LEE KUAN YEW’S INDELIBLE MARK ON THE SINGAPORE PROPERTY MARKET

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Getting the housing policy right is one of the best legacies left behind by the founding father of Singapore.

In vying for the title of Asia’s financial capital, Hong Kong and Singapore are often pitted against each other on the size of their equity markets (Hong Kong’s is larger by far) , executive pay packages (Singapore is ahead on this measure), number of millionaires (Hong Kong takes the lead) and even on air quality (the clear winner is Singapore). But while Hong Kong may still be the place where the bigger deals are made and where you go to be close to the action in China, Singapore is where you will probably feel most at home. And most of the credit for that goes to a strong-willed statesman called Lee Kuan Yew.

The Singapore of today is a city-state almost single-handedly shaped by the policies of Lee, who was prime minister from 1959 when the British colony attained self-government. He saw through a short-lived union with Malaysia that failed in 1965, after which Singapore became an independent republic with Lee serving as prime minister for a quarter-century up to 1990. Famously saying that he would rise from his sick bed or even get up after being lowered into his grave if he sensed something was going wrong, old age did not prevent Lee from continuing to serve in cabinet until his retirement at age 87 in 2011.

Genesis of HDB

Lee actively promoted homeownership through the expansion of a public housing scheme first started by British administrators and the enforcement of compulsory savings under the Central Provident Fund that provided not just the downpayment for the first home but also covered medical and retirement needs. Getting Singaporeans to own their own home was, for Lee, part of a “preoccupation to give every citizen a stake in the country and its future”. He believed that a home-owning society would have political stability and a common historical experience, and that this would give Singapore’s sons, almost all of whom are conscripted for two years of military training, something worth defending.

The arm of the government tasked with moving Singaporeans from slums and crowded shophouses to orderly, if not somewhat impersonal blocks of flats in new towns across the island was the Housing and Development Board or HDB, formed shortly after independence to take over from its colonial era equivalent, the Singapore Improvement Trust. The first public housing estates on the island; modern walk-up flats that today can still be seen in the painfully expensive and hip Tiong Bahru neighbourhood, were the work of the Improvement Trust. Later housing developments by the HDB like Ang Mo Kio, Choa Chu Kang, Woodlands and Tampines were built on a larger scale and connected by Mass Rapid Transit.

singaporeBy the 1990’s, the city-state was irreversibly changed by the efforts of the HDB. Entire villages or kampongs had been demolished to make way for wider roads and planned housing estates. By then the homeownership rate of resident households was an incredible 90% (where it still stands today), unseen in any other Asian Tiger economy and easily among the highest rates in the world. Another astonishing statistic: Public housing in Singapore today makes up 76% of the total housing stock, down from the peak of about 85% in the mid-1990s. This makes public housing more often than not the first choice, if not the only choice, for young couples looking to buy their first home (singles face age restrictions), with more expensive private properties almost never considered. Ambitious Singaporeans of course aspire to eventually upgrade their HDBs to private condominiums. But what they gain is more an expensive status symbol and not much in the way of improvement in build quality or facilities for the upgrade cost. A recent study put the price gap between HDB flats and private properties in the region of SGD520 psf, which translates to the private property being double in price to a HDB flat of similar size. Although not glamourous, HDB new towns are virtually crime-free and its community centres provide the same swimming pools, sport halls and libraries that you might get in a condominium.

Unending ‘boom and bust’

One consequence of a majority of the housing stock being made up of price-regulated HDB flats is that the speculative end of the residential market concentrated itself in private housing and to a lesser extent, the HDB secondary or resale market. Like other countries, Singapore is not immune to property cycles. The last one, which took place after the Global Financial Crisis of 2008-2009 was roundly blamed on speculation driving up prices of private housing. Foreign buyers of Singaporean homes reached almost 20% or a fifth of nonlanded property transactions in late 2011, leading to calls that Singaporeans were being priced out of the market.

At the peak of the cycle in late 2012, all signs pointed to an overextended property boom. High-end developments in luxury enclaves such as Sentosa Island and the vicinity of Orchard Road were particularly frothy. The ruling People’s Action Party had only just over a year ago suffered a setback at the polls, winning only 60% of the popular vote, the lowest since independence, and was not prepared to marginalise even more voters. The answer was a tax on foreign buyers of Singaporean homes. In early 2013, cooling measures were introduced that included higher stamp duty rates of up to 18% targeting foreign buyers and local residents buying their second and third properties for investment. Loan approval requirements also became stricter.

Home prices are now off their peak. The high-end market is the worst hit, with reports of multi-million dollar properties now going for between a third and a quarter less. Average residential home prices, however, fell only about 4% last year.

The architect of Singapore, Lee Kuan Yew, died at age 91 on 23rd March. Tens of thousands of Singaporeans, most of them proud homeowners, thanks to policies put in place by Lee decades before, turned up to pay their last respects at Parliament House. Tens of thousands more lined the funeral procession route to send him off. The city-state might be the most capitalist of societies, but property ownership has always been defined by welfare concerns. Even where markets were supposedly given a free hand, the government has intervened to punish speculators, keeping the dream of owning one’s own home alive for ordinary working Singaporeans.

Quentin Chen is an analyst by profession and occasionally contributes articles and writes in his spare time.
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