Casino Singapore 3: Who's the idiot??? Smoking gun with spent bullets

I continue my bleating ...

In "Casino Singapore 1: Who's the idiot? Citizens/Gahmen lost Big Time", you would have heard my bleats on the exponential increases in developers' net profits of 666%, 417.9%, 262%, 188%, etc, for FY 2009/10:
http://singaporeenbloc.blogspot.com/2010/11/casino-singapore-part-1-whos-idiot.html

In "Casino Singapore 2: Who's the idiot?? No to gang robbery-cum-rape", you would have gotten an insight as to why MinLaw targetted private condos instead of HDB public housing as part of national agenda of urban rejuvenation and higher land-use intensity despite miniscule proportion of land used for condos relative to HDB and how/why MinLaw consequently abetted enbloc gang robbery-cum-rape. You would have read of the alternative solutions of one-for-one (1-4-1) exchange to follow the lead of South Korea and Taiwan. Also, you would have learned of Hongkong's more sensibly calibrated en bloc law that prohibit senseless demolition of non-industrial buildings of less than 50 years old. Plus the three actionable suggestions cited during the 18 May 2010 parliamentary debate that you could adopt in your own estate's en bloc attempts:
http://singaporeenbloc.blogspot.com/2010/11/casino-singapore-part-2-whos-idiot.html

In this concluding "Casino Singapore 3: Who's the idiot???", you would get to see the "SMOKING GUN with SPENT BULLETS" ... the incriminating evidence of such en bloc gang robbery-cum-rape. You would be reminded of MINLAW'S PROMISE made solemnly in Parliament in 1999 about the PRIMARY OBJECTIVE of the en bloc law being "FOR SINGAPOREANS", which has proven to be CHILLINGLY HOLLOW many times over in the multiple bouts of en bloc frenzies to date as we citizens morph into SQUATTERS, REFUGEES, DOWNGRADERS AND DOWNSIZERS in the aftermath in deference, of course, to the housing needs of the rich and/or smart Foreign Talent (whether as owners, investors or tenants).

1. Before and After. These are but a few examples of: "Before" and "After" en bloc sales with the same choral verse of:
For Owners: "Twice the price OR Half the size"
For Developers: "Twice the price AND Twice the size".
So is it any surprise how Developers ramped up triple-digit percentage increases in net profit for FY2009-10 (eg, 666%, 417.9%, 262%, 188%, etc) especially when it coincided with 2009/10 Resilience Package BONUS hand-out from Gahmen???

(I) SUMMARY POINTS OF -

CASE 1:
District 9, Central Core Region (Hilton Towers en bloc; The Lumos redevelopment)
Before: Average en bloc purchase price: S$1088 psf
After: Average redevelopment sales price: S$3298 psf as of 12 Nov 2010
Developer sale price is 203% HIGHER than purchase price

Before: Aggregate area demolished: 72,800 sq ft
After: Aggregate area available for sale: 128,914 sq ft
Developer's new stock level is 77% HIGHER than demolished stock level

Before: Aggregate en bloc purchase price: S$79.2mn
After: Aggregate sales proceeds to date: S$115mn
[As of 12 Nov 2010: Caveats lodged for 17 units (19 sold; 44 launched, 9 to be launched)]
Developer needs to sell ONLY 19% of new stock (ie, area available for sale) to recoup entire en bloc price. [NOTE: As en bloc purchase price (land cost) is the most chunky component of total project cost to a Developer-buyer, once land cost is recouped, it significantly lightens the Developer's holding cost (financing/interest expense) as a business risk. Hence, one could make an educated guess that project breakeven point is likely a low hurdle unless gold is used lavishly as a construction material, or interest rate hikes are steep spikes, eh? In other words, it would be the Developers' equivalent of "pau chiak" in durian sellers' vernacular (Hokkien for "sure-win guarantee").]

CASE 2:
District 15, Outside Central Region (Flamingo Valley en bloc/redevelopment)
Before: Average en bloc purchase price: S$640 psf
After: Average redevelopment sales price: S$1298 psf as of 12 Nov 2010
Developer sale price is 103% HIGHER than purchase price

Before: Aggregate area demolished: 323,300 sq ft (estimated)
After: Aggregate area available for sale: 494,518 sq ft
Developer's new stock level is 53% HIGHER than demolished stock level

Before: Aggregate en bloc purchase price: S$194mn
After: Aggregate sales proceeds to date: S$90.7mn
[As of 12 Nov 2010: Caveats lodged for 58 units (74 sold; 120 launched; 273 to be launched)]
Developer needs to sell ONLY 30% of new stock (ie, area available for sale) to recoup entire en bloc price. [NOTE: Same as Case 1 above]

(II) For DETAILS of above Case 1 and Case 2 -
Please click on the following link:
http://www.scribd.com/doc/43502918/Comparative-details-before-and-after-en-bloc-sale

Would you agree that the above evidence of one-for-four (1-4-4) winnings by Developers post-en bloc would effectively DEBUNK the assertions by the previous Minister for Law, Prof S Jayakumar, who was likely misguided in his belief that any legislative provision for one-for-one (1-4-1) exchange would result in lower en bloc sale price?

This is NOT a matter of hindsight being a precise science. The Straits Times poll published as far back as 16 Jun 2007 already made this pitch of "Double the price OR Half the size" for Owners post-en bloc. The poll results are now increasingly substantiated and factually affirmed two-three years after the 2006-07 en bloc frenzy as redevelopment projects get completed and developers' incomes/profits are progressively recognized under the accounting conventions applicable to this industry. My hypothecation of 1-4-4 for Developers have panned-out (viz, "Double the price AND Double the size" for Developers post-en bloc). Allow me the dubious honour of gloating "I told you so" as you re-read this old Aug 2008 blog posting: http://singaporeenbloc.blogspot.com/2008/08/en-bloc-why-it-is-not-right-for.html

Going forward, the 2006-07 en bloc pattern may NOT hold true anymore BECAUSE the Developers' game rules have since changed AFTER their 2009-10 triple-digit percentage increases in net profits, ... where the over-satiated Developer-buyers have developed an appetite to time the market by landbanking and "manage" even land supply beyond the hapless reach of Government Land Sales in CCR, RCR and popular pockets of OCR (viz, Core Central Region, Rest of Central Region and Outside Central Region). Such may be the new-found capacity and power of Developers these days!

When Developer-buyers choose to landbank from en bloc purchases, that's when they are "betting" with a pre-loaded dice ... viz, en blocs immediately spike demand for their yet unsold/unlaunched units and shrink supply because of inherent lag time in redevelopment (double bonus for Developers). On the one hand, global/regional factors could overturn the gambling tables on these Developers, even with their pre-loaded dice! On the other hand, there are predatory lions, tigers and leopards out on the loose who have already been fattened from 2006-07 en bloc feeding binge and 2009-10 Resilience Package bumper hand-outs. These Developers now have a treasure hoard of winnings in hand to further outwit, outclass and outlast any future Gahmen initiatives IF Gahmen can only come out with more-of-the-same or behind-the-curve measures (instead of something fresh and innovative, eg, en bloc quota, 1-4-1 exchange, etc).

Surely, law/policy makers should NOT buy it hook, line and sinker when Developers recant their historical mantra of past market crashes to hoodwink them into believing that en bloc gang robbery-cum-rape must continue to be allowed under artful LTSA legislative framework. http://singaporeenbloc.blogspot.com/2008/08/en-bloc-why-it-is-not-right-for.html

Yet all these super-smart civil servants in MinLaw (most of whom were likely funded by the public for their dual-degree education) failed to be PROACTIVE and continue to fail in being TIMELY and REACTIVE.

2. My word is NOT my bond. To add salt to wound - In calibrating the law to unlock land value for corporate Developer-buyers (NOT extant Owners) whilst being paid by

taxpayers, MinLaw manifest SELECTIVE AMNESIA in DIShonouring their parliamentary promise made in 1999 during en bloc law inception that the PRIMARY OBJECTIVE of this law was to create "many more housing units in PRIME 999-year leasehold or freehold AREAS FOR SINGAPOREANS".

3. PhDs amongst our crème de la crème? You don't need a PhD (yeh, definitely NOT the "Press here Dummy" types amongst the ranks of our crème de la crème), because any idiot can see for himself/herself ...

- Compare the strata title area demolished from the en bloc estate with the net saleable area harvested from the redevelopment:
The "inventory" for the developer typically doubled or more! [During the 18 May 2010 parliamentary debate, the Minister for Law, Mr K Shanmugam, used a misleading indicator of higher land-use intensity by comparing the number of units pre- and post-en bloc. That was naughty and even mischievious because with the current fad of Mickey Mouse (shoebox) units, it would make the senseless comparison even more meaningless!]

- Compare the average en bloc price received by previous estate owners with the average sales price paid by new estate owners:
The price likely doubled or more!

Sure, there may be Development Charge (DC) to be paid by the Developer-buyer but relative to total redevelopment cost, DC is an inconsequential component in the whole scheme of things to the Developer-buyer.

Yes, there is substantive Construction Cost but these typically range from 25%-40%, depending on (i) whether the redevelopment is in the mass-market or super-deluxe range and (ii) the extent of yo-yo gyrations in supply-and-demand aberrations (eg, sand ban by Indonesia, controlled granite chip export, intense labour competition arising from concentrated

construction activities post-en bloc frenzy, or some other regional or global factors). These yo-yo gyrations are likely exacerbated by Gahmen's spasmodic rah-rah PRO-cyclical policies and regulations (instead of striving for a measured tempo under the COUNTER-cyclical approach) because – being human – the powers-that-be are naturally driven by the Key Performance Indicator (KPI) of GDP Growth which is 27% of their total pay (another 20% is based on Job Performance Related KPIs which adds up to 47% under Variable Wage Component for these high-fliers).

Of course, there is Financing Cost where the developers pay interest/fees for bank loans that add up to quite a bit even in a low interest rate environment because of the sizeable quantum involved in paying off all en bloc Owners upon legal completion. But IF the other option of 1-4-1 exchange is taken up by enough en bloc Owners, it would significantly reduce the financing cost burden for Developer-buyers - An Inconvenient Truth that is conveniently unheeded.

4. Rocket Dockets. It does NOT take rocket science to figure out that - under the 2010 amendments of the Land Titles (Strata) Act ("LTSA") - MinLaw will probably succeed in turning the Strata Titles Boards and the courts into Rocket Dockets. This was probably in direct response to developers' complaints to MinLaw of their business risks when protracted en bloc battles could potentially drag on for another 1-2 years from the date when these developers commit to the Sale and Purchase Agreement.

Sauce for the gander is clearly NOT sauce for the goose because the law provides for up to 12+12=24 months to commit Majority Consenters to a Reserve Price in the Collective Sale Agreement! So going forward, justice will likely be hurried. Never mind that justice is buried. Go, Go, Go ... Cheaper, Better, Faster. [Sheesh, how many idiots are running around out there???]

5. Trust, but verify - Windfall or Wind (aka Fart)? As Ronald Reagan famously said to Mikhail Gorbachev: "Trust, but verify". I do NOT make frivolous assertions about MinLaw getting the RIGHT ANSWER to the WRONG QUESTION (viz, how to balance the en bloc law between Majority Consenters and Minority Dissenters). As part of a healthy cross-check, the authorities just need to ask themselves: Why else would en bloc sales continue to be so alluring for Developer-buyers even AFTER the 2010 LTSA amendments? Especially when sites from Government Land Sales are readily available with certainty/speed and therefore reduced business risks for developers, especially with the relaxation in Mar 2010 where developers could "tikam-tikam" (repeated attempts at "hit-and-see") in order to trigger sale of sites on the Reserve List:
http://singaporeenbloc.blogspot.com/2010/04/fools-but-not-just-for-april-1st.html

Q1: So what's in it for Developer-buyers when it comes to en bloc purchases?

A1: "En bloc windfall", dummy!
[Now, you see why increases in net profit of 666%, 417.9%, 262%, 188%, etc, for FY 2009/10 are a breeze for developers, especially with the bonus of a 2009 Resilience Package handed to these developers on a silver platter by the Gahmen.]

Q2: If Developer-buyer gets "windfall", what do en bloc Owners as sellers get?

A2: Four-letter word: "Wind" (aka "Fart")!
[Now, who's the idiot??? Or should it be plural?]

As en bloc owners suck in the fart from other people, "our land"* will continue on the relentless march towards "Progress" under the billowing banner of Progressive Corporatism flying high in the air, ... replete with our euphemistic Integrated Resorts and the Biggest Casino in the World (viz, the whole island of property speculators
and en bloc flippers), ... all that blinding Orchard Road razzmatazz as building lights flash furiously in curious mis-sync, ... so much buzz and fuzz ** and, ... yes, even funk (if you know where to look)!

* I can't bear to call it "our country" these days. In any case, we have been told categorically by Law Minister K Shanmugam in Oct 2009 that we are "not a country" ... but the good minister didn't (and likely couldn't) explain why on earth are we obliged to pay taxes and why for heaven's sake are we compelling our young men to do National Service ... but these are essential trappings of our "country" masquerade, eh?

** Don't even start me on hot money, money laundering and asset bubbles when gigantic communist China could dance even more nimbly. Please read this Bloomberg article of 13 Nov 2010: "China to curb foreign investment in property":
http://www.scribd.com/doc/42733086/Bloomberg-China-to-Ask-Foreigners-for-Home-Ownership-Proof

In comparison to Giant China, our Teeny Singapore's MinLaw continue to do an unsteady baby cha-cha (two tiny steps forward, one big step back) for LTSA amendments despite anecdotal evidence of flippers driving most en bloc attempts as Sale Committee members. MinLaw were far behind-the-curve in finally closing the gaps in Residential Property Act in respect of foreign buyers of landed property. But MinLaw is NOT alone in this shenanigan.

The whole government machinery (eg, Ministry of National Development, Urban Redevelopment Authority, Building and Construction Authority, Singapore Land Authority, Housing Development Board, Monetary Authority of Singapore, Ministry of Finance, etc) was "too little, too late" in formulating policies and regulations.

It was probably the first time in recorded history that the taxman would consult taxpayers on a tax law! And AFTER such Public Consultation in Jun-Jul 2009, MOF BACKTRACKED on their proposed tax clarification (viz, the profit from the sale of only one property on/after 1 Jan 2010 will not be taxed if the individual owner has not disposed of any other property within 4 years prior to such sale):
http://singaporeenbloc.blogspot.com/2009/07/iras-is-not-dancing-until-music-stops.html

With the Private Property Price Index (PPPI) mutating into a 3.5-hump camel with the highest pointy half-hump growing almost vertically in 2007-10 (!!!), I wonder if MOF is even feeling haunted these days for that idiotic back-tracking in 2009:

Not only that but it would appear that the various authorities didn't even dare to give immediate effect to the changes they announced. For elaboration, please click on the following blog-link and scroll down to the clipart pics of gymnasts doing back-flip and leg split:
http://singaporeenbloc.blogspot.com/2010/03/foxes-outfoxed.html

Indeed, the regulators' trepidation was palpable as they danced around to ensure that they didn't step on the dainty toes of Big Biz ... in case such authorities unwittingly created policy risks for Big Biz that would adversely impact on Big Biz' projected ROIs and in turn likely create rippled waves to dent GDP bonuses of our entire government machinery. Singapore is probably one of the few places in the world where policy makers mitigate and remove policy risks for Big Biz. It is as if the Regulators are afraid to regulate the regulated! Have you seen a cat who is afraid of mice? Think Securities Exchange Commission and ol' Bernie who made off with US$50bn ... and the rest is history, as they say. Never mind, if the cat is black or white. Never mind too, if the mice are black or white.

So on Happy Humping Day, whilst stringing along my pet mutant 3.5 hump camel (BTW, 1.5 humps in the PPI graph above are either pure saline or silicone implanted with untimely, unfiled or misfiled caveats - so please do NOT squeeze too hard!), let's reflect upon what the Minister for National Development, Mr Mah Bow Tan, has been spewing and spouting over 2009 and 2010 whilst on his High Horse:

Reuters, 29 Jul 2009: "I wouldn't say there's excessive speculation at the moment, but there is some element of speculation involved." Ahem ... coughing a little!

Channel News Asia, 30 Jul 2009: "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." Hah??? ... Duh???

Agence France Press, 12 Aug 2009: "A little bit of speculation is inevitable in every market, but when it becomes excessive, then it is something that we should try to avoid." Aaaargh ... by now, gagging from the implant spill-out of pure saline and/or silicone - see, I told you NOT to squeeze too hard!

The Edge, 14 Sep 2009: "We are currently seeing signs of heightened speculative activity, though the level of speculation is not that extreme ... Given the current market conditions, the government has decided to adopt several measures to temper the exuberance in the market and preempt any speculative bubble from forming." Man ... is the guy really one-up over Alan Greenspan as he can burst bubbles as soon as they start to form?

Channel News Asia, 24 Nov 2009: "We want to curb erratic spikes in prices due to excessive speculation, inaccurate information or market manipulation." [Silence] ... Dumbstruck and speechless by now.

Hansard parliamentary record, 18 Oct 2010: "By taking these calibrated steps one at a time, we are able to let the air out of the bubble ... gradually, rather than to prick the bubble and then have it burst, because when the property bubble bursts, a lot of people will be hurt, not to mention the economy as a whole." Ooops ... duck that flying shoe as you pace-out the fart softly, softly!

6. After Humping Camels and Jumping from High Horses. As part of the "trust, but verify" doctrine, we should probably probe and prod if we have more of "right answers" to "wrong questions". Now, let's ask ourselves:

Is Minister Mah and Ministry of National Development also getting the right answer to the wrong question? Sheesh ... do we have an epidemic viral connection between Wrong Questions and Right Answers?

- In a little isle of 710.3 sq km with the world's highest population density of 7,022 persons/sq km (2009, Department of Statistics) where the ENTIRE WORLD POPULATION as of 2009 could be jam-packed into 1000 SINGAPORES, should we blindly adhere to the conventional wisdom shared by Minister Mah that "a little bit of speculation is inevitable in every market"?

- Under such circumstances, should we even allow a bubble to form at the outset and then let the air out? This is especially pertinent when lodgement of caveats is voluntary and URA/SLA do NOT even know when there is deliberate intent NOT to file, or to DELAY/TIME the filing or to MISFILE/AGGREGATE caveats because both URA and SLA systems have been exposed to be GIGO-based (Garbage In, Garbage Out) ... instead of ensuring data integrity by putting the statutory onus on lawyers to (i) verify caveat data accuracy, (ii) provide supporting extracts of key documentation and (iii) file within a 14-day deadline.

- When a country as big as China limit foreigners to only one property purchase with pre-qualifying employment and stay tenure criteria, what is teeny Singapore doing (IF anything - Duh?), bearing in mind our legendary land scarcity and record-breaking population density/sq km?

- Even if the air is let out over time (apparently, some idiots have mastered the art of PACING-OUT A SLOW FART as they dribble pee whilst shitting from the other end!!!), would it merely be slow death with prolonged pain (rather than quick death with sharp pain) for anybody who got the market timing wrong? There is an edifying parallel between asset bubbles and avalanches - NEVER under-estimate the intrinsic momentum once it starts to form.

- When the GIGO-based (Garbage-In, Garbage-out) systems of SLA, BCA and URA have shown data holes and compromised data integrity (eg, buyer indicators cannot be kept at a simplistic one level if the level of froth is to be reasonably sussed-out, occupancy data of HDB property is not complemented by equivalent private property data, different motivations will result in different types of flips and defining speculation by sub-sale data is naive, to say the least, raw data at en bloc source or multiple-unit purchase source cannot be open to fuzzy-wuzzy aggregation and/or averaging techniques to save business costs, etc), it will seriously undermine the credibility and reliability of these institutions at source. If these institutions continue to put their reputation at risk - all purportedly in the name of business-friendliness - does it speak of a deeper and more entrenched malaise across the Civil Service spectrum and, indeed, within the larger system? There is already a Rubik dimension to these manifestations.

- In contrast, the recent HDB measures could hardly qualify as "letting air out" but then, c'est la vie ... the HDB burst was one Big Resounding Fart because these measures did NOT impact Big Biz but they adversely hit upon heartland issues, eh?

- Are the market segments of HDB public housing, strata titled private condos and private landed properties much more fungible than the authorities would like to believe?

- One segment of the locals (especially the first-time-buyers and the no-choice-but-downgraders) lament about affordability of HDB flats sold with public subsidy. But isn't there a significant segment of HDBers who are wealthy enough to "invest" in one or more private properties, whether in or outside Singapore, ingeniously capitalizing upon a whole spectrum of ownership/occupation permutations within the policy framework beyond HDB's wildest imagination?

- Technically, even those who bought HDB flats from the resale market (eg, the foreigners) are also benefitting from the low-base effect because of the embedded public subsidy. In any case, what's "five years" as HDB's Minimum Occupancy Period to qualify for future purchases of private property relative to the whole scheme of things? Who moves house every five years? If a HDBer owner/occupant has the means to invest in one or more private condos (especially after a mere five years but even when it is longer), does it indicate undetected fudge at HDB application point? Or is there systemic exploitation of Gahmen's "housing type" yardstick as a smokescreen to milk more out of wealth redistribution schemes or other forms of benefits/subsidy entitlements arising from means-testing (typical "yau kwee" mentality of Singaporean "kiasuism" - Hokkien words for "petty gains" and "fear of losing out", respectively) - all this whilst generating (i) rental returns from HDB flats to boot and (ii) flipping multiple private properties, whether individually or as a shady consortium born from networking during "investment courses" that taught them how to invest in physical real estate with as little as $5k! And - in the midst of all this - IRAS is NOT even shy to boast that they have a LOW detection rate of tax evasion from property trading! Do we want to cultivate a nation of speculators and flippers, spinning castles in the air and going down the same sorry road as Iceland and Ireland, rather than being producers/providers of actual goods and services?

- Should CPF funds intended as retirement nest-egg savings be released for (i) purchase of second and subsequent properties for extant owners and (ii) purchase of one or more properties for extant HDB occupants? Even when such releases of CPF monies are sanctioned, shouldn't they be subject to (a) higher CPF account balance qualifying criteria and (b) even lower CPF Available Withdrawal Limit when ownership and/or occupancy status has changed upon marriage or other life events?

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.