Much ink has been spilled on the issues surrounding the population white paper and its consequences, be it economically, socially or politically. I have no intention of jumping on the bandwagon, but rather to observe real issues unfolding through the perspective of the property market. And one
article did grab my attention on its 'property' aspect. Written by Singaporean Linda Lim, Professor of Strategy at the Stephen M. Ross School of Business at the University of Michigan, the article gives us food for thought on sustainability in our property market.
She writes, "Territorial land is the essence and foundation of a nation. In Singapore, the wisdom of using retirement savings to fund home ownership...has been premised on the assumption of constant asset appreciation. Large-scale immigration contributes to asset appreciation, and thus to the profits of REITs and both private and government-linked property developers."
As we all know, the majority of Singaporeans use their CPF savings to fund property purchase (even for private homes). CPF funds were originally conceived to give retirees sufficient savings to last them in their old age. Since most cannot afford to purchase a home just based on disposable income alone, they are allowed to tap into their CPF savings. Ideally, once families grow and their children move into their own homes, the elderly parents can sell the family home (and downgrade to a smaller home) for a tidy profit to support them in their old age. In recent years, we have seen our residential property prices reach a record high, breaking even the pre-1997 Asian Financial Crisis and pre-2008 subprime crisis. Because real wages have not increased at the same rate in the last couple of years, the only other reason must be the large-scale immigration.
But the author highlights another factor unique to Singapore - land scarcity. "But asset appreciations based on increased land scarcity are essentially rents that transfer income from buyers to sellers, thus contributing also to rising inequality." This observation is hauntingly accurate. Someone who bought private property 3 years ago would have made a profit of about 60% selling it recently, perhaps even more if it were landed property. A similar profit margin exists across the spectrum of all private property types, but surely it cannot be the case that all buyers across the board will see their incomes increase by 60% in the same duration. Meanwhile, the seller walks away with the 60% profit and presumably puts it into another property investment, continuing the cycle of inequality. The unfortunate fact may be that that the buyer entered into the market out of necessity (to start a family for example), whereas the seller was motivated by profit by taking advantage of his 'here first' position. Because Singapore is limited by land scarcity (or the perceived scarcity due to slow churning out of new sites for development), large-scale immigration will only serve to increase inequality by favouring owners.
Inequality is further exacerbated by the fact that such a stark increase in home prices exists only in the private property sector, widening the gap between public and private housing against most of the 80% Singaporeans who might depend on the resale value of their HDB flat for an upgrade.
What then has the burgeoning private property market got to do with general society? The author explains, "From a long-term growth perspective, they distort incentives to work, save and invest in value-creating activities in favour of rentier wealth or income from property 'investments' (or speculation)." Now we are already seeing signs of this. People are increasingly unhappy with rising prices. Speculation of the property market was such a big problem that the government had to introduce 7 rounds of cooling measures in the past 3 years.
Indeed, for those in the property market, sometimes things do seem too good to be true. People who are cash rich automatically turn to property as their first choice of investment. Showrooms are packed as property hunting became a national pastime because everyone plainly sees that there is money to be made, despite the fact that most already have a roof over their heads. Those who rush to condominium showrooms with aspirations of upgrading are just doing so to get ahead of the curve before they are priced out of the market. People all want to 'get there' first and the cycle continues.
The younger generation now feels a real threat of being denied living the "Singaporean Dream" that their parents had arguably achieved. Most people now readily acknowledge that income from a day job is insufficient in Singapore to achieve financial independence - and most naturally turn to investments such as property. But the hard truth is that most will never have the means to hop onto the property bandwagon with their disposable income as long as wages do not rise. And as the author observes, "In a closed labour market, the rising cost of living eventually translates into high nominal wages. But in an open labour market like Singapore's, wage increases held down by the increased supply of foreign labour discourages the substitution of capital, higher technology and sophisticated management processes, for labour."
The property bandwagon has been moving for a long time but will it slow down for the greater good? The author issues a stark reminder, "We should not forget that a major factor in the downfall of the medieval Italian city-state of Venice was the diversion of entrepreneurial capital and energy into property as the small land-area drove rising rentals and land prices, leaving the city with beautiful buildings that today are but a shell for visiting spectators to admire." Will Singapore end up as a country only for the rich and where only the rich can fully enjoy? The unsustainable asset appreciation model will eventually reach the stage where existing private property owners can no longer rely on most fellow Singaporeans to fuel demand, leaving the market to wealthy foreigners. The world is not short of rich people to occupy Singapore, continuing its success story in economic terms, but what lies in its wake is a sobering image of extreme inequality threatening to destabilise society.
Asset appreciation has always been a good thing. It was never a dirty word, and it should not be. Singaporeans should continue to believe that the "Singaporean Dream" can be achieved through hard work and that a good job will sustain their aspirations, be it property-related or others. But our current model of asset appreciation is not sustainable and threatens to derail our progress. Asset appreciation based on large-scale immigration alone encourages short-termism and speculation, bringing about social problems that come along with rising inequality. What we want is sustainable asset appreciation based on moderate population growth and rise in standard of living. What we want is sustainable asset appreciation that will go a long way in giving Singaporeans a more equal chance at social mobility, contributing also to a much happier and hopeful society.
The author concluded the article on an optimistic note, noting that our problems are not without solutions and that with the right policies things will get better. Like the author, I too am optimistic and want to believe that our Singaporean Dream is still alive and kicking.
