Yesterday the Independent Singapore (an ironic title if ever there was one since the Independent posts prominent photos of its owner, Leon Perera, the WP NCMP, on its masthead) carried an article saying that Goh Meng Seng claimed to be the first to point out PAP’s Asset Enhancement Scheme is a scam.

While GMS claims to have brought it to Low Thia Kiang’s attention as early as 2006, there is no record of him going public with this and in fact he admits that due to Low’s inability to grasp the import of what he was told he decided to clam up and forget it. GMS puts LTK’s incomprehension down to an inability to understand any economics. I would disagree. I have known Low since the 1980s when he started out as my dad’s protege and he is a wily fox. Rather his unwillingness to raise the issue publicly reflects his desire not to do anything that would upset the PAP and lead them to do anything that could lead to him losing his seat and the income stream associated with it. This included keeping quiet in Parliament during most of his time as one of only two Opposition MPs (after LKY used his control over the AG and the judiciary to proffer fake charges against my dad and get him out of Parliament on a conviction the UK Privy Council said was a grievous miscarriage of justice). LTK and the whole of the WP continue to keep quiet and avoid even fielding enough candidates to run the risk of disturbing the PAP’s control of 2/3s of Parliament, but that is another story.

In fact the record shows I was the first to raise the scam that was being perpetrated on Singaporeans and to point out how illogical it was for older HDB flats to be trading at almost the same price as new flats with nearly 99 years before expiry.

Here is what I said in “The Problem with HDB or Deflating the Housing Bubble-Part 2” published in March 2013:

Naturally, the asset side of the government’s balance sheet has increased in value as land prices have risen due to inelastic supply and ever-increasing population pressure.  Because of this asset price rise HDB owners have been given the illusion of increasing prosperity.

However there has been a fundamental mispricing in the HDB market in which decreasing time to expiry of the lease has not been taken into account.  HDB properties can be taken back by a future government at the expiry of the lease for no compensation. Yet properties with sixty years or less to expiry trade at very similar prices to new flats with ninety-nine year leases in the resale market. This is completely different from how leaseholds on private property are valued in Singapore. This is also completely different to how leaseholds are valued in any other country in my experience.

The buyers have been sold the fiction that an asset that has to be handed back to the government in at most ninety-nine years, and in many cases much less, will somehow ignore the laws of economics and keep on appreciating forever. Let me repeat that there has been a fundamental mispricing in the HDB market.

Singaporeans have been told by PAP ministers and in particular LKY over and over again never to sell their HDB properties, as they can only go up in value. No government that I am aware of has made such an explicit promise and it can only be characterized as highly irresponsible.  If a financial investment had been promoted in this way by a broker or corporation without any mention of the risks and investors had subsequently lost money, the buyers would be entitled to compensation.

I wrote about this again the following year (2014) in “CPF and HDB: 10 Real Dirty Tricks“:

7.      I discussed above the mania that seemed to afflict Singaporeans because of irresponsible promises by LKY and the PAP that HDB was an asset that would constantly go up in value. I pointed out that the SERS scheme, in which Singaporean swap their old flats for new smaller ones with a fresh lease in much higher-density estates had encouraged this illusion. To quote again from my previous article, “The problem is that there is a fundamental conflict of interest between the government’s roles as provider of supposedly low-cost housing for the masses and as monopoly owner of at least 80% of the land in Singapore. This is why the PAP government has had a vested interest in pumping air into the housing bubble.  Until now they have been happy to maintain the fiction that the length of the leasehold does not affect HDB valuations. This is because with the deliberate creation of huge excess demand for housing the HDB finds it profitable to acquire existing HDB blocks from their owners and pay them compensation which is close to the price of new BTO flats. That is because they can vastly increase the density of housing on that area by doubling or tripling the size of blocks and building them closer together.

8.    However, as I explained above and Khaw Boon Wan admitted in his Parliamentary answer to Mr Giam’s question, the viability of the SERS scheme depends upon the redevelopment potential of the site. In other words, as long as redevelopment continues to be profitable for HDB which in turn is dependent upon other factors like continued population inflows and high economic growth rates.

9.    KBW stated for the record that if SERS does not make economic sense then the government will allow the leases to expire meaning that HDB owners will get nothing. At some point (certainly when the majority of estates have less than fifty years to run but probably much earlier) the factors that have inflated the HDB bubble will go into reverse. Singaporeans can expect a big fall in HDB prices particularly for older estates where the lease has fewer years to run.  This is a ticking time bomb which could have serious adverse consequences for all Singaporeans leaving the majority who are financially naïve or too trusting of the PAP government with negative equity.

10.   We do not need to make unsubstantiated accusations of fraud , as Roy does, to demonstrate that Singaporeans are getting a bad deal from allowing the PAP to have control over housing and our savings.   Owning the freehold of our properties and the freedom to decide how to save are essential elements in creating a property-owning democracy.  A property owning class is the basis for a strong middle class and the government ownership of land and housing is the single biggest obstacle to the creation of a strong middle in Singapore.  That is why you see such a disparity between the 10% of plutocrats at the top and the 87% of the rest who have the pleasure of the government as their landlord. With a strong middle class HDB housing could return to its original function as social housing for the truly needy and provide a valuable safety net.

As I stated in my earlier articles the Government owns the freehold of your HDB and will be the one to profit should there be profitable redevelopment opportunities. When Singapore’s population was rising rapidly due to the PAP’s open door policy on foreign workers, there was growing demand for housing which meant it was profitable for the Government to compulsorily buy back your 10-or 20-storey block, demolish it and replace it with a 40-or 50-storey one. For a small fee HDB owners were allowed to “upgrade” to a smaller flat in a larger block often in a less central and therefore less valuable neighbourhood. Singaporeans were ecstatically happy because they thought this was a generous government swapping old flats for new while the Government made the real money and you lost out compared to private condo owners who sell en-bloc.

Obviously now the Government cannot grow the population as fast as it would like (though recent high economic growth rates may indicate that controls on employment of foreign labour are being eased) and inflate away its implicit promise to HDB owners. So the CEO of HDB, Cheong Koon Hean, and Lawrence Wong (Khaw Boon Wan’s successor at the Ministry of National Development) are now trying to let the air out of the balloon and deflate Singaporean’s expectations while also getting the PAP off the hook.

Wong said last year,  “As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly. So buyers need to do their due diligence and be realistic when buying flats with short leases.”

 Recently Cheong, speaking at an Institute of Policy Studies Forum said:

“You should buy a flat, as you say it commensurate with the lease. The price you pay should commensurate with the lease. As you should buy a flat that would last you a lifetime.”

It has been part of the Reform Party‘s manifesto since 2011 to give Singaporeans the freehold of their HDB as the solution to this problem and in order to create a true property-owning democracy. We said this in our election rallies and press releases at the time. But of course this is never mentioned unless like everything else I have written it is stolen and attributed to someone else, usually a member of the majority race.

Since 2009 I have been writing about the PAP’s fake ways of generating economic growth, creating the illusion of prosperity for Western observers, while our productivity levels remain abysmal compared to other developed countries, let alone cities with which we should be properly compared. My ideas have entered the mainstream and gained widespread acceptance but I am never rightfully credited. The misnamed Independent, whose ownership is shadowy but definitely includes Leon Perera and other PAP-associated figures, is just one of the more egregious examples of this appropriation. The Independent has even blocked me and the Reform Party on Twitter. But all the misappropriation only serves to illustrate that imitation is indeed the sincerest form of flattery.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam