Staying cool in the hot seat
National Development Minister Khaw Boon Wan talks about the science and art of keeping in step with the market
By Jessica Cheam, The Straits Times, 3 Jun 2012
You could say he asked for it. When Mr Khaw Boon Wan volunteered for the hot seat at the National Development Ministry, it caused him many sleepless nights initially.
Housing had emerged as a highly emotive topic in the General Election in May last year and he was under pressure to fix the problem fast.
So why did he volunteer for the job?
Mr Khaw tells Think he could have stayed on at his old job in the Health Ministry but chose not to.
A year has passed and Mr Khaw says he now sleeps 'much better'.
The reason is a calmer, more stable housing market in which queues for first-time buyers of HDB flats have shortened significantly. Even second-time home buyers have been allocated more flats - 15 per cent of new flats launched, up from 5 per cent. Price growth in the resale market has also slowed.
But some sticky facts remain.
Home prices are still at historic highs. Some home buyers chafe at having to shoulder loans that they will take 30 years to repay, so as to own a home. The situation is causing many to ask if this is the new equilibrium for Singapore's housing market.
Mr Khaw takes the long view on the situation. He says: 'I've gone through many property cycles and at the height of each one, everyone worries that it will remain that way. But what goes up must come down, so I'm more relaxed.'
For him, what matters is that prices are no longer spiking.
He admits that the gap between income growth and home prices has widened. Resale HDB flat prices, for example, have risen by more than a third since 2009, but wage growth for most has lagged far behind.
So the gap must narrow, says Mr Khaw. The question is how?
'You can do it the drastic way in a sharp correction which will cause a lot of hardship, or gently do a 'soft landing',' he says.
'That's what we've been trying to do, and so far, so good. But I'm keeping my fingers crossed because the global economy and liquidity are beyond our control.'
Part of his arsenal to control prices is to tackle supply and stabilise new flat prices.
But the HDB's ambitious building programme of over 50,000 new flats in two years has a flip side - the danger of oversupply.
Analysts have cautioned that a glut of homes in 2014 to 2015 may cause a price correction in both private and public housing markets - something that happened in the late 1990s, when the HDB built tens of thousands of flats according to the number of applicants on its waiting list.
This demand vanished overnight when the Asian financial crisis struck in 1997, leaving the HDB with a large unsold stock - with high holding costs.
This risk, says Mr Khaw who joined politics in 2001, is one that the Government 'must always be mindful of' and that is why it is important to closely monitor the market and not be complacent.
'It is both a science and an art. And we also need a lot of good luck,' he said. For example, if the global economy collapses because of the euro zone crisis, demand could evaporate quickly and many units will be unsold.
'This is why I regularly remind Singaporeans about buying houses within their budget, and assuming a normal interest rate, not the current unreal interest rate. Prudence will avoid problems.'
He also revealed for the first time that once the HDB clears the current backlog of demand for homes, it is thinking of keeping an inventory of unsold flats. That was a move some industry watchers called for previously, to enable better management of demand.
'Some stock of unsold flats is a good thing to have... but it will cost us money,' says Mr Khaw.
While the Government will do its part to keep prices in check, the minister also wants home buyers to do their part - by buying flats of a size and price commensurate with their income level.
On complaints that buyers have to shoulder 30-year home loans, he says: 'If your income level affords you a three-room but you insist on getting a five-room, then of course you may even need 40 years.'
He noted that HDB had extended the maximum loan repayment term from 25 years to 30 years in 1997 because the public had demanded it.
It all boils down to whether home buyers 'want to burden' themselves unnecessarily, he says, adding: 'We can only offer advice. It's your decision.'
He hopes couples will buy a first home that suits their income. When their salary goes up, and if the economy is doing well, the home value should also appreciate and 'that escalation helps you to be able to afford a larger unit' - or even upgrade to a private property, he says.
That is what he himself did. He started off in a Bedok three-room rental flat, then bought a small 30-year-old terraced house of 900 sq ft, and then upgraded to a semi-detached house where he now lives.
The bottom line, he says, is young couples should not worry.
'I can understand that they worry a lot, seeing prices, day in and day out, keep going up... but just as interest rates will not always remain low, they should not assume that prices will continue to go up.'
And even as many are looking for ways to cash in on the property boom, he sees it as his job to urge prudence.
'I know when the party is hot, party-poopers are not popular. They get booed. But it is my duty to sound the alert. It is an occupational hazard to be jeered at sometimes, for doing what is right. Fortunately, I believe most Singaporeans appreciate the reminder. From time to time, they e-mail me to say so.'
Costly but good move
Some stock of unsold flats is a good thing to have... but it will cost us money.
On HDB keeping an inventory of unsold flats
Duty to sound alert
I know when the party is hot, party-poopers are not popular. They get booed. But it is my duty to sound the alert.
On his urging prudence in a property boom
Soft landing better
You can do it the drastic way in a sharp correction which will cause a lot of hardship, or gently do a 'soft landing'. That's what we've been trying to do, and so far, so good. But I'm keeping my fingers crossed because the global economy and liquidity are beyond our control.
On narrowing the gap between income growth and home prices
Govt's intent of promoting home ownership 'hasn't changed'
Q: Has the Government's fundamental approach to housing changed since the general election?
The strategic intent of promoting home ownership has not changed... What made housing hot was a sudden rapid expansion in our population in recent years, without commensurate investment in housing. The imbalance in supply and demand led to a sharp increase in property prices. Meanwhile, global liquidity - and the associated very low mortgage loan interest - encourages property investments and further pushes up property prices.
Low interest rate will not stay forever. It is bound to creep up again, to its normal level. While global liquidity and interest rates are beyond our control, supply of new housing units is. Hence, my focus is on ramping up supply, both HDB and private condos.
After a year at it, the market has shown signs of stabilising, though there are still some pockets of hot activities, which merit close attention.
Q: The pricing of build-to-order flats was a hot political issue and there was a debate on a cost-based versus market-based pricing. Analysts have noted that new flat prices in the past year have decoupled from resale flat prices. Has the fundamental approach to pricing changed?
HDB pricing is a complex subject as it has to take into account a number of factors, including land cost, construction cost and the market price of similar units in the vicinity. This general approach has not changed.
The pricing takes into account both the cost as well as the market price. You can make adjustments here and there... to help stabilise the market, which is what I've done in the past 12 months. But you cannot completely decouple it. For example, if we did not work on the supply side, the market will continue to escalate and you can't keep holding prices because you'll find the gap getting wider and wider. And when you need to make the adjustment, it'll be very painful for everybody.
But because we've been deliberately aggressive on the supply side... the pricing can also be more stable. To be very clear, it's not a mono-dimensional sort of formula, it's multi-factorial. Supply is a big factor and is within our control fortunately.
Q: Some analysts say there is a risk of a supply glut in a few years - do you agree?
This is a risk. It is very difficult to match supply perfectly with demand. Hence, there is bubble and bust. Currently, it is undersupply. Next, it may be oversupply.
You must have some general idea of what you want to do over the next five to 10 years, but quarter by quarter, you should be mindful and make adjustments. Even then, it'll be hard to match perfectly, because no one has been able to do so.
Q: You mention that HDB might hold an inventory of unsold flats, can you elaborate?
That's something for me to think about... some stock of unsold flats is a good thing to have; it will cost us money, but it's a cost that we may need to bear, then it's a question of how to make better use of the unsold units, and what is a good level of inventory?
Maybe we can rent them out at market rates... those are the possibilities I'm thinking of but I don't have to make a firm decision until I have cleared the backlog.
We are clearing it for first-timers, and also for second-timers... over the next 12 months, I hope we can allocate more flats to the latter group (from the current 15 per cent).
Q: There was this issue of pricing of land. Some have pointed out prices of new flats can be further lowered if the Singapore Land Authority (SLA) priced it lower?
That one I'm a price taker because I don't own the land. SLA sells us land, and land is valued by the chief valuer. Public housing is zoned differently. It is not priced the same as private condo land.
But of course if the general property market is rising, even though it is zoned different, the price also rises.
Q: But some say it's a matter of 'left pocket, right pocket' for the Government since SLA prices the land? Can it be priced lower?
It is already discounted land. Of course everyone wants more discount, but at the end of the day, somebody has to fund the discount. So we have to see what is the long-term sustainable thing.
More investment = more jobs = more foreigners
Khaw explains policy dilemma during difficult times in 2005 and 2006
By Jessica Cheam, The Straits Times, 4 Jun 2012
THE Government's 'yes' to investments and inflows of foreign workers which led to today's infrastructure crunch is also why Singapore now enjoys low unemployment and has room to raise wages at the bottom.
National Development Minister Khaw Boon Wan made this point in a recent interview with The Straits Times, pointing out that from 2005 to 2006 following the 2003 Sars crisis and recession, Singapore was experiencing 'difficult times'.
It was looking for investments to create jobs for Singaporeans, but companies also needed foreigners to fill positions that required a wide range of skill sets.
People forget those were trying times for Singapore, he said, when the future was uncertain and the country struggled for a stretch to secure investments. Then suddenly, they came in a bunch.
'Do we take them or miss them? Sometimes we have to take a decision which has both negative as well as positive consequences. We have to weigh and make the trade-offs,' he said.
So the Government had to make the tough choice of accepting the investments 'knowing they'll be good for the country, but at the same time (knowing) infrastructure will be hit'.
He was responding to a question on whether the Government would have done anything differently if it could go back four to five years.
If it had sought to be 'populist', it would have said 'no' to the big firms, he said. Then, when the global financial crisis hit in 2008, Singapore would have suffered badly.
It might still be in recession as many more people would have been out of jobs - but trains would be less crowded, he said.
But because it welcomed the investments, Singapore's economy bounced back with record 14.7 per cent gross domestic product growth in 2010.
That has kept unemployment low and enabled the National Wages Council to recommend wage adjustments upwards recently, he said.
So which is the better outcome? he asked. Today, it is 'very hard to find consensus', but the answer to that question would have been a 'no-brainer' 20 years ago. That is because there is now a comfortable middle-class who would rather forgo the investments, he said.
But young people graduating will want opportunities and jobs, he added. 'You will get different reactions from different groups.'
The minister, who is also chairman of the People's Action Party (PAP), is optimistic that the 'infrastructure deficit' can be fixed - and anti-foreigner sentiment brewing in Singapore will ease.
His comments come a year after a watershed general election in which voters expressed unhappiness over the rapid inflow of foreigners and its adverse impact on infrastructure such as housing and transport, and the cost of living.
Asked what the PAP's biggest challenge is, Mr Khaw spoke of the challenge of satisfying a maturing society made up of groups whose interests diverge from one another's.
'Yet, you have to govern. You have to take into account what is the majority interest,' he said.
KHAW BOON WAN ON A MATURING SOCIETY'S DIVERSE INTERESTS AND THE NEED FOR TRADE-OFFS
Do you think the PAP can maintain its share of the popular vote in the coming years?
We must try. What would it take? It requires our voters to understand the larger picture and accept the need for trade-offs. It also requires the Government to explain more, engage more, and earn the trust and confidence of the people. The first two generations of political leaders and the people went through crises and became bonded. A new generation will need to forge a similar bond of trust and confidence.
How will the Government get as many people on board with the decisions it has to make?
Engagement is necessary but not sufficient. It requires a certain maturity that at the end of the day, hard decisions, involving trade-offs, need to be made. Not all views can be taken on board. Indeed, as society matures, diverse interest groups will emerge, with often contradictory needs. There is no way one can satisfy all groups.
For it to work, we need patience and trust. Patience because it is time-consuming. Trust because without it, there can be no consensus or compromise.
What are the challenges ahead for the PAP?
That satisfying all almost becomes impossible. What makes populist slogans attractive is they only tell half the story. They tell you what you like to hear but they haven't given you the bill. A responsible party must give both sides of the balance sheet. But very few or none of the opposition parties are doing that. And that's why incumbents find it challenging - not just here but all over the world.
Fortunately, the majority of Singaporeans do understand and support a responsible government. But what we must guard against is an overswing... and to retreat from globalisation.
Singapore succeeded because we opened to the world. It will continue to need to open to the world to succeed. Or our children will leave us for better opportunities elsewhere and we will be very lonely without them when we grow old. That will be very sad. Japan is a good live example.
Any thoughts on the Hougang by-election?
It was a local election and it's over. So let's get back to business. We have many things to address. The world is in a state of flux, we're bound to have many crises, big and small, coming our way over the next few years.
Sometimes I think Singaporeans become too focused on the domestic, forgetting about the larger world. Sometimes we forget... there's no reason for us to be so insulated. The world affects us in multiple ways, we must always be very mindful of what's happening and take challenges in our stride.
Population and demographic challenges are shaping up to be a big issue this year. What are your views on this?
At the end of the day, it is about what kind of Singapore we want. The technical challenge of how to house a particular population size can be solved technically. For example, we can always build higher or go deeper underground. But it is the political and social debate about the preferred nature of our society which is the more important and difficult discussion. What is the proportion of new to old citizens? What is the proportion of foreign to local workers? There are no right or wrong answers.
As someone who was in government for a long time as a civil servant and now in politics, what are your biggest worries for Singapore?
That we forget how we have come so far, and take our future for granted. We succeeded because we have always focused on the longer-term, larger good of the majority, made the right trade-offs, and took the right choices.
If we swing into a purely 'what is in it for me' mode, it will be very worrisome. We will lose our unity and our strength.
No comments:
Post a Comment