18 March 2010

Trilogy: Part C – PM said, I am saying

What did PM Lee Hsien Loong say?
Please do NOT click on the above cartoon!
The birds may fly away if you do ...

C-1  PM's speeches/comments.  In 2007. In 2008. In 2010. Our PM has been talking and talking.

C-1.1 PM Lee Hsien Loong’s 2007 National Day Rally Speech. “I know many older Singaporeans worry about whether they can make ends meet. We are making changes to help you to work longer, earn more and build your retirement savings. We will enhance the value of your HDB homes, which are a nest-egg for old age. We will improve the CPF scheme, so you can enjoy a steady income and peace of mind in your golden years. … Government “cannot solve all the problems alone … "everyone must play a part ... we each must take responsibility for ourselves, make the effort to do well, and provide for our families and our old age ...”.

C-1.2 PM Lee Hsien Loong’s 2009 National Day Rally Speech. "... it’s not just the hardware, but also the heartware, the memories which we are creating, which is what makes Singapore tick”.

C-1.3 PM Lee Hsien Loong on property prices, ST, 23 Feb 2010. “We can try to influence it, but whether it goes up or goes down depends on sentiment, depends on what happens in the region and the world … Property is for people to buy to live in, not for speculating, … Please take good care of it. It’s for you to live in, it’s for you as an investment, and it’s for you for your old age. Don’t think of selling prematurely to make a quick buck”.

C-2  Now say I. I don't know how you all see the following sequence of events but - to me - it doesn’t reflect well ...

- Jul 2009: Ministerial uncertainty about existence of speculation. [Channel News Asia (“CNA”) (30 Jul 2009): Mr Mah said: “It’s a bit early to say whether there is a speculative bubble or property bubble building up. Obviously it is not in everybody’s interest for such a bubble to form because if it does, and when the bubble bursts, which it inevitably must, then a lot of people will get hurt."]

- Sep 2009 (1.5 months later): Gahmen reversed two "speculation facilitation" measures (viz, withdrawing Interest Absorption Scheme and prohibiting Interest-Only-Loans).

- Nov 2009 (about 2 months later): Ministerial perception that speculation is under control. [CNA (24 Nov 2009): Minister Mah said, “We want to curb erratic spikes in prices due to excessive speculation, inaccurate information or market manipulation". Mr Mah added that the measures introduced in September have also helped to control speculative activity."]

- Feb 2010 (almost 3 months later): Whole government machinery scrambles almost unbecomingly to roll-out Seller’s Stamp Duty, even having to resort to a Certificate of Urgency in Parliament.

It is all the more perturbing when one contextualizes the ministerial comments in Nov 2009 vis-à-vis the Financial Stability Review released by the Monetary Authority of Singapore (“MAS”) also in Nov 2009 about the "risk of renewed escalation of speculative momentum": “Sub-sale transactions as a share of all transactions, a proxy for speculative activities, averaged 11% over Q2 and Q3 2009, which was below the peaks seen in 1996-1997 but close to the 13% average seen during the buoyant property market in 2007-2008. … As Singapore emerges from recession and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted."

Then, even as cool-down measures were being announced, ministerial reassurance was made far too readily. CNA (9 Mar 2010): National Development Minister Mah Bow Tan on Monday said the government will not be introducing more measures to cool the market for now. Sometimes, silence is indeed golden, if I may be excused for saying so.
From a citizenry perspective: Such ministerial conduct perhaps points to (i) diffidence in policy-making, (ii) insufficient understanding of lag effects (the 2006-07 en bloc and 2007-08 sub-sale frenzies could have partly underpinned property price upsurge despite continuing 2009 economic doldrums) and (iii) trepidation towards market forces.

Despite statistical exclusion of en bloc prices in computing the Property Price Index (“PPI”), it took a backbencher MP to make an insightful comment in Parliament about the speculative factor in en blocs. CNA (3 Mar 2010): MP Liang Eng Hwa (Holland—Bukit Timah GRC) hoped the Government would pre-empt another emergence of en bloc fever, which he said could distort the property market and cause short-term volatility. To date, I reckon URA is still behind the curve in merely focussing on sub-sale activity as a proxy for speculation and disregarding the resale activity in segmented target areas DESPITE the already entrenched speculative market criterion of “en bloc potential”.

C-3  And I have more to say. Whilst PM Lee’s speeches relate more to the HDB heartlanders, the issues afflict middle and upper middle income Singaporeans who own condo units exposed to en bloc risk. If the MIW ("Men-In-White") won't say it, then the "Men-In-Black" citizenry will have to say it, eh?

C-3.1 No man is an island. LTSA is not just a piece of legislation. The ramifications go far beyond urban planning. It feeds directly into macro-economic and socio-political factors. In fact, the effects are far more outreaching as they ripple out towards the seismic demographic change in population structure and consequent domestic consumption demand.

C-3.2 Convert silver tsunami into golden lake. Indeed, there is likely Opportunity in Adversity. If we don’t get this right, then we’d have missed the opportunity of converting the silver tsunami of senior citizens into a golden lake of sustained domestic consumption by senior citizens as an integral part of our island's economic vibrancy (and not a bunch of grumpy old folks, fearful of spending their last pennies in Singapore, with some being shipped off to JB/Batam nursing homes, worried over their chronic healthcare costs and resentful of the growing social divide in a country which they helped to build from not very much).

Even the middle and upper middle class have their share of nagging worries and quiet desperation as some face the Hobson’s Choice of signing the CSA even if (that’s a Big “IF”) they are fully cognizant of (i) the post-en bloc reality of being a “Squatter, Refugee, Downgrader or Downsizer” and (ii) the too-early monetization of the “crown jewel” in their entire asset portfolio for anyone below age 75 that was supposed to be the inflation hedge in their old age for living costs and likely healthcare needs (what more for those who were forced into sale by STB’s collective sale order).

C-3.3 Inevitable politicisation of housing issue. Housing is basic need. In land-scarce Singapore with No 1 population density in the world, property supply and demand (and hence property prices) are core issues. PAP's housing platform allows CPF retirement savings for residential housing purchases, thus further politicising property ownership. All the more so for private property purchases because not only CPF retirement savings but also private nest-egg savings are now at stake.

C-3.4 Context, my dear, Context. In addition to Behavioural Economics coming into play, the following Additional Factors need to be contextualized into the whole scheme of things, as it were – something that I hope will not be lost on the Executive, the Legislature, the Judiciary, the Civil Service:

(a) Frenetic frenzies. There were distinct bouts of en bloc/sub-sale frenzies in 2006-07 and 2007-08, respectively. Hence, the lag effects of cash pay-out/profit sloshing around, especially from en bloc/sub-sale flippers.

(b) Booms-Busts of Singapore Property Market. Ambling around our little isle is the grotesque mutant 3-hump camel, still in its drunken stupor of booms-busts in URA’s Private Residential Property Price Index over 13 years from 2Q 1996 through 2Q 2009.

(c) Prices and Earnings Mismatch. Singapore’s mismatched rankings in terms of prices versus earnings in UBS Jul 2009 report “Prices and Earnings (a comparison of purchasing power around the globe)” embed financial implications that may be under-estimated by the authorities.

(d) Displacement of Singaporeans by foreigners. There are also political implications when Singaporeans are displaced by foreigners from choice/popular locations or their social aspirations towards private property ownership are thwarted or delayed. Will these elements foster “integration” of foreigners or fester “resentment” within a larger political context?

Perhaps the genie is already out of the bottle. Like it or not, we may now already be painted into a corner. "Count on me, Singapore" - Really? Safer to additionally hedge with "Count on me, Foreigners" based on what our venerable MM Lee said at his Tanjong Pagar constituency event in Feb 2010: “To continue to grow and prosper while slowing the intake of foreign workers, the same number of Singaporean workers must produce more. Otherwise, there will be a deflating economy, and knock-on effects on jobs and asset values. Instead of many job opportunities and rising asset values, including prices for resale HDB flats, the reverse will happen… fewer jobs, lower salaries, lower asset prices… pay will fall and so will the number of jobs and promotion”. Well, as usual, the man is straight-talking. So we'd better cooperate and "happy-happy" integrate with foreigners to avoid deflation and erosion of asset valuations. Know which side your bread is buttered on, ok?

(e) Gini scores. Singapore’s high Gini index scores has been consistently climbing all these years and only went down marginally for the previous two years. According to UN Development Program’s Human Development Report 2009 – At 47.8 in 2009, Singapore is ranked No 2 after Hongkong with the biggest gap between rich and poor amongst advanced economies. Our index score is comparable to Kenya and many Third World countries. http://hdr.undp.org/en/reports/global/hdr2009/

(f) Demographic seismic change. Singapore’s seismic change in demographic profile started in 2000. Our number of senior citizens age 65+ is set to rival Japan soon. By 2030, Singapore is projected to have 873,300 seniors, comprising 18.7% of our resident population (2006 report by the Committee on Ageing Issues). http://www.mcys.gov.sg/successful_ageing/report/CAI_report.pdf

(g) Correlation to CPF retirement planning. For most Singaporeans, our CPF retirement planning has clearly fallen short despite CPF Board’s mission statement: “To enable Singaporeans to have a secure retirement”. [Incidental wondering (or wandering): Hmmm ... Won't "PERSONAL provident fund savings" now become "POOLED risk sharing" under the auspices of CPF LIFE Scheme, if you analyse it more deeply? Uh-oh ... that's another story for another day, eh?]

Committee finding: “60% of active members in the first Lifelong Income cohort are expected to have at least half [of] the full MS in cash (estimated at $67,000) at age 55 and, under the default Refund 80 LI Plan, are expected to receive about $600 or more a month for life in their Retirement Accounts (RA) by age 55” (Nov 2009 report by the National Longevity Insurance Committee). [Note: The 60% figure is pegged to “active members” as opposed to “total members” of that first cohort. Hence, the actual percentage is likely to be more adverse, taking into account women who left the work force to look after children/parents, the structurally unemployed older workers who got retrenched, etc.] http://mycpf.cpf.gov.sg/Members/Gen-Info/CPF_LIFE/NLIC.htm

(h) Correlation to CPF LIFE annuity. Although CPF LIFE Scheme has been streamlined from 12 to 4 plans with pay-out starting from age 65 (instead of the abovementioned Refund 80 LI Plan with pay-out from age 80), the median pay-out using the e-calculator on CPF Board's web-page in 2010 is $550 for women and $600 for men WITHOUT being inflation-indexed.

Given that mortality rate is one of the two factors that affect annuity pay-outs, it is a cruel reality that the only way for effectively higher pay-out is for fellow Singaporeans to die before age 65 (or not long after please), especially those who opted for CPF LIFE Income Plan (no beneficiaries) that would likely be selected by the 40% who are unmarried, widowed or divorced. Another piece of grist for you to chew on - According to CPF: For those aged 65 in 2006, only 67% can expect to be alive at age 80 and 47% at age 85. So what does this mean? One-third of the 65ers will drop dead between ages 65-80. Now, gnawing and gnashing as you chew ... Does that even make you wonder if most of that one-third will "expire" nearer the ages 65-70 bandwidth (bearing in mind that Drawdown Age under CPF LIFE starts from age 65) or at the other end of the age spectrum??? [The other factor that determines annuity pay-out is interest rate but high interest rates may point to inflationary pressures which would be worse for senior citizens because annuity pay-outs are NOT inflation-indexed.]

(i) Correlation to NTUC Incomeshield premiums. As at 2010, the annual premiums for NTUC’s Incomeshield Enhanced Basic Plan (Class B1 ward in Govt/Restructured Hospital) for the following age bands are:

61-65  - $517 (if $550-600 pay-out: starve 25 to 31 days to pay premium!)
66-70  - $711
71-73  - $991
74-75  - $1164
76-78  - $1398
79-80* - $1632
81-83* - $1980
84-85* - $2197 (if $550-600 pay-out: starve 3.7 to 4 months to pay premium!!!)
* Compounding the higher premium rates is the 50% higher deductibles from age 80 onwards - ie, worse for policy holders.

Over the longer term, the rate of increase for healthcare cost may be much steeper than the overall inflation rate. If you think that's bad, then it only gets worse. Why? Because the annuity pay-out is NOT even inflation-indexed. So, there may be a hidden "double-whammy" impact! But please don't let me over-frighten you - Let us find Bliss instead. Where can Bliss be found? Not in your i-phone. But it can be found in i _ _ _ _ _ _ _ e!

(j) Policy disproportion and inconsistency. HDB flats are about 50%-400% cheaper than private condos (excluding the super-deluxe category). Recent HDB announcements deemed it as speculative if non-subsidized HDB flat purchases are sold within three years (subsidized purchases, within 5 years). However, for private condos that require much higher capital outlay, disposal within one year is deemed speculative.

Although purchasing power is significantly different between HDB heartlanders and private property owners, the even greater price variance between these two property types would neutralize this factor. Hence, doesn't it point to a POLICY DISPROPORTION AND INCONSISTENCY when HDB disposal time-bar is 3/5 years whereas private property time-peg for deemed speculation is a mere 1 year?

In any case, such presumption of purchasing power differential between HDBers and private property owners may NOT hold water any more after the 2006-07 en bloc and 2007-008 sub-sale frenzies – Mainstream media reported on 13 Mar 2010 that in the process of checking illegal sub-letting of HDB flats, it was discovered that the perpetrator (a mere housing agent) in fact SIMULTANEOUSLY own 5 more private properties in addition to the HDB flat! Although this may be more an exception than the rule, it may not be that rare for HDBers to own private condos if the authorities are astute enough to slice their statistics based not just on HDB owners but also occupants!

The one-year disposal time-peg seems EVEN MORE DISPROPORTIONATE when taken in the context of new condos that typically require 2.5 years to hit TOP and estates undergoing en bloc attempts that have 12+12=24 month legislated window to apply to STB for a collective sale order.

(k) "Need for space" versus "Demand for units". The jury is still out as to whether Private Property Owners (PPOs) are speculating in HDB resale market or the HDBers are speculating in condo en bloc market AND private property sub-sale/resale market. Hee, hee ... it sure sounds like nobody knows who is doing what to whom how many times over!!!

"Demand for units" is NOT the same as "need for space". In a country as mini-teeny as Singapore, I am NOT at all convinced that "any level of speculation" can be considered "healthy", as suggested by recent ministerial comment (bearing in mind that CPF retirement nest-egg is typically at stake)!

If the "need for space" is genuine, then the property demand is REAL and the Property Rental Index would naturally move in tandem with Property Sale Price Index. If the demand is ARTIFICIAL, then if that is NOT considered as "speculation", then what is? Well, you make the call on the extent of speculation in our Singapore property market based on the following graph [Oh, by the way, ... here's a little test to see how "sharp" you really are - Notice the Blue "rental" line is invariably on top of the Red "sales price" line in the aftermath of BOTH en bloc frenzies in 2000 and 2006-2007 after some lag-time. Go back to the first graph on En Bloc Frenzies in para C-3.4(a) to verify, if you don't believe me. It's NOT rocket science, eh?]:
(l) IRAS quirks. Income Tax Act already provides for gains from property sales to be taxed as "trading gains" or “gains or profits of an income nature” if the party is “deemed to be trading in properties”. Hence, assessment is subjective on a case-by-case basis.

Real estate purchase is inherently long term in nature. Average owner-occupation tenure statistically hovers around 11 years.

Enforcement of present taxation law is SUBJECTIVE and detection may NOT be sufficiently comprehensive as IRAS affirmed in mid-2009 that their audits nabbed only a small number of cases in the past and that pattern was expected to continue. With the incidental “discovery” of 6-property ownership by a mere housing agent, one wonders at the efficacy of IRAS audits and the basis of IRAS’ probably misplaced confidence.

Transparency would be vastly improved by making taxation OBJECTIVE and ASCERTAINABLE UPFRONT (eg, disposal within 5 years of purchase), whereas EXEMPTION could be subjective and determined upon application/review (eg, upon proof of relocation of entire family, or emigration, etc).

Meaningful enforcement of tax laws would lend credence to PM Lee’s words of “Property is for people to buy to live in, not for speculating.”
C-3.5 Wild horses galloping, prancing, roaming. Well, it looks like the wild horses are not just in Singapore. China Daily (27 Feb 2010) reported the comments of Grandpa Wen during his online chat with netizens: “Chinese Premier Wen Jiabao said that he was determined to tame the ‘wild-horse’ housing market and keep property prices at a reasonable level during his term as Premier, He also said the government will use economic and legal means to curb property market speculation, 'We will crack down on illegal activities, including the hoarding of land, the driving up of house prices and the delaying of sales to earn bigger profits’, Wen said.”
C-3.6 Does PM Lee mean what he said about property speculation? The measures over the last couple of years are more in the genre of "reversal of speculation facilitation" as opposed to being "anti-speculation" (eg, withdrawal of Deferred Payment Scheme, Interest Absorption Scheme, banning of Interest-Only-Loans).
Hence, the "anti-speculation" measures are limited to (i) the 3% Seller’s Stamp Duty for disposals within one year of purchase and (ii) reduction of Loan-to-Value (“LTV”) from 90% to 80%. Judging from market reaction to these two purportedly "anti-speculative" measures, they seem to be more like ant bites, not even mossie bites! As commented in para C-3.4(j) above, the one-year holding period is so disproportionate that it is almost ludicrous!

To date, there has NEVER been any deterrent towards EN BLOC SPECULATION. The authorities seem blithely oblivious to this other reality of "en bloc potential" flips because they choose to focus only on sub-sale flips. Maybe URA also cannot multi-task and can focus only on one thing at one time too, ugh?

Or perhaps the authorities reckon that en bloc flippers are CONVENIENT CATALYTS in the national quest towards the 3-tions of “modernisation, rejuvenation and optimisation”? Hence, scant regard (Ooops ... more accurately, no regard) is paid towards the primary LTSA objective of "FOR SINGAPOREANS" notwithstanding that extant owners face the mindnumbing + mindblowing prospect of being a “Squatter, Refugee, Downgrader or Downsizer” post-en bloc WITHOUT cause for “congratulations, celebrations and jubiliations”.

Hmmmm ... what's the phrase they use these days?  Ahhh ..."incidental collateral damage" you might say, eh? Touché, my dear,touché indeed! Hee, hee ... did you click on the bird cartoon at the top of this blog entry because I asked you NOT to? If so, here's a prized feather to add to your cap! Thank you.

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