24 December 2007

In the coming year of 2008 ...

En blocs should push everybody up.
Read on ... in my Nov 2007 blog update ...
difference between Gahmen "being right" versus "doing right" ....
and difference between Singapore's and South Korea's en bloc laws.
Singapore is NOT the only country that needs urban renewal!
"Uniquely Singapore" is in fact NOT that unique!

En blocs should NOT pull everybody down! ... ending up as Squatter, Refugee, Downgrader or Downsizer after an en bloc.

En blocs should NOT push up ONLY SELECTIVE PARTIES! ... viz, Gahmen who load up public coffers from hefty development charges and multi-transaction stamp duties from incessant en bloc cycles every 15-20 years, Developer-Buyers who get prime land unlocked and handed to them on a silver platter, marketing agents/lawyers who earn fat commissions, and crass en bloc flippers who speculate wildly at other people's expense. QUESTION:
In the face of (i) sub-prime mortgage woes in the US spinning off into credit crunch on both sides of the North Atlantic and investment jitters which surfaced globally only in 2H 2007 and (ii) anticipated global economic slowdown in 2008 in varying degrees, why are predatory marketing agents and Developer-Buyers still lurking and sniffing around our private residental estates? No doubt, these predators are more subdued but they are no less determined!

These marketing agents and Developer-Buyers in the real estate industry may know something that we ordinary folks don't!!!

Singapore's five-year Master Plan 2003 is coming up for review in 2008. What goodies and/or nasty surprises are in the upcoming Master Plan 2008 is for the Gahmen to know ... and for the rest of us to "guess" until around 2H 2008!

Pursuant to URA's announcement in Nov 2003 , the new definition of Development Baseline will come into effect on 1 Jan 2008 (ie, 4+ years later). Instead of computing the Development Baseline by taking the highest value from (i) Master Plan 1958, (ii) Master Plan 1980 or (iii) approved development, the new definition will be pegged only to the last one (ie, value of approved development). Based on the current Master Plan, this change only affects 1,700 land plots (2%) - mostly in the city area - but it corrects an existing anomaly by levelling the playing field and collects more Development Charges for the Gahmen.

Within this change, however, there is an embedded goodie to mitigate the impact for those estates whose approved development is lower than Master Plans 1958 or 1980 because that portion of the historical values of 1958 or 1980, not exceeding that in the current Master Plan 2003, will be offset from the new computed DC payment by way of a Development Charge EXEMPTION within the allowed use and intensity of such current Master Plan. Figure 1 in Question 5 of the following link illustrates the answer most graphically:

In Jul 2007, the Gahmen sprang a surprise hike by revising the Development Charge rate from 50% of appreciation in land value to 70%. As part of the semi-annual review cycles, the Gahmen further hiked the actual Development Charge rates in Sep 2007.

Looking from the Gahmen's perspective, there are three chess pieces to shuffle around:

(a) Development Charge which they have moved in Jul and Sep 2007;

(b) Development Baseline which they will be playing in Jan 2008;

(c) Development Ceiling parameterized by plot ratios and storey height controls which they may OR may not tinker with in Master Plan 2008 underpinned by 55 Development Guide Plans within Concept Plan 2001 (NOTE: Concept Plan 2001, drawn up for the next 40-50 years, was based on 5.5mn population in 2001, not the latest announcement in Feb/Mar 2007 of 6.5mn "target" population!).

Here are some summary points largely distilled from my 4-part Nov 2007 blog update:

1. The underpinning rationale for en bloc sales. The concept of “ Dào Lǐ “ (道 理) ("rationale" in Mandarin) comprising of – " Dào " which denotes "the Way" under the Chinese philosophy of Daoism and " Lǐ " which denotes "Logic" – as applied to the sense and sensibilities of enforced en bloc sales.

Urban Renewal
through En Bloc or SERS
= Being right

Result of En Bloc:
Squatter, Refugee,
Downgrader or Downsizer
= NOT doing right

Cash or 1-4-1 Exchange Option
(through serious increase of plot density ratio and
incentive scheme for plot amalgamation)

= Doing right
(leave the choice to "Qualifying Owners" as to whether we'd want to
cash-out now OR cash-out in the near/distant future
OR keep our rebuilt homes in the same locale)

2. The defining difference between Singapore's and South Korea's en bloc laws (and comparison between Singapore and Hongkong). Like Singapore, the city of Seoul also needs urban renewal. Interestingly, South Korea's en bloc laws mandate 1-4-1 exchange as the first option. In South Korea, if an owner wants cash instead, the onus of proof is on that owner to justify it.

MinLaw learned of this South Korean en bloc law just before the amendment bill went for the 2nd/3rd parliamentary reading in Sep 2007. Whatever "practical difficulties" there may be in 1-4-1 exchange option (as per Law Minister Prof S Jayakumar), they are NOT exclusive only to Singapore. If the South Koreans can do it, why can't we? The South Korean law makers have exhibited a Sense of Rectitude TO DO RIGHT by their people through such "Hapdong Redevelopment" (the etymology of this Hanguel phrase of "Hapdong" traces back to the Chinese word for "Cooperation, Partnership" - now, that's the spirit of it all, won't you say?). Surely, our Singapore Gahmen who - as per MM Lee Kuan Yew - "shares the trials and tribulations of our populace" will NOT lose out to their South Korean counterpart, right? One can hope, eh???

Our closest economic rival, Hongkong (already much more congested than Singapore) has even more intense urban renewal needs! Like Singapore, Hongkong announced in Jun 2007 increased population target by 40% from their present 7mn to 10mn in the coming decades! With its laissez-faire colonial legacy and despite being part of Communist China's "one-country-two-systems" framework - Hongkong (similar to South Korea) has a complex set of ordinance, rules and regulations to "manage" and "govern" urban renewal. Singapore's amended en bloc law pales in comparison! Check out HK's URA link added to the list in the right-hand column of this blog (other new links: NMP Siew Kum Hong's blog, MinLaw's responses to the Public Consultation exercise, other en bloc estates).

3. Tripartite effort. An en bloc sale is a truly ingenious way to achieve PUBLIC URBAN RENEWAL at PRIVATE COST - this is a NATIONAL CAUSE as it is part of the mammoth task of Re-Making Singapore in the Third Millennium. Hence, is it too much to expect that it would be a TRIPARTITE EFFORT involving:

- INDIVIDUAL CITIZENS who SACRIFICE (in the case of Minority Dissenters, they are obliged by law to sacrifice) their homes/real estate investment assets bought with PRIVATE FUNDS (viz, WITHOUT a single cent of public funding/subsidy);

- CORPORATE CITIZENS who must therefore shoulder some SOCIAL RESPONSIBILITY as they merrily reap the benefit from such individual citizens' sacrifice, thereby unlocking current land value for Developer-Buyer companies and consequently swelling their corporate profits;

- GAHMEN who must correspondingly make some DIRECT CONTRIBUTION by substantive increases of plot density ratio, imaginative incentive schemes to not only facilitate but also motivate (!!!) meaningful and attractive 1-4-1 exchange options with a good rate of acceptance by qualifying owners (eg, through Development Charge rebates, additional bonus Gross Floor Area for plot amalgamation, etc), thus DOING RIGHT by her people, inculcating a sense of community as part of our NATIONAL VALUES and NOT messing up the long-term financial/retirement plan of citizens who bought private residential property with a huge chunk of their CPF/private savings and who may NOT want to liquidate their real estate asset at same time as (1) the 80% (90%) majority of flipping serial en bloccers and opportunistic owners of smaller-size units (facilitated in no measure by the authorities with their hands-off laissez-faire policies in respect of apportionment of collective sales proceeds), (2) cash-strapped frantic businessmen, (3) cash-poor frightened retirees and (4) a motley bunch of frazzled owners who are worn-out/"sotong"/"kiasee" (patois for "clueless" and "afraid-to-lose-out", respectively)? The Four F words - Flipping, Frantic, Frightened and Frazzled! Prim and proper F words!

The Gahmen has already taken the lead with HDB's 50-storey public housing project at The Pinnacle @ Duxton. And private residential redevelopments at recent en bloc sites are still averaging 25-30 storeys (other than the 54 storeys of super-luxury apartments at The Orchard Residences)??? Geez ... do keep in mind the Gahmen's "target" population of 6.5mn people in the next 40-50 years (announced in Feb/Mar 2007, this is a 45% increase from our present 4.5mn) and 17mn tourist arrival target by 2015 (a ten-year target announced in Jan 2005; Singapore just hit 10mn tourist arrival in Dec 2007)! Based on 2006 statistics, Singapore's population density (ie, excluding tourists!) stands at 6,369 persons per sq km (presumably yet another feather in our cap for being the 2nd most densely populated country in the world ... in comparison, Hongkong has 38 persons more per sq km)! If you are already feeling squashed with our present 4.5mn population, you don't need a terribly vivid imagination to envisage how you'd feel when our population hits 6.5mn target in the coming decades ... not forgetting the growing obesity trend and the shrinking room sizes in new developments! In other words, there will be more of us growing old ... and fat together ... in smaller rooms!!! Daunting Singapore Dream, eh? Yeh, it already is starting to haunt me.

As the amended Land Titles (Strata) Act now stands, it is ONLY the individual citizens who are being led to the sacrificial altar ...

... willingly as a Majority Consenter who die-die-must-sell for immediate cashflow/liquidity needs or purely exploitative reasons,

... half-willingly as part of the consenting herd on the basis that if-you-can't-beat-them-you-might-as-well-join-them, or

... unwillingly as a Minority Dissenter who die-die-don't-want-to-sell for personal reasons of rootedness or sense of community or capital preservation as part of their long-term financial/ retirement planning!

Just as 20% of the Singapore electorate who are NOT living in HDB estates may cock their heads at the priority basis for HDB Lift Upgrading Programme, so too will 80% of the Singapore electorate who are living in HDB estates commiserate with us. Singapore is very small ... ripples have a way of enlargement, more potent at the centre and less distinct at the outer circles but nonetheless there. Yet, some wonder why Singaporeans are " the most dissatisfied people" despite enjoying "the highest per capita income in Asia, short of Japan"!

4. Red flags. In Part C of my Nov 2007 blog update (scroll down to past Green Froggy), the issues of the amended en bloc laws are discussed in terms of what's there and what's missing. In Part D of my Nov 2007 blog update (scroll down to the Hanging Orang Utan), there are "tips" on what to do and what NOT to do under the amended en bloc laws. Work within the law but outside of the box!

To tamp down the speculative level, the Gahmen (finally) withdrew the Deferred Payment Scheme on 26 Oct 2007 after a near-decade since it was first introduced and after the property market run-up for more than a year from 2Q 2006! What does the market do? Well, market will do what it does best ... outsmart and outwit the Gahmen! These days, Developers offer Interest Absorption Scheme! Without going too much into the technicalities of financial risk weightages and loan structures, the bottomline remains that home buyers only pay 20% of purchase price upfront and start paying interest and principal installments upon issuance of Temporary Occupation Permit. DPS or IAS ... To the flippers, it's "half cati, eight taels" in the East and "eight ounces or half pound" in the West. Mark Twain was dead wrong - East and West did meet on this score!

If you can't get bank financing for your 4th real estate investment purchase, there are ways to get round it if you know how!

Do NOT be tempted into "penny wise, pound foolish" situations. Under the amended law, MinLaw tried to accord Owners with more protection in en bloc sales by requiring lawyers to take on more duties. Guess what ... some lawyers are very wary that if they slip up real bad in handling an en bloc deal, they may be sued for hundreds of millions or a billion dollars or more. Compared to marketing agents, a lot more is at stake for lawyers because they may be disbarred and/or made bankrupt. No amount of professional indemnity insurance can cover a law firm for such quantum! So under the guise of cost-savings for the Owners, they get the Developer-Buyer to bear the legal fees. Ahh ... effectively the "financial contract" is now between the Developer-Buyer and the lawyer. Errr ... but the "representational contract" is between the Owners and the lawyer! To whom do you think the lawyer owes a duty of care in such an en bloc sale? This is quite a novel "conflict of interest" situation that skirts round the present prohibition of the same lawyer representing both the buyer and the seller ... one wonders what the Law Society will do, ugh?

Ditto for marketing agent's commissions.

In en bloc sales, it's the flip side of Caveat Emptor (Buyer Beware) ...
it is very much a case of SELLERS BEWARE!!!

Although the en bloc laws have been amended, MinLaw's Study Group has NOT been disbanded. No less than the Minister for Law has made the promise that MinLaw, together with the other agencies, "will monitor very closely the operation of these new provisions" and "if it is necessary to make further amendments", MinLaw will have "no hesitation" to do so. MinLaw's e-mail contact is in my Nov 2007 blog update - keep talking to MinLaw! Maybe ... just maybe ... we MAY have an occasion to celebrate a champagne toast with MinLaw in the not too distant future!

Drawing from the lessons of Citibank and Goldman Sachs in the sub-prime mortgage debacle in the US quoted from the Harvard Business in my Nov 2007 blog update (scroll to above the Soaring Seagull), I repeat my prayer for Singapore to have enough "courageous and thoughtful leaders" (the likes of Frank C Blankfein of Goldman Sachs) who will stoutly shoulder their "core leadership responsibility" and "doesn't keep dancing just because everyone else does"! If I may quote Shakespeare: "Virtue is bold, and goodness never fearful"! And not forgetting AWSJ's quote of a University of Pennsylvania professor who was commenting on the credit crisis in the US that "reputation matters until you get to some serious pain" and that "it matters if the stakes are low" but "somewhere between US$25mn and US$1bn, it shifts".

[PS: Two recent cases of Minority Dissenters winning at Strata Titles Board tribunal hearings can be found at the end of my Nov 2007 blog.]