.) If the government announces tomorrow that it will build 10,000 flat to meet the demand this year, property prices will stall if not plummet. The government has a monopoly on land and can set whatever prices it wants. Unfortunately, when house prices become out of reach, the bubble will eventually pop. Otherwise why can’t governments around the world bail out banks by propping up house prices which is a major cause for bank failures?

WP's proposal is sensible although the best solution is to build just enough flats to meet the demand. But incompetent as MBT is, he could not figure out how many flats to build, which creates the current mess. Declining asset prices is bad policy (as it loses too many votes!) Increasing asset prices is bad for young families (and some votes too.)

Regardless, the government is not even selling land. It is only leasing it for 99 years. If you think about it, it is the rent that the government charges you to live in the flat. So why do you want to overpay for the rent anyway? When your 99-year lease is up, and it will happen to some of you in your lifetime, you will end up paying for the ever more expensive rent like others! I am sure you can put that money to better use than keeping it in some untouchable and unaccountable "reserves."

Mr Wang - I am glad that you are blogging again. 3 weeks is too long, especially when the election will be over in fewer than 3 weeks! Now is the time to educate the electorate so keep up the good work!

Best.

Ghost said...

My thoughts too. The WP's plans were not earth-shattering, in fact I thought they weren't even that good but the response by Mr. Mah was disappointing. Even at its worst, the WP wasn't looking to take money out of the reserves, but to slow down the amount we are putting in. Calling that "raiding" the reserves was stretching it.

Tolong lah said...

@Anonymous

You said: "And to imagine that the decrease in cost of new HDB flats would not affect the value of existing flats - what lunacy! If everyone could suddenly buy a Ferrari for $100, do you think anyone would pay more than $10 for your old Hyundai?"

False analogy. Not everybody can buy a HDB flat. Only a subset of Singaporeans are allowed to buy new HDB flats. Singles cannot buy. Those above an income limit cannot buy. PRs and foreigners cannot buy.

All these people will continue buying from the resale market, thereby ensuring that resale flats will continue to fetch high prices.

Unknown said...
This comment has been removed by the author.
Unknown said...

Well that won't be the first time Mah has said something wholly inappropriate..

http://bit.ly/hp64KW

yh said...

I would be more humble if everyone is working to fix my screw-up.

Anonymous said...

"If this is what we want to do then it's fine - but it is absolutely equivalent to just taking 1,000,000 cash from the reserves and giving it as a cash grant to all HDB buyer wannabes."

In the context of HDB new flat buyers, the first 1,000,000 you impose a higher price on housing may be from a different group of people and the commitment is immediate & locked in having the assumption of 'affordability'. The giving back as a cash grant may be satisfied by yet another set of criteria which may not take affordablibily into consideration but to encourage some social behaviors, like living near parents, etc. It may penalise the wrong groups at the point of inception (purchase).

What are purpose for reserves in the first place, if not for redistribution like giving growth dividends. Else, what is the purpose of higher and higher accumulation. The trick is to have 'sufficient' reserves for eventualities. The problem lies with what constitutes sufficiency and the redistribution process and to whom it is redistributed (the equitable element).

TT said...

Anon @ 11:46 am, based on your flawed logic then, it would be beneficial for the reserves to be topped up more by selling land at the highest price i.e selling Hyundais at Ferrari prices then??? And we are not even talking about cars, we are talking about people's first homes. What is the point of having fat reserves at the expense of making flats requiring 30-35 years mortgages to pay off with the likelihood of being negative equity in the forseeable future?

Anonymous said...

i believe the WP's proposal can be taken as hors d'oeuvre, many options for the main course will follow thereafter.

it would be daft to help multi million $$ ministers like Mah BT at this point in time.
the purpose is for Mah to be voted out, along with his fellow PAP stooges.

Anonymous said...

"it would be daft to help multi million $$ ministers like Mah BT at this point in time.
the purpose is for Mah to be voted out, along with his fellow PAP stooges."
Anon April 22, 2011 1:51 PM

If Mah and his team can be voted out, then opposition will win big and form the government. For sure.

Because if a party can win 1 GRC, most likely they will also win all the GRCs.

Because Singapore voters are like white bread, every part look, feel and taste the same. Except for small localised exceptions, like Hougang.

So you say lah, got chance to vote Mah out or not?

Anonymous said...

My point was:

Any pricing policy for HDB flats that does not link them to market prices is a wealth transfer.

It transfers wealth from those who already have a HDB flat to those who do not.
It transfers wealth from the future generations to this generation.

As long as everyone understands this and is happy with the effect, then there is no problem. Just don't complain a few years later that your HDB flat is not worth as much as you thought it would be - that is the subsidy you have given to make HDB flats affordable to first time buyers.

What I object to is the WP position that this subsidy is somehow free: that the flats can be given out at lower prices without any cost to the rest of the society. Unfortunately there is no such thing as free lunch.

(Sorry - no car metaphors this time! :-)

Anonymous said...

Now, can the use of public money for upgrading also be classified as raiding the reserves?

The money had in fact been used to subsidise HDB owners of upgraded blocks who voted for the PAP, which if it had not been used as such, would have also gone into our reserves.

Over the years, tens of billions of public money had been used to advance the political interest of the PAP. What is the difference between this and subsidising home buyers with cheaper housing?

Anonymous said...

"What I object to is the WP position that this subsidy is somehow free: that the flats can be given out at lower prices without any cost to the rest of the society. Unfortunately there is no such thing as free lunch."
Anon April 22, 2011 2:23 PM

Actually you are quite right lah, and also unemotional and intelligent in making your point too.

And so too are the majority of voters, or else WP or other opposition would have won more seats in previous elections.

Anonymous said...

Unfortunately there is such a thing as getting free lunch especially when it is public money spent to advance the interest of the PAP.

What do you call the billions of dollars of public money already spent on upgrading? Does it cost anything to the rest of society, especially those still waiting for the carrot and particularly Hougang and Potong Pasir residents.

Yeah, I guess not, because LHL said so, that there is no free lunch in this world. Perhaps he should be advised to look into the mirror.

Recruit Chow said...

@Anon 1146am

Ok, I'm not an economist but it probably is called opportunity cost. But the thing is that this is public land, so the oppostunity cost is not entirely measured in economic terms (i.e what I can sell it at). And if we were to purely measure it that way, then we might as well call for no public (HDB) housing to be built and only have private developers because we can put the land up for bidding and earn more money that way.

Your point about 'where does it all end' is rhetorical. The 'end' in WP's case is by pegging it to median income. That way there is a hard base and not an endless, arbitrary carrot dangled in front of voters. At any rate, HDB's policy of giving a $30,000 (correct me if I'm wrong) 'grant' to first-timers can be subject to the same scrutiny of 'raiding' cash reserves and 'where does it stop' rhetoric because that $30,000 must come from somewhere. The same can be said for this Budget where money was given out.

Gabriel said...

You know what? We have all missed one important point. The land is basically LEASED to the HDB for a period of usually 103 years (including construction time for the flats) after which the land reverts to state ownership. So what we are looking at is no raid - the land still remains as part of the state's reserves, albeit leased out for a period. It's like if I rented my apartment out - it doesn't cease to be part of my assets. In fact, it generates revenue for it, even if I choose to earn less from it for whatever reason.

Anonymous said...

"To some extent, I can understand Mah's defensiveness. After all, he's been doing a terrible job at managing public housing. For years, Singapore's population had been rising sharply (due to the open-door policy to foreigners), but Mah forgot to build more flats."

By the way, Mah and his PAP did not forget to build more flats, they just choose not to build more public flats but rather sell the lands to private developers for exorbitant price. These deals will increase their bonus, salary and perks.

Just go to clementi ave 4 , and you see huge empty land that have been sold to private developers. Formerly these land house HDBs. they demolish the hdb years ago, leave it empty until they build clementi mall, and then they sold the land to private developers to earn money. It is a very plot of land by the way.

See for yourself if you come to Clementi. The land is just opposite Clementi Police station.

Anonymous said...

"It is a very plot of land by the way."

It is a very large plot of land.

Anonymous said...

Just go to clementi ave 4 , and you see huge empty land that have been sold to private developers. Formerly these land house HDBs. they demolish the hdb years ago, leave it empty until they build clementi mall, and then they sold the land to private developers to earn money. It is a very plot of land by the way.
Anon April 22, 2011 3:12 PM

That's why, no matter what, property prices will not drop if the governemnt don't allow it to drop.

They have so many choices of control buttons and switches at their disposal, and some more only 700 sq km total to control.

Where got problem? You want property prices to fall a lot?
Wait long, long lah. Or go elsewhere lah.

Anonymous said...

There is one key difference: the upgrading programmes and the HDB cash grant are funded from government income i.e. tax receipts. They do not involve selling national assets for less than they are worth.

Of course they're also a wealth transfer. However, this transfer is transparent: it does not involve tricks with valuations. If you want to increase the subsidies, you have to increase taxes. Everyone can clearly see how much tax they are paying and how the tax money is being used. They can see for themselves if they are getting a fair deal.

Anonymous said...

HDB should not be an asset for value appreciation. It should be affordable for citizen to have a good foundation for better income from employment; having a family and finally retire. If citizen become really successfully during the stay in the first HDB, then all mean upgrade to private housing.

Like the earlier years where we could live in kampong cheaply and had no worry on housing except to "chiong" in our career, HDB should provide the same platform with modern amenities but not overhanging with a huge mortgage.

As someone wrote this poem;
Quote
------------
Subject: A poem about the Perfectly Arrogant Party


Hey, buddy!
Let me tell you truly
I realized lately
That I also dis! like PAP
It is really a Perfectly Arrogant Party

They have turned our country
Into their company
Everything is about money
COE, COV, GST, ERP
Extraordinary charges aplenty

A tiny dot with 30 ministers drawing the world's highest political salary
Paid millions of dollars annually
Yet they are still greedy
Always chasing after GDP
Making Sporeans live miserably

People say, Sporeans are lucky
For our country is corruption free
But when it is ruled by only one party
Can we really trust there is total honesty?
Remember, “Power corrupts and absolute power corrupts absolutely”

Kiasu and kiasi, PAP came up with the GRC
So that more MIW can enter by the back door to become MP.
Mistakes after mistakes due to incompetency and complacency
Yet there is no accountability
All because they need not answer to anybody

Only a small country but foreigners there are so many
Government welcomes any Tom, Dick or Harry
And proudly call all of them FT
Giving away PR papers so freely
Hoping they will become citizens and vote for the P! AP

Companies happily tell Sporeans to accept low salary
For they have cheap foreigners available readily
FT also took away Sporeans places in the universities
Even in sports we are represented by FT
To win glory for our country shamelessly

Exploiting the government stupidity
Many foreigners become PR just to buy flats by HDB
Resale flats have sky-rocketed due to pro-foreigners policy
So high is the value of COV
That young ordinary Sporeans have delayed starting up a family

Spore uniquely
A paradise it will be
If you have ‘guan xi’ with the PAP
Never mind you and me or how many are unhappy
Someone already told us we can always go and die in JB.

Very sadly, this is no longer my once beloved country,
It is now no more than just a money making company.

-----------------
unquote

As we the voters, the BOSS for next Singapore Government, let's kick out those shameless MIW!

Lye Khuen Way said...

There are obviously many besides our Mr Mah & his PM who would tell half Truths and sell their twisted logic from affordable HDB housings to Job creation for Singaporens, just to maintain the staus quo.

Hoping that there will NEVER be a burst bubble in time to come , is pure fantasy. Better that there are serious thinking/ proposals to "claibrate" the prices of HDB flats that will not hurt ALL HDB "owners" now.
I can even propose a more drastic remedy that will literally deplete our national reserve, but that will need a National referrundum....

Unstraitstimes said...

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Please visit and support :)

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Anonymous said...

Singaporeans generally see HDB flats as investments and not as homes to live in. Therefore most Singaporean HDB residents will want HDB prices to go up. Their CPF savings have also been used to pay for the prices of their HDB flats. So most Singaporean HDB residents will actually be quite fearful of any price reductions due to WP's proposal as pointed out by Minister Mah.

Anonymous said...

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Anonymous said...

"So most Singaporean HDB residents will actually be quite fearful of any price reductions...."

It depends. PRs, singles and those without kids, would have the most to loose from a price reduction. Those with children growing up and needing a home later, will be less concern with a price reduction. They are in fact more concern with the runaway prices of HDB flats, which will be a serious burden for their children. I am speaking as one such concern parent.

And when we say being affordable to the average Singaporean, we tend to forget the lower income group which makes up about 20% or more of the population. With CPF going completely into housing, no cash savings, working until death is a possibility.

Not a comforting thought!

Anonymous said...

Your disappointment is disappointing, and rather surprising considering that you've iterated through what is Singapore Inc and understood what Singapore Inc stands for.

Still, it is those who do not lose hope in hope that have written moments in history where civilisations stood at the brink of the precipice.

Majulah Singapura!!

Anonymous said...

"There is a market for land in Singapore (which there is) where the government could sell the land to a private developer for $X. If the government instead chooses give the land to HDB and only requires $X-1,000,000 as a compensation, the value of reserves has gone down by 1,000,000."

In that case, by not valuing the land at $X+1,000,000,000, is not the government raiding the reserves and depriving Singaporeans of $1,000,000,000? But then why not throw in some more zeros?

The point is: all this unsold land's "value" are on paper and somewhat arbitrary. In fact, as Low pointed out, the land acquired by HDB was paid for at a "value" that is much lower.

Yes, a plot of land at y was sold on open market for $A. But if you had pushed out ALL the land at y, you will surely get a lower price. And then after 103 years, you get it back anyway.

Anonymous said...

Actually Mah did build enough flats - but Singaporeans want their flats in Toa Payoh, Ang Mo Kio, and Marine Parade. So how?

Anonymous said...

@ Anon April 23, 2011 9:18 AM

"Actually Mah did build enough flats - but Singaporeans want their flats in Toa Payoh, Ang Mo Kio, and Marine Parade."

Your statement is pure nonsense. Pls read up on stats of applicants and increase in population vs. number of flats built.

Anonymous said...

RE: Anonymous @ 11.46am

So by yor logic, if the govt sells a piece of land for a developer to build a warehouse, the govt is also raiding the reserves since the land could be also be sold for development as residential property?

In Singapore, the value of land derives from its zoning use. Once a piece of land is zoned as public housing, the becnhmark for the market value of the land is the market price of other nearby HDB flat and not some private condo.

Anonymous said...

@ Anon April 23, 2011 9:18 AM

"Your statement is pure nonsense. Pls read up on stats of applicants and increase in population vs. number of flats built."

All the HDB stats show that there is enough - just ask Mr Mah. In fact there are tons of unsold flats in Punggol etc.

Anonymous said...

Flats should be cheap enough so that I can buy one to live in and another to rent out. Plus it should be in central locations that is convenient for me. This is my right and entitlement as a Singaporean! Mr Mah, are you listening? You want my vote or not? My retirement income depends on you, you know. So don't screw up, can? Put out cheap flats for buyers like me, but ensure high high price for sellers like me also.

Anonymous said...

@ Anon April 23, 2011 1:34 PM

"All the HDB stats show that there is enough - just ask Mr Mah. In fact there are tons of unsold flats in Punggol etc."

Wow you are blatantly lying - HDB stats show ONLY 10 balance units in Punggol available as at AUGUST 2010... probably close to none available by now.

Anonymous said...

Does HDB stats include reserved units for grassroot people, bootlickers and apple-polishers etc? Are those considered available or taken up?

You will be surprised!

Anonymous said...

every singaporean needs a home to stay. how can he peg againts the market value? it's not for trading among singaporeans.

why do we need a government? isn't it to protect its ordinary citizens?

Anonymous said...

"There is a market for land in Singapore (which there is) where the government could sell the land to a private developer for $X. If the government instead chooses give the land to HDB and only requires $X-1,000,000 as a compensation, the value of reserves has gone down by 1,000,000."

There's a social responsibility for the Government to build affordable public housing. Going by your logic, why even allocate land for religious and social purposes. Might as well sell all land to private developers for malls and condos.

Btw, all the CCs are build by PAP. How much is the land cost? I remembered that PAP wanted to build a CC in Bukit Batok years ago, but when SDP won the election, the CC project was immediately torn down.