Archive for the ‘Policy’ Category

The issue of political remuneration is one of the latest hot potatoes to drop into the hands of the ruling People’s Action Party, and for all the efforts of the PAP to cool this potato, it appears that the potato has an internal combustion engine that keeps on spewing heat to keep the potato hot.

The top leaders of the PAP are most probably scratching their heads and wondering why, despite deep cuts to salaries of political appointees, Singaporeans are generally still not satisfied. The answer is relatively simple: the issue is not about the absolute dollars and cents, but about the perceived value the dollars and cents generate.

There is no problem paying a premium if the perceived value is greater than the premium paid, which explains why people are willing to pay extra for branded products. The astronomical salaries of political appointees didn’t attract so much firestorm until Lee Hsien Loong took over the reins of the PAP, so there is definitely some relationship between the quality of Lee’s leadership team and the amount of money they are getting.

Of course, alternative media such as The Online Citizen has helped fueled the debate, which might have been considered not suitable for public discussion and then quickly swept under the carpet in earlier years by the PAP government’s strong control of the traditional media, a point also noted by Cherian George. However, if the current PAP leadership team has indeed been perceived to have done a good job in governance by Singaporeans, there is no debate to be fueled.

The PAP can continue to trim and prune political salaries, but it will not placate many Singaporeans. Even if the current ministers volunteer to work for free, there will be a substantial number of Singaporeans baying for blood because there is no point in having something for free if it’s perceived as useless and being a deadweight.

Whether political ministers are paid $1 or $10 million a year doesn’t really matter; what matters is whether they are delivering the goods, and the PAP certainly has to do more to convince Singaporeans of its value. Cutting current salaries is not the solution.

That being said, the review of ministerial salaries did get one thing right, and that is the removal of the pension scheme for political appointees. For far too long has Singaporeans been told to accept the supposedly superior Central Provident Fund system while political appointees continued on the pension scheme. If the pension scheme was inferior, why did political appointees, with their high salaries, not switch to the CPF system for such a long time?

At least the hypocrisy of political appointees being on the pension system for retirement has been corrected.


The appointment of former health minister Khaw Boon Wan to the national development ministry has raised hopes of positive changes to public housing policies in Singapore.

The Build-to-Order scheme of the Housing Development Board, commonly known as the BTO, is in serious need of a revamp because this policy has contributed significantly to rising prices of HDB flats in Singapore.

The BTO scheme was conceived on the reasonable justification of building only when there is actual demand. Previously, when the HDB built new flats based on projected demand, economic crises occurred, depressing demand for HDB flats and left the HDB with large numbers of completed flats without buyers. Maintenance of completed, empty flats incurs costs, and the BTO scheme certainly will avert such a situation in future.

Just as the policy of projecting demand fell flat in bust times, the BTO scheme that operates on actual demand has fallen flat in boom times. With demand for HDB flats surging since 2007, the BTO scheme has contributed to rising prices because HDB did not have the necessary stock of flats to meet immediate demand. If the HDB could meet the surging demand quickly by flooding the market with supply of new flats, resale housing prices would not have risen so rapidly.

The chief drawback of the BTO scheme is that the scheme requires a certain level of interest to be met before construction begins. Even if HDB offers BTO projects, those are not real supplies until the level of interest is sufficient to allow the scheme to proceed to the next stage. If there is insufficient interest in the BTO, the applicants are turned back to the resale market if they have an urgent need for housing, which means easing of demand in the resale market through BTO projects are not guaranteed. The ability of the BTO scheme to blunt flat prices is limited compared to HDB having an actual stock of flats.

Another problem of the BTO scheme is not so much on price, but the length of time it takes for flats to be built. It will take approximately three years for a BTO project to be completed. Singaporean couples are marrying later, and if they have to wait three years to get their own pod, spend another few years enjoying couple bliss in a home they can call their own, by the time the couple contemplates kids, there’s not that much time left. Of course, there’s always the resale market but unless prices in the resale market are deemed affordable, many would have no choice but to go for a BTO flat.

That the BTO scheme requires certain levels of interest can also impact a young Singaporean couple’s plan to start a family. Repeatedly unsuccessful BTO attempts could easily add on a year or two of waiting to the time needed to get a new flat. The BTO scheme could depress the future fertility rates.

There are significant costs involved in adopting a policy projecting demand, especially when projections are in excess of demand, but there are also significant costs of responding only when there is demand, as the evident from the rapidly rising prices of public housing over the last few years. It’s clearly difficult for the HDB to have its cake and eat it at the same time, but hindsight has demonstrated that the previous policy of projecting demand is the lesser evil.

Editor’s Addedum:

Minister for National Development Khaw Boon Wan has reaffirmed the main points of this entry with his own blog entry posted one day after this entry was published.

The escalating prices of Housing Development Board flats are in the spotlight once again, and the upward climb is likely to continue into the future.

The Singapore government, from time to time, uses the rising prices of HDB flats as an indicator of the rising affluence of Singaporeans. Most Singaporeans ‘own’ (technically, Singaporeans lease the flat from HDB as possession of HDB flats are either through the signing of a joint-tenancy or tenancy-in-common Agreement of Lease with HDB, not an agreement of sale) at least one piece of property, the HDB flat, and with the increasing prices of HDB flats, the implication is that Singaporeans are becoming more and more affluent.

Rising prices of HDB flats across the board is not a sign of affluence; it is merely an illusion of wealth for the lessee.

The HDB flat is worthless in actual monetary terms unless it is exchanged for cash, i.e. sold. Paper value isn’t real money. Given that Singaporeans can only possess ONE HDB flat, if they sell the lease to their HDB flat, they’ll need another one to stay in. If the prices keep climbing upwards, even if you make a profit from selling, because of the fact that you have to buy the lease to another flat to get a roof over the head, most of that profit will vaporise because the new lease is going to be at a high price.

If Singaporeans continue to believe that their flats are worth lots of money, the logical result is that there will be an upward spiral in flat prices. How sustainable this upward spiral is, that’s anybody’s guess. With an upward spiral of flat prices, the biggest winners are not the people who own HDB flats, but the government and property agents.

There is almost no politically safe solution for this upward spiral of prices, other than trying to contain the speed of the increase. The reason is because it is politically suicidal for the PAP to force down the prices of HDB flats after years of telling Singaporeans that their flats are valuable assets. With many upgrading schemes in the works that are being marketed as enhancers of flat value, even an older HDB flat will not be cheap. Cheap public housing is not possible in Singapore anymore, which explains why PAP ministers are very judicious in their choice of words these days, talking about HDB flat prices in terms of affordability rather than price.

Even then, the affordablity of HDB flats are increasingly being questioned, and the Minister of National Development had to defend his policies frequently over the past week.

If you own the lease to a HDB flat that’s worth a few hundred thousand dollars, you are not wealthy at all, especially when most flats are around the same price. You are only wealthy if you can make someone cough out more money than what your current flat is worth and buy the lease to a new flat that’s equal to or lower than the value of your current one.

Editor’s note:

This entry was previously published on the blogger’s previous blog,Hear Ye! Hear Ye! on Dec.15 2009. It has been revised to include new information and edited to suit the editorial style of this blog.

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.

Minister of National Development Mah Bow Tan was quoted as saying in a Channel NewsAsia report that he’s proud of the PAP government’s asset enhancement policy.

Data from the Housing Development Board’s and the Ministry of Manpower’s websites showed that Mah was perhaps being too modest.

MOM’s website showed the annual rate of average earnings in Singapore generally rose by single digits since the last general elections, peaking at 6.2% in 2007. There was negative wage growth of -2.6% in 2009, most likely the result of the global financial turmoil that began late 2008.

Over on HDB’s website, the average annual flat prices since 2006 generally rose by double digits each year, even during the period of global financial turmoil. The only year in which the rate of increase of flat prices was a single digit was  in 2006, when prices increased by 1.8%.

To put things in clearer perspective, from 2006 to 2010, wages increased by 18.8% based on MOM’s data, while housing prices increased 70.2% in the same period based on HDB’s data. That means average housing prices have outpaced average wage growth by almost four times since the previous general elections.

Such figures suggest much more than enhancement of asset value; there is a strong hint of inflation of asset value.

If housing policy is a central plank of the PAP’s long term electoral strategy, then it has to explain why, in the period under its watch since the previous elections, housing prices skyrocketed relative to wages, as well as what the PAP intends to do about the situation. The argument that increase in public housing prices are due to strong economic fundamentals is a tough one to swallow when government data showed that wages had not increased at a similar pace.

Failure to address this issue adequately may, in the upcoming general elections, cost the PAP votes of younger Singaporeans who have either recently bought a flat or are trying to buy one.