Of raids and reserves

Posted: April 23, 2011 in Policy, Politics
Tags: , , , , , , ,

On the issue of affordability of HDB flats, the PAP appeared to be on the defensive. Instead of discussing the issue of affordability, Minister for National Development Mah Bow Tan had been arguing on the basis of price. Mah contended that HDB owners have a more valuable home today because PAP policies have resulted in a jump of the prices of their homes.

Using this line of argument, Mah criticised the Workers’ Party for wanting to devalue the assets of many Singaporeans by pegging the costs of new HDB flats to median income, which would eventually drag down the prices of HDB flats in the resale market. Mah employed sleight of hand to skirt the issue of affordability for new buyers of HDB flats, which is what the Workers’ Party is really talking about.

“Why is the WP against upgrading programmes which enhance the value of Singaporeans’ homes, and enable the people to enjoy the fruits of Singapore’s progress? Why does the WP want to push down the value of all existing HDB flats?” Mah was quoted as asking in the online edition of TODAY.

In the first place, Mah’s assertion that HDB owners have a more valuable home today is suspect because prices of HDB flats have grown at almost four times the pace of wage growth in the last five years. What sound economic justification is there for such a phenomenon? Also, if the PAP’s main selling point of its housing policy is that of ever increasing values of HDB flats, then it is playing with fire because such a policy is probably unsustainable in the long run and it’s only a matter of time before the chickens come home to roost.

By allowing HDB flats to jump over the past five years, the PAP has put itself between a HDB brick and a hard place. The PAP now cannot devalue flats without incurring the wrath of existing homeowners, especially after the PAP has trumpeted its ability to increase flat value. Devaluing flats is also tantamount to a tacit admission of failed policy. However, by keeping the prices of HDB flats high, the PAP would end up incurring the wrath of new and potential homeowners whose wages are not keeping up with the increase in flat prices.

In addition, Mah has made some rather bizarre arguments in terms of land costs when defending the cost of new HDB flats. Land cost is a significant part of the cost of building new HDB flats, and since the government determines the cost of land, it follows that prices of new HDB flats can be lowered if land costs can be lowered. However, Mah objected to the lowering of land costs and has called such a move an illegal raid of the Singapore reserves, since proceeds from the sale of land goes straight into the Singapore reserves.

Since most HDB flats are bought by Singaporeans, Mah is essentially saying that Singaporeans should not object to high land costs and pay more for new HDB flats to contribute to Singapore’s reserves. Since most HDB flats are financed by the retirement reserves of individual Singaporeans, Mah seemed to suggest that taking more money from the retirement reserves of ordinary Singaporeans to fill the reserves of the Singapore government is the right thing to do.

It remains to be seen if voters will agree to what they might perceive as a “legal raid” of their retirement reserves instead of, in the words of Mah, an “illegal raid” of the government’s reserves.

  1. Joseph says:

    It’s a question of political judgement whether more or less land should be used for a particular purpose such as land for public housing or schools or hospitals and not just pure economics. Yes, the market value value needs to be imputed for assessing the opportunity cost of such land use, but it does not always mean the user should pay market land value.

    • Aaron Ng says:

      Hi Joseph,

      I think the bigger issue that Mah is trying to avoid is to say whether HDB flats are more of a public good or more of a private good. It makes no sense to drive prices up if the HDB flat is meant to be more of a public good.

  2. MisguidedTerminology says:

    Since day 1, ppl has been saying “buy” a HDB flat. Since when was HDB Flats up for sale?
    Does the land belong to you when you move in? You, and your forefathers, were promised a ROOF over your head. Did you get it? NO!! You only get a ceiling an lots of air space.
    WHERE IS THE ROOF? What I don’t understand is why, even in your article, you are using the word “BUY” instead of “LEASE”. When you buy, it is an Asset but when you lease it is a Liability (and a fixed one for that matter!). As it is, every cent you pay for that ceiling over your head is a going, going, GONE journey (depending on the time doing the paperwork transfering YOUR CPF money to HDB or BANK, whichever your loan comes from. Without inflating the price for housing, how do you recond your CPF monies may be recovered? Not forgetting, when you transfer the “LEASE” you are suppose to pay interest on your own money in the form of “ACCRUED INTEREST”. Who pays interest for using one’s own money?
    Use a term long enough and it will stick…. MISGUIDED!
    The correct term shoud be “LEASE A HDB FLAT” and not “Buy a HDB Flat” because you don’t own it.
    Food for thought: Stagnate resale flat value = no speculation. Peg new flats to median income that increases in value when median income increases minus inflation %age with MOP of 10 years.
    The first SIT (later HDB) apartments were built to relocate squatters along Singapore River, remember that?

  3. Aaron Ng says:

    Dear MisguidedTerminology,

    I know what you are referring to, and I conveniently use the word buy in this article because that is easier for people to understand. I have a forthcoming article that will make clearer the conflation between buying and leasing of HDB flats in Singapore.

    • MisguidedTerminology says:

      Thanks for clarification. The word “Buy” was conveniently used by the “government” to initiate a false impression of ownership, a sense of belonging and the “satisfaction” or pride of achievement. BLIND FAITH!

  4. Weiye says:

    Not really related to your post, but yeah welcome back! Always enjoyed reading your posts (so in a way, it’s still related after all! =D)

  5. Amused says:


    Both you and MisguidedTerminology made very convincing arguments. Unfortunately, most Singaporeans are ignorant of the issues and are misinformed, or brainwashed, by the government and MSMs.

    In the past 2 decades, the CPF has evolved from a retirement savings account to a HDB and medical payment account which were previously subsidized by the government. Now without retirement savings and social security, most Singaporeans are at risk with retirement. Given that the government is also withdrawing support from education, how many Singapore parents are financially prepared to send their children to university? Note that an U.S. college education can cost up to US$250,000 today, even for an out-of-state student attending a public university!

    The increasing value may feel good to the current HDB dwellers, but it is a really horrible national policy. To see what an out-of-control policy can do, look no further than Japan. The Japanese property market has plummeted as much as 90% in value since the peak caused by government policies in the 80’s. When the house of cards falls in Singapore, MBT et al will be long gone and you will be the one holding the bag. If property values drop as much as the Japanese, you may want to be prepared for a revolution that follows.

    I am saddened that no credible MSM in Singapore exsits to ask such hard questions. If people are educated about the issues, I doubt PAP can get away with such policies and their obscene out-of-this-world salaries.

  6. Aaron Ng says:

    Hi Weiye,

    Thank you for always been a strong supporter of my blog! I don’t really think I’m that good, but thanks for your vote of confidence! I hope that this blog will help to develop a proper, functioning public sphere!

  7. Aaron Ng says:


    This is why people who are educated and who can write should contribute to public discourse. For those who are not as good in writing, they can always support by sharing critical, insightful pieces with their friends. Everyone can do something to help other Singaporeans become more analytical and critical of information that is being fed to them. Everyone needs to play their part, no matter how small that effort may be.

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