TR EMERITUS

Written by Our Correspondent For the second time in a month, National Development Minister Mr Mah Bow Tan had reassured Singaporeans again that "HDB is committed to ensuring a sufficient supply of new flats and keeping flats affordable, especially for those setting up their first home." in a written reply to a question from Madam Ho Geok Choo (West Coast GRC). Two weeks ago, Mr Mah admitted he had been "caught off guard" by the sky-rocketing prices of resale HDB flats which hit a record high in June last year, fueled partly by the relentless influx of foreigners into Singapore. Below is a graph illustrating how the rise in the prices of resale flats coincides with the rise in the number of foreigners in Singapore between the years 2000 and 2008, courtesy of Kojakbt, the moderator of 3in1kopitiam:   Due to the ruling party's liberal immigration policy, foreigners now made up 36 per cent of Singapore’s population, up from 14 per cent in 1990. According to Home Affairs Minister Wong Kan Seng, there are over 20,000 new citizens and 90,000 PRs last year. As PRs are permitted to buy resale HDB flats in Singapore, their rising numbers had led to an increase in demand for public housing. Propnex CEO Mohamad Ismail estimated that 20 per cent of the buyers of HDB resale flats are PRs. Another real estate agency, C&H quoted a figure as high as 50 per cent. PRs frequently "spoil" the market by overpaying for HDB flats. An Indonesian PR paid an astonishingly high price of $653,000 for a 4-room resale flat in Queenstown when he could well afford a private apartment. As the prices of new flats are pegged to that of resale flats in the vicinity, this led indirectly to the high launching prices of the Dawson project in Queenstown a few months later. Despite Mr Mah's repeated claims that there is "adequate" supply of HDB flats to meet public demand, it appears that his ministry had failed to plan ahead for Singapore’s increased population now a few years ago as evident from the housing statistics provided by HDB in its financial report for FY2008/09. [Source: HDB Financial Report 2008/2009] As we can see from the above figures, the number of flats built by HDB for the last three years average about 3,ooo plus a year which is way below the number in the preceding 5 years. 55,515 flats were built between 2001 – 2005, or an average of about 11,000 flats a year. From 1996 – 2000, 158,621 flats were built. Why are there fewer flats built when the rate of immigration was increased during the same period of time between 2006 – 2008? It doesn’t take an economist to figure out that the rising demand for public housing in the face of limited supply of flats will lead to inflation in prices with some first-time home buyers missing out on their choice of flats or being priced out of the market altogether. In two recent sale exercises of BTO and balance flats, they were more than 10 times over-subscribed, an indication of the severity of the housing shortage on the ground.   [Source: HDB Financial Report 2008/2009] We can see from the above table that there were 9,870 bookings for new flats for only 3,183 units completed in 2008. Mr Mah also said that "the onus is on Singaporeans to play their part by buying a home within their means." He had previously castigated first time home buyers who have been complaining about not being able to get a flat of their choice for being "choosy". Quoting the affordability benchmark of 30 per cent used frequently by HDB to show that HDB flats remain affordable to ordinary Singaporeans, Mr Mah said a family with a monthly income of $3,000 can buy a flat worth up to $250,000 and spend only 30 per cent of their income every month on the mortgage. "Similarly, a family with a monthly income of $4,000 can afford to buy a new flat worth up to $333,000 without spending more than 30 per cent a month on the mortgage. This means they can comfortably buy any of the flats offered in the latest BTO projects this month," he added. However, Mr Mah fails to take into account the bank interest rates and inflation over the years which will lead eventually to the family spending more than 30 per cent of their monthly income on the mortgage. Furthermore, after depleting their entire CPF for these over-priced 99-year leasehold HDB flats, they will have little or no savings left for their retirement. It appears that Mr Mah and his colleagues are unable to comprehend the hardships and sufferings of ordinary Singaporeans, especially first-time home buyers who are under great stress to afford a roof over their heads. In an earlier statement, Mr Mah even urged home buyers to be “realistic” in their expectations of public housing saying that HDB cannot meet all expectations of home buyers even though the standard of housing has increased over the years. Singaporeans are paying Mr Mah's unrealistic salary for him to come out with such unrealistic statements. Perhaps the ruling party should be more realistic of their expectations in the next GE as well.   Related articles: >> Grace Fu: hard to predict demand for housing >> Indonesian PR bought 4-room flat at $653,000 >> Mah Bow Tan asks home buyers to be realistic >> PAP MP blames young couples who cannot get a flat for not planning ahead >> Home affordability: HDB versus the public >> Demand vs supply: so many applicants, so few flats >> Number of applicants exceed number of flats >> HDB to increase supply of flats >> Mah: don’t compare with prices in the past >> ERA: 40 per cent of HDB flat buyers are PRs  Read More →

Written by Our Correspondent Singapore's prominent writer Dr Catherine Lim has written a letter to The Straits Times Forum yesterday expressing her "surprise" at the "cooling-off" day introduced recently by the ruling PAP. Prime Minister Lee Hsien Loong announced last month that an additional “cooling-off” day will be introduced in the next general election on the eve of polling day itself to enable voters to make a “calm” and “rational” decision and to prevent “public disorders” from happening. All mass rallies, door-to-door visits and public displays of party logos are banned on the “cooling-off” day. The ban will also be applied to the internet where websites of political parties and socio-political blogs are expected to adhere to the new rule. However, the traditional broadcasts of various parties as well as reports on the election in the mainstream media will continue on “cooling-off” day. Dr Lim described her immediate response as: "Why, the People's Action Party (PAP) must be feeling very insecure." She opined that the decision must be driven by self-interest to "give it an advantage at the polls, that is, more Singaporeans would vote for the PAP than if there were no ruling." "Since 'cooling off' can only refer to emotions, there must be a PAP fear that the wildly enthusiastic display of emotions by the large crowds at opposition rallies in past general elections is likely to be exploited by the opposition in this coming one. It will build up to a climax towards the end, affecting the voting pattern, and hence, must be prevented........the electorate will include a large number of new, young voters who belong to the noisy, rumbustious world of the Internet, where emotions rather than cool reason prevail. The opposition is sure to make opportunistic use of this new force," she added.  The "cooling-off" day has been criticized by many Singaporeans for giving an unfair advantage to the PAP since the mainstream media is controlled by them and it is still permitted to report on news pertaining to the elections on "cooling-off" day. Though other countries like Australia do have a similar form of "cooling-off" period, the rules apply equally to all political parties and the mainstream media is not owned by the ruling party, unlike in Singapore. The PAP has a rather unsavory reputation of making use of it incumbency to tweak the electoral system to its benefit. For example, it uses the Electoral Boundary Committee under the Prime Minister's Office to redraw electoral boundaries at its whims and fancies to dilute concentration of opposition support and the changes are often announced just before the polls to throw the opposition off guard. Dr Lim wrote that she was suprised that "a shrewd leadership like the PAP could come up with a ruling that first, is of doubtful value and could even backfire; second, exposes an anxiety that could provide political fodder for the opposition, and third, exposes an insecurity that must make even its supporters wonder about how strong, after more than four decades of leadership, the bond between the Government and the people really is." Her letter prompted a swift rebuttal from Dr Yik Keng Yong who wrote to The Straits Times Forum today to show his support for the "cooling-off" day: "Calm, collected and rational voting is what all sensible citizens should seek. Yet who among us is not ruled partly by emotions, letting the heart overrule the head in the heat of the moment? It is easier to be swayed momentarily by demagoguery and emotional argument than by rational reasoning. Nothing remedies this better than a good night's rest and some rational reflection, after which convictions can be firmed and action taken without room for remorse. Dr Lim may ascribe PAP insecurity and anxiety to this new policy, but in the final analysis, the PAP's idea is more conducive to the election." Dr Lim first crossed swords with the PAP in 1994 when she wrote a landmark article published in The Straits Times - "PAP and the People: A Great Affective Divide”, which peeved then Prime Minister Goh Chok Tong so much that his press secretary challenged her to enter politics and take responsibility for her views. Goh said at a PAP event that Lim had “gone beyond the pale” to imply that he was not really in charge in the article. “When my authority is being commented on or undermined by wrong observations, I have to correct them, or the view will prevail that I am indeed not in charge of Singapore…..If left unchecked, snide comments would, over time, erode the people’s respect for the office,” he said. Lee Kuan Yew dismissed Catherine Lim’s views as “the popular theory that the Western press writes about.” In his memoirs, Lee is quoted as saying: “Supposing Catherine Lim was writing about me and not the prime minister….She would not dare, right? Because my posture, my response has been such that nobody doubts that if you take me on, I will put on knuckle-dusters and catch you in a cul-de-sac….There is no other way you can govern in a Chinese society.” Catherine Lim did not join politics. Her column was subsequently stopped by the Straits Times and she remained on the fringes of Singapore socio-political life with few young Singaporeans even remotely aware of her existence. Read more of Dr Catherine Lim's writings on her blog here  Read More →

 By Damon Yeo  Government Investment Corp (GIC)’s massive S$1 billion loss on their Stuyvesant Town investment is shrouded in much mystery. Before the news of a default broke out, very few outside of the GIC framework actually knew that our national sovereign wealth fund actually had an open position in this upmarket New York real estate. There was no mention of this investment in GIC’s annual report 2008/09 and if you search for “Stuyvesant” on GIC’s official website site, a nil search is returned (try it).  What is Stuyvesant Town?  Peter Cooper Village - Stuyvesant Town Together with Peter Cooper Village, Stuyvesant Town is a large residential development in Manhattan, New York City. It was completed in 1947 and covers an area of 80 acres (about 80 football fields), has over 8,500 apartments in 35 blocks of building. Almost 25,000 people reside in this development.  In 2006, Metropolitan Life, who had owned this development since 1947, decided to cash in and sell it off to a joint venture between Tishman Speyer Properties (a real estate company) and BlackRock (an asset management company). Eventually, the deal was transacted at US$5.4billion, the largest deal for a single American property in modern times.  The $5.4bn deal was not a popular one  In 2006, during the impending sale of Stuyvesant Town, many of the tenants organised groups to actually protest against it. Many of them felt that with the sale, the new owners are likely to convert the entire development into an upmarket one and thus the community spirit shared amongst the existing tenants will be lost.  In fact, this group did manage to organise a separate buyout bid and came within S$100million of that of the Tishman / BlackRock joint venture. After the deal was concluded, there was continued distrust between prominent tenants and the new owners. Blogs (such as this) were set up by tenants to vent their frustration on the new owners.  The deal was a complex one  This $5.4billion deal is by no means a straightforward one. Tishman Speyer and BlackRock brokered the deal, but each only invested S$112.5million into the investment. Thereafter, they entered S$3billion mortgage loan with Wachovia Bank and a $1.4billion of mezzanine debt.  The investment in Stuyvesant Town was then repackaged with other commercial loans and sold as securities to a host of investors. This list of investors includes our very own GIC, Allied Bank of Ireland, the Church of England and a host of other banks. The largest investor is Freddie Mac and Fannie Mae (both bailed out by the US government in 2008), with almost $2bn in stake.  These investors are not ranked equally when it comes to debt repayment. The most “senior” holders will always be the first to be repaid when the most “junior” will absorb the first losses. To compensate the risk, junior debt holders are paid much higher interest. This is structure is very similar to Collateral Debt Obligations (CDOs), a widely publicised exotic financial product during the early days of the current financial crisis (which some claimed to be the catalyst of the crisis in the first place).  In this particular deal, it was revealed that Fannie Mae and Freddie Mac own the most senior tranche of this debt. It is not disclosed where GIC sits in terms of seniority with respect to the other investors. What is clear is that this investment is worthless to GIC if the value falls below $2bn.  The deal was a risky one  Right from the beginning, many observers have noted that the 2006 deal was a very risky one. Some analysts had labelled it a $5.4billion bet from the start.  It was noted that at the existing mortgage levels, the investors were never going to receive enough repayments cover the initial cash outlay. The deal will only be worthwhile if real estate prices maintained at 2006 levels and the owners managed to increase rental rates a few folds over the next few years.  In March last year, it was clear that future rental increase is going to be difficult when the Supreme Court in New York ruled that rents were wrongly raised. The landmark court ruling was a hammer blow to Tishman, BlackRock and all investors of the deal.  Coupled by the collapse of the residential house prices throughout the United States, the market value of Stuyvesant Town fell to an estimated S$1.8billion at the turn of the year.  The default is the beginning of things to come  Tishman and BlackRock’s default on the interest payment is the beginning of things to come.  It seems that the debt holders (including GIC) had decided to demand payment, meaning that it could lead to foreclosure. Under a foreclosure, Tishman and BlackRock will be forced to liquidate (sell) the investment and use the proceeds to pay back the investors (in the order of seniority mentioned above).  Also, there is speculation that this is a ploy on Tishman and BlackRock’s part to obtain a government bailout from the Barack Obama’s administration. After all, the government had bailed out Freddie Mac and Fannie Mae. There is a chance that it will step in here to save this joint venture from the mess.  However, under both scenarios, there is little suggestion that GIC will be able to recoup a single cent from this massive investment.  Source: Bloomberg Other  articles by Damon Yeo: >> The demise of Dubai: How the mighty have fallen >> The minimum wage: pros and cons >> HDB’s 2 billion dollar deficit: More questions than answers >> Singapore v Hong Kong >> DBS and a series of ‘unfortunate events’ >> Sale of Chartered – An Anatomy >> 3rd most competitive nation in the world and what it means to the average worker   About the Author: Damon is a proud graduate of Nanyang Technological University in 2004 with a degree in Accountancy. He is currently working in the finance department of a UK Bank. He is also a regular contributor at redsports.sg.  Read More →