I refer to the report “LTA announces changes to Vehicle Quota System” (Channel News Asia, Mar 11).

The report states that the number of COEs is likely to be reduced, which means car prices may go up.

Will higher COE prices mean more revenue for the LTA?

The report also states that the annual allowable growth rate of vehicles halved from 3% to 1.5% last year. This begs the question: Why did we take so many years to finally decide to half the allowable growth rate?

Transport Minister Raymond Lim explained to Parliament on Thursday how the LTA persistently over-projected the amount of cars to be scrapped each year.

He said that the reason was that LTA persistently over-projected every year.

In his own words:

“Let’s say last year we over-projected for the current year, if we over-project it again, we add to the problem”.

So, it would seem from the remarks in Parliament that the LTA allowed the vehicle population to grow at double the sustainable rate, because it persistently “over-projected” the number of vehicles to be scrapped year after year.

Has the LTA performed to expectations in managing sustainable vehicle growth?

Probably not.

Minister Lim also said: “This direct replacement system is similar to that implemented before 1999. But back then, as quota numbers were released annually, there were complaints from industry players that the time-lag was too great”.

Why are we going back to the original system we used before 1999? Since, according to Minister Lim, “there were complaints from industry players that the time-lag was too great”, why didn’t LTA simply change it its policies earlier?

What has been the outcome of all this “self justification”? Why is it assumed that what didn’t work in the past would once again become the best way to make it work in the future?

Well, perhaps a lot of money?

Let’s look at the Budget.

Which ministry has the highest estimated Operating Revenue (other than the Ministry of Finance at $35.9 billion) for FY2010 of $2.7 billion? Answer: The Ministry of Transport.

For revenue from Excise Duties, the highest contributor is Motor Vehicles at $425 million, a whopping increase of 17.5 per cent over FY2009.

For Licenses and Permits, the highest contributor is Transport and Communication at $1.2 billion, a whopping increase of 34.1 per cent.

What Key Performance Indicators (KPIs) do we use to evaluate our transport ministry?

Maybe there is something wrong with the KPIs?

Did persistently over-projection resulting in much higher vehicle population growth lead to higher revenue?

Would reducing supply of COEs now also lead to higher revenue?

Would returning to the original system before 1999 lead again to higher revenue?

As an analogy, if a company pays its CEO more money when the traffic that he is supposed to regulate becomes more congested, when customer satisfaction declines because they keep having to pay more for a deteriorating service, and alternative public transport options are also declining in service standards and public transport fares keep rising, what is the incentive for the CEO to improve his performance?

Perhaps we need to align the KPIs with the desired outcomes.

How about penalizing the LTA when traffic congestion increases by transferring some of its revenue to subsidize or improve public transport, give more incentives for “green” vehicles if vehicle pollution increases, demand more subsidies if public transport service standards decline, and demand more transport infrastructure spending if traffic benchmarks deteriorate, etc ?

Normally, most countries have to spend money to solve a problem, but in Singapore, too often, the solution makes more money instead, and the problem never seems to go away! Uniquely Singapore!

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Related posts:

1. More than just money needed to help poor
2. Cutting cheap labour not the solution, says Manpower Minister
3. Raising foreign worker levy will not solve problems, say critics

I refer to the article “Life’s a beach, but it’s no holiday: Parents’ irresponsibility, greed and policy are depriving kids of homes” (ST, Mar 9).

The article begins by mentioning how a certain Mr Yusof lost his job as a technician in early 2006 and was unemployed for the next nine months. Living expenses ate up most of his savings. Unable to pay his loans, he was forced to sell his home in 2007.

But how can this case be cited as an example of an irresponsible parent whose greed deprived his children of a home? Isn’t this an example of a parent who was forced to sell his home by external circumstances?

The article also states that Mr Yusof was given a bank loan large enough to buy a four-room flat when his $800 a month income was the only source of revenue for his family of six”.

Had the Government not allowed banks to indiscriminately grant housing loans for HDB flats from 1 January 2003, tens of thousands of Singaporeans may not have ended up in arrears, lost their HDB flats or CPF savings, or made bankrupt.

To some extent, the woes of the homeless cannot be attributed entirely to them, as Government policy may have played a part too.

Mr Yusof was said to have sold three Housing Board flats in nine years, netting $90,000 in profits, before taking out a hefty bank loan to upgrade to a four-room flat in 2005, a move that cost him dearly.

In this instance, wasn’t Mr Yusof simply subscribing to the government’s much touted asset enhancement policy which involves constant upgrading and ever rising HDB prices?

If you have a policy that allows Singaporeans and permanent residents (PRs) to buy any number of resale HDB flats and sell after only one year of MOP (Minimum Occupation Period), can you fault people for trying to make money in this manner?

Mr Yusof’s main problem wasn’t due to his profiteering from HDB flat sales, some of which he may have ploughed back into subsequent flat purchases. His problems arose because he lost his job and could not find another one for nine months.

Even if he had bought just one flat in his lifetime, he may still have lost his flat and became homeless when he lost his job.

Since his pay was only $800, maybe he was trying to get some cash out of his HDB flat to supplement his meagre income. Otherwise, how do you feed a family of six and make ends meet with a salary of $800 before CPF deductions?

As banks generally do not lend more than a third of one’s monthly income for the mortgage monthly repayment, what exactly was the quantum of the “hefty” bank housing loan?

Mr Yusof could not even get a job that paid the paltry $800 that he had lost. Why is it that the highest unemployment rate among all the categories of workers belong to the cleaners, labourers and general workers?

To what extent has Government’s labour policy on foreign workers contributed to Mr Yusof’s problem, such that he could not even get an $800 job?

Why is it that those jobs which we are constantly told that Singaporeans do not want have the highest unemployment rate? Does it mean that even cleaners can’t compete with foreign workers to get a job after they lose their current cleaner’s job?

The article also mentions: “Some time ago, HDB discovered that one retired couple in the rental flat queue had no income, but owned nine private properties worth $6 million. Such people delay the truly needy from getting shelter”

Instead of just citing examples like this couple or Mr Yusof, can the HDB provide statistics on the percentage of rental flats whose owners are similar to the couple mentioned, or what percentage of rental flats are occupied by people who are in Mr Yusof’s situation?

By the way, why do we always get examples of irresponsible Singaporeans who lost their HDB flat due to bank loans and not that of a HDB loan?

As more people have an affordability issue with rising HDB prices due to HDB policies, as evidenced by the 30,770 HDB loans in arrears over three months as of September 2009 (not including HDB bank loans), more people will become homeless.

The article goes on to mention the case of a 27-year-old divorcee who earns $800 a month and has never taken an HDB loan, but who has been repeatedly denied the chance to rent or buy a resale flat with her six-year-old daughter because the child was born out of wedlock.

The article stated:

“The duo shared a one-room flat with her siblings for a year. But the others drank and smoked heavily and brought home strangers at night. After this newspaper inquired about her plight with the HDB, she was told she would be given a rental flat on ‘compassionate’ grounds. She faces a year-long wait for a home – no thanks to those who could find some other place to stay but who try their luck for a rental flat.”

If the HDB did not give 2,200 SERS acquisition flats to managing agents like EM Services to rent out to tenants like foreign workers, would this mother with a six-year-old daughter have to wait a whole year for a home?

As I understand that the current rental queue is about 4,000 plus, with each flat housing two to three families, does it mean that no needy family may have to wait at all, if all the flats rented to foreigners were given to Singaporeans?

The root cause of the problem of the homeless, or absence of rental flats available for the homeless, may be due to the HDB’s poor planning in projecting supply to meet demand, and policies that keep driving up prices like its Market Subsidy Pricing policy.

In support of my above remarks, I would like to refer to media reports on the debates in Parliament, in which it was said that the HDB will not go back to the former Build-to-sell (BTS) system from the current Build-to-order(BTO) system.

The reasons given was that in the wake of the Asian financial crisis in 1977, the HDB was at one point left with 31,000 unsold flats which took five years to clear, and that the waiting time for BTS was six to seven years compared to the shorter BTO waiting time of around 3.5 years now.

I think the reason why the HDB was left with 31,000 unsold flats was due primarily to the fact that the wrong type of flats that were built.

Had the flats built been 2, 3 and 4-room flats, instead of 5-room and executive flats, there may not have been so many unsold flats.

As to the BTS waiting time being six to seven years, I think this was the longest waiting time in HDB’s history because of the relatively lower HDB prices then and thus the high demand at that time.

In fact, the waiting time was zero during the period when there were unsold flats.

The problem with BTO may be that since we are not projecting demand in the future, and given that the typical Minimum Occupation Period (MOP) is five years, it may take about 8.5 years (3.5 years to build plus 5 years MOP) before a flat is available for the resale market.

This may have lead to the high increase in resale prices in recent years, with 79,000 and 59,500 new permanent residents (PRs) in 2008 and 2009 respectively.

Since new HDB flat prices are pegged to resale prices under the Market Subsidy Pricing policy, this may also have caused the affordability of new flats to be an increasingly contentious issue.

The HDB should not take the easy way out by not planning ahead, as no private developer or public housing authority in the world can do away with the need to project demand and supply.

For without planning and projections for the future, not only will PRs but also foreigners who may need to rent HDB flats may find the supply so inadequate, that prices of both new and resale flats, and rentals, may continue to escalate in the future.

Moreover, under a “BTO only” system of public housing, down-graders and those who cannot pay like the 30,770 flat-owners who were over three months in arrears, as of September 2009, may have no new smaller flats to down-grade to.

Finally, why is it that there is such a high number of 31,000 flats left unsold, and why was never disclosed until now?

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Related posts:

1. HDB housing policies – tilting the advantage towards PRs?
2. Straits Times’ outrageous opinion piece on homelessness
3. Providing affordable housing – HDB should re-look policies

According to the article “Parliament: Transformation budget for future” published in My Paper on 5 March, the Finance Minister was quoted as having rebutted opposition MP Low Thia Khiang’s (Hougang) claim that the Government had depressed wages of lower-income citizens by letting in more foreign workers.

Mr Tharman Shanmugaratnam said: “By allowing the economy to grow rapidly in the second half of the (last) decade, we were able to bring unemployment down and grow the incomes of Singaporeans.”

Ample statistics were cited: the unemployment rate for residents fell from six per cent in 2003 to 2.4 per cent by end-2007; median income grew by 20 per cent over the decade after adjustment for inflation, while that of low-income households grew by seven per cent over the decade.

Firstly, is the seven per cent figure quoted for the lower-income households also adjusted for inflation?

To put things in perspective, the bottom quintile of households’ income declined by about 1.7 per cent per annum in real terms from 1998 to 2008. In 2009, median income dropped by a further 2.5 per cent in real terms.

In Parliament, Mr Tharman also gave an example of a couple in their mid-20s earning an income in the lowest 20 per cent bracket. Together, they earn about $1,500 a month, own a three-room flat and have two children.

The Finance Minister said that over the next 60 years, this family can expect help totalling about $460,000, after accounting for inflation. (Source: “No lack of help for low-wage workers”, ST, 5 Mar)

There is no detailed break-down of how the $460,000 is derived. How is the inflation adjustment done? For example, does it mean that a $1,000 benefit adjusted for inflation at two per cent may be counted as an increasing amount every year such that it will be $2,208 and $3,281 in the 40th and 60th year respectively? Are there any countries in the world that calculates social benefits to citizens in this way?

The mainstream media also reports that from this year’s budget, each Singaporean in the bottom 10 per cent of income earners will get $869 in benefits, including GST credits, living cost rebates and top-ups to CPF accounts.

Most of these benefits are not extra cash that can be utilised.

For example, Medisave top-ups can only be used for medical expenses.

Top-ups to Post-secondary school Education Accounts can only be used when the children enter tertiary education, by which time the increase in fees may be more than the top-ups

Only 29 per cent of Workfare is paid in cash with the balance 71 per cent credited to the CPF account (not the Ordinary Account).

GST Credits are to offset the GST increase and not extra cash per se.

Electricity tariffs, property taxes, and Service and Conservancy Charges have all increased over the years.

While there are course fee subsidies given for Workforce Development Agency-approved courses as well as bonus payments upon completion of training under the new Workfare Training Supplement scheme, how can we assume that the lower-income family will be able to find the time to go for such training?

On subletting concerns, National Development Minister Mah Bow Tan said that of the 682,000 flats that have fulfilled the Minimum Occupation Period (MOP) and are eligible for subletting, only 23,200 or three per cent are sublet, which suggests that most flat owners are buying their flats for occupation, and not rental.

However, according to the report “More turn to sub-letting HDB flats” by Channel News Asia on 9 November 2009, between April last year and March this year, the Housing and Development Board (HDB) approved 22,754 such applications, or 4,019 units more than in the previous year.

So, is it that only 23,200 flats are sublet in total, or 22,754 sub-let applications were approved in just one year?

Deputy Prime Minister Wong Kan Seng said that the Government hears and understands Singaporeans’ concerns about the influx of immigrants in recent years. So it has refined the requirements for permanent residents (PRs) and new citizens, even as it continues to take them in to top up Singapore’s declining population. As one indication, there were 59,500 new PRs last year, down from 79,200 in 2008, and 19,900 new citizens, compared to 20,500 a year ago.

However, with unemployment rising to an average of 87,000 in 2009 during Singapore’s worst recession, is it justified that the yearly intake of new PRs and citizens declined by only 20,300 or 20 per cent?

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Related posts:

1. Uniquely Singapore – F1 or F9: Income statistics?
2. Uniquely Singapore, F1 or F9?: Inflation up, HDB property tax up, statistics disappear, Ministers’ pay up again soon
3. Uniquely Singapore, F1 or F9 – Workfare statistics?

I refer to the article “Sovereign funds seen twice shy” (My Paper, Mar 3).

This is what the article states:

“It took the Government of Singapore Investment Corp three days in 2007 to agree to prop up UBS AG, ailing from subprime losses. It may take a decade to recoup that investment of 11 billion Swiss francs (S$14.3 billion). GIC, manager of more than US$100 billion of the country’s foreign reserves, faces a paper loss of about 5.6 billion francs when it becomes the biggest shareholder of UBS on Friday, as shares of Switzerland’s largest bank trade at a third of the conversion price on notes it holds.”

Click image to read article

With this being yet another multi-billion dollars loss for GIC / Temasek, the following questions become pertinent:

• Why is it that the total amount of our foreign reserves in GIC is not public information?
• How much in total did GIC and Temasek lose during the financial crisis?
• How were the investment decisions made? Who made the decisions? What evaluative and decision-making processes were followed?

The article also stated that:

“European and US bank chiefs made personal pitches to the funds during the height of the mortgage-market meltdown. Marcel Ospel, then chairman of Zurich-based UBS, called GIC Chief Investment Officer Ng Kok Song, according to comments they made at the time. Talks began on Dec 6 2007 and by the evening of Dec 9, GIC had committed to make its biggest single purchase at the time.”

So, what actually happened in GIC during those three days?

The article goes on to say:

“Acknowledging that recouping the money might take longer than initially expected, Mr Ng said in GIC’s annual report, published in September, that he still has ‘confidence’ in the ‘long-term prospects’ of the investment.”

Well, the “confidence” and “long-term prospects” of the investment has now devolved into a glaring announcement by the abovementioned article that “It may take a decade to recoup that investment of 11 billion Swiss francs (S$14.3 billion)”.

One statement the article makes stands out:

“One lesson that all investors, including the sovereign wealth funds, learnt from this crisis is that you have to do the due diligence before investing.”

This statement underscores the need to have the answers to the above questions. Otherwise, how do we learn from our mistakes to avoid making them again?

What “due diligence before investing” did GIC do during the three days?

According to the article “Singapore, Abu Dhabi Face Losses on UBS, Citigroup” (Bloomberg, Mar 2), GIC declined to comment on the nature of due diligence carried out.

So, will GIC now give a comment to Singaporeans?

From the various media reports on sovereign wealth funds, it would appear that GIC and Temasek had one of the worst performances amongst such funds during the financial crisis.

GIC-Medisave Link

Well, what has GIC losing billions got to do with allowing Medisave to be used overseas?

According to media reports, from March, Medisave can be used for overseas hospitalisation through two approved healthcare providers.

What was perhaps conspicuously absent in all the media reports was that there was no mention of whether Medishield would cover such overseas hospitalisation.

Medishield currently does not cover hospitalisation overseas, and all the private insurers’ CPF Shield medical insurance plans also do not cover overseas hospitalisation, except in the case of medical emergencies.

Singaporeans and permanent residents who are considering overseas hospitalisation using their Medisave should be alerted to this issue.

Since the proposal to use Medisave for overseas hospitalisation was first mooted about a year ago, why is it that with almost a year to design this new scheme, no consideration has been given to the vital link between insurance coverage and overseas hospitalisation?

As more healthcare providers are approved, and more people may utilise this scheme, because the cost savings can be more than 50 per cent, will it result in less claims and higher surpluses for the Medishield scheme?

Why not disclose the claims experience and surplus of the Medishield scheme now, so that if there is an improvement in the future due to lesser claims in Singapore, the Medishield premiums may be reduced gradually, or cover periodic health screening to benefit from early detection which may lower overall costs in the long run?

As there are additional risks and inconvenience in using overseas hospitalisation, we could also review the current limits for the use of Medisave in Singapore.

In this regard, often patients pay out-of-pocket because the current Medisave limits may not be enough to cover the increasing medical costs in Singapore.

From the perspective of the standard, quality and risks of treatment from the patient’s viewpoint, patients should not have to balance the subjective dilemma of deciding between overseas hospitalisation that are within the Medisave limits against hospitalisation in Singapore which exceed the Medisave limits.

Allowing Medisave to be used overseas may just be a short-term partial solution to the problem of rising healthcare costs in Singapore. Ultimately, we have to consider spending more on healthcare than the current four percent of GDP, of which I understand only about two per cent is public spending.

So, if GIC and Temasek has not lost billions, perhaps we could have spent more on healthcare?

By the way, medical costs have gone up again.

Between 2008 and 2009, the increase in the average bill sizes ranged from three per cent for Class B1 to 10 per cent for Class B2, according to the report “Hospitals bills higher but most did not have to fork out cash” (Channel News Asia, Mar 3).

This means that the percentage increase in the hospitalisation bills incurred by poorer Singaporeans who go to Class B2 wards (10 per cent) is more than three times that of the increase in costs experienced richer patients in Class B1 wards (3 percent).

Surely some of the billions lost may have helped to limit rising medical costs if we had spent more on healthcare.

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Related posts:

1. CPF – F1 or F9 : Pay up to 22% to use MediSave?
2. Sinking funds: From $1 billion in 2007 to $2 billion in 2008
3. Medisave contribution may increase to cover costs – Leong Sze Hian replies

I refer to media reports (“Resorts World Sentosa say 70% of its over 8,000 staff are S’poreans, PRs”, Channel News Asia, 17 February) that Resorts World Sentosa (RWS) said that 70 per cent of its staff strength of over 8,000 are Singaporeans or Permanent Residents. But some who have visited the gaming tables are questioning where exactly are they working?

RWS said since it was awarded the integrated resort in 2006, it has remained committed to hiring Singaporeans as a first priority. But they were not able to give a detailed breakdown on the proportion of locals to foreigners hired to work at the integrated resort.

I was dining at a restaurant located in RWS, and struck up a conversation with the member of staff who was serving me.

I understand that of the dozen or so service staff members working in that restaurant’s open public serving area, 20 per cent come from a neighbouring country while the other 80 per cent is from another Asean country.

Most from the other Asean country are university students who are on a six-month internship here, earning just $430 a month. They also have to pay for their return airfare to Singapore, food, transport and other expenses, although accommodation is provided for them.

These ‘intern’ workers may be competing with Singaporeans for service jobs, and may also contribute to declining wages.

Here’s the context – there are about 401,600 resident workers earning less than $1,200 a month, and about 106,000 households with monthly household incomes below $1,000.

Over the last ten years, the bottom two quintiles of resident workers saw minuscule changes to their incomes – incomes in the bottom quintile slipped 1.7 per cent per annum while that of workers in the 21st to 40th percentile grew only 0.9 per cent per annum.

Are such ‘intern’ low-wage workers subject to the foreign worker levy? Are they counted in the foreign worker quotas imposed upon employers?

Recent newspaper recruitment advertisements from RWS state that “only Singaporeans and Singapore PRs are invited to apply”, but also say that “foreign students that are eligible to work under MOM’s [Ministry of Manpower] Work Pass exemption policy may also apply for our F&B [food and beverage] part-time positions”.

As there are about 150,000 foreign students in private tertiary institutions in Singapore, if we add the foreign universities’ “interns”, how many “intern” low-wage workers are there in total in a year?

Government statistics state that there are about one million foreign workers here, of which about 856,000 are on work permits and 82,000 on the S Pass. Are these short-tem “interns”, short-term project workers, green pass workers and so on included?

If an adjustment is made to account for these “short-term” workers, how many foreign workers are there in total in a year?

In the somewhat contentious debate about whether the two integrated resorts should be built, the primary argument which won the day was that it would create about 35,000 jobs for Singaporeans.

It was then reported in the media that Philippines president Gloria Arroyo said that RWS would provide about 5,000 jobs for Filipinos.

So, now that the IRs are poised to open fully, and in the light of my experience at this restaurant where 100 per cent of the service staff are foreigners, can we have a clarification on the number of jobs in IRs that would go to Singaporeans, permanent residents (PRs) and foreigners?

To provide further anecdotal evidence of the issue, a country club that I have been going to for years used to have food and beverage service staff who were Singaporeans, earning about $1,500 a month.

Over the years, they were replaced by workers from a neighbouring country earning about $1,200. They were subsequently replaced by workers from another Asean country at salaries of $800 a month. Now, the jobs are worth just $550 a month and are worked by private university interns from an Asean country.

The employer’s cost have gone down significantly, as such students do not even need the employer to provide accommodation, unlike the previous foreign workers.

By the way, Marina Bay Sands also said that “it was unable to give an exact figure but added most of the people it has recruited across the entire IR are locals”. (“Marina Bay Sands gears up for April 27 opening with final hiring burst”, Channel News Asia, 25 Feb).

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Related posts:

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2. PM Lee on minority-race PM and foreign workers and retrenchments
3. Local vs foreign workers: Unravelling the debate

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3. The Budget

I refer to the article “HDB residents happy where they live – over 95% surveyed satisfied with their flats and neighbourhood” (Asiaone, 18 February).

I believe the statistic for the number of foreigners staying in HDB flats has been made available for the first time ever. I surmised this from this statement in the report:

“The survey also showed that the HDB resident population, comprising Singapore citizens and permanent residents, increased by 2.7 per cent over 5 years to 2.92 million in 2008.”

“This figure makes up 96 per cent of the total population in HDB flats, of which 88 per cent were citizens, and 8 per cent were permanent residents. The remaining four per cent were foreigners.”

So, does it mean that we have 121,667 foreigners staying in HDB flats, which makes up 4 per cent of the total HDB population (as calculated by taking 2.92 million to be 96 per cent)?

Given the acute shortage of rental housing for Singaporeans, with a queue of over 4,000 applicants and waiting periods of up to two years, how many foreigners are staying in flats which may be indirectly rented out by the HDB through managing agents like EM Services?

Are there any countries in the world whereby one in eight people in public housing are not citizens, since 12 per cent are non-citizens (8 per cent PRs and 4 per cent foreigners)?

The article also states:

“86 per cent – especially those who live in newer flats (less than 5 years) and older flats (21 years and above) – feel that their HDB flats are worth the money they spent mainly because of the appreciation in flat value, good location, proximity to facilities, and affordability.

“For residents of older flats, the main reasons given were the location of their flats, flat prices that had either already appreciated or were expected to have a good resale value in the future.”

This statement seems to be somewhat odd, as it conveniently ignores the bulk of flat owners who live in flats ranging from six to 20 years old.

As the statement suggests, those who live in older flats of over 21 years surely feel that their flats are worth what they spent because HDB flat prices were very low and affordable more than 20 years ago.

Similarly, the newer flats of less than five years may be those which have not met the 5-year Minimum Occupation Period (MOP). These flats had been offered at much lower prices than resale flats, which have seen huge price spikes in only the last two years or so.

Surely, those who went through the 13-year bear market (1996 to 2009) waiting for the HDB Resale Price Index to recover its price level may not be so happy when asked whether their flats were value for money, had appreciated in value, or were affordable. If we factor in the interest payments on housing loans, flats bought from as long as about 15 years ago may still not be making any money at all.

So, are we perhaps telling only ‘half the story’ about value for money and affordability?

Several media reports said that we should not blame others for rising flat prices, because only five percent of flats are owned by PRs and only 20 per cent of resale flats last year were purchased by PRs. Perhaps what we need are not just the statistics on ownership, but on rental as well. How many flats are also rented to PRs and foreigners? Perhaps there’s another case of telling ‘half the story’ here?

Did the survey cover any of the 60,000 flat dwellers who were given financial counselling by the HDB for difficulty in paying for their flats in 2008, or the 30,770 flat-owners in arrears over three months as of September 2009, or the estimated about 60 flats repossessed by the HDB every month, or the unknown number of HDB bank loans in arrears or foreclosed? Perhaps another case of ‘half the story’ here too?

With regards to the statement:

“The survey also showed that the HDB resident population, comprising Singapore citizens and permanent residents, increased by 2.7 per cent over 5 years to 2.92 million in 2008”.

It omits to mention what was the increase in the foreigner HDB resident population over the five years. It is inconsistent to on the one hand give the break-down of the resident population by citizens, PRs and foreigners, but omit foreigners in the rate of increase over the five years.

What we need is the rate of increase in the five years, broken down into Singaporeans, PRs and foreigners, in order to have the ‘full story’.

The HDB press release said: “The average household income from work had also risen from $4,238 in 2003 to $5,680 in 2008, reflecting the growing affluence of HDB households.”

However, for the purpose of a rough comparison for discussion’s sake, according to the Department of Statistics’ (DOS) Household Expenditure Survey released in December 2009, the average monthly household income for HDB flats’ dwellers grew from $4,202 in 2002/3 to $5,503 in 2007/08.

The DOS data for all households, including private housing, had the average monthly household income of the 41st – 60th quintile at $5,480. For their data, the DOS uses HDB flats’ average income as well as the average income of the median total population – the average income of the segment of households that separates the higher and the lower halves of the total population sample.

The problem with such a comparison is that the HDB uses just the average income. This figure is skewed upwards by the high incomes earned by wealthier households – which is a significant distortion given Singapore’s income inequality (BusinessWeek ranked Singapore the second most unequal country in a list of the 11 most unequal advanced economies in the world – our score was 42.5, with 0 being complete equality and 100 being complete inequality).

So, the question is why can’t the HDB use median income as well? This would be more reflective of the income of the average household, like data provided by the DOS.

This is not the first time that the HDB Survey data seems to be out of sync with the DOS data. In 2003, according to the DOS Household Survey, while the household income of those living in private homes grew, those in public flats fell by 0.4 per cent per annum, from $3,860 in 1998 to $3,790 in 2003.

Since about 85 per cent of the population live in public flats, does this mean that the majority of Singaporeans were worse off?

In contrast, according to the HDB Household Survey of the same year, “average household income of HDB flat dwellers rose from $3,719 to $4,238 a month.”

How is it possible that the DOS Household Survey differs so markedly from the HDB Household Survey for apparently the same period, for such a crucial statistic?

I tried searching the HDB web site and the internet for the HDB Sample Household Survey Report, but could not find it.

Instead of just a press release fill with HDB’s selective findings and conclusions, may I suggest that the full report be made available to the public so that we may try to figure out the whole story?

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Photo by Joshua Chiang

References:

http://business.asiaone.com/print/Business/News/Story/A1Story20100218-199359.html

http://www.channelnewsasia.com/stories/singaporelocalnews/view/1038222/1/.html

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_491794.html

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_491802.html

http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/C982024B92F84092482576CD0083862D?OpenDocument

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Related posts:

1. S’poreans more able to afford larger flats?
2. Cost of building HDB flats – finally an answer?
3. Prices of HDB flats – press censorship?

I refer to the reports “MM Lee warns of dangers of slow growth if productivity does not increase” (CNA, Feb 18) and “S’pore income gap narrows” (ST Breaking News, Feb 19).

The former article reported MM Lee as stating that “The island state has a growing economy, increasing real incomes, better homes which are rising in value, and citizens are generally better off”.

Well, the next day, we had the news that the economy contracted and nominal and real incomes shrank.

According to an Occasional Paper released by the Singapore Department of Statistics (DOS) on February 19, under the section “Key Household Income Trends, 2009”, household income from work declined in 2009. The decline in household income from work reflected the weaker labour market conditions in 2009, which saw higher unemployment and lower wages.

It was further stated that “Median monthly household income from work among all resident households declined by 1.9 per cent from $4,950 in 2008 to $4,850 in 2009. After adjusting for consumer price inflation in 2009, median household income from work saw a decline of 2.5 per cent”.

On the same day (Feb 19), the DOS released a report on the Performance of the Singapore Economy for 2009, which said that “Singapore’s economy contracted by 2.8% on a quarter-on-quarter, seasonally adjusted basis, in 4Q2009″, and that “the economy contracted by 2.0% in 2009”.

So, were we in a way overly optimistic when “Singapore declared the recession (was) over in November last year”, according to the CNA article “Singapore economy to grow up to 6.5% this year: govt” dated 19 Feb?

It was announced by the press that “in the past few months, the government has taken further steps to widen the differentiation between citizens and Permanent Residents and to slow down the inflow of foreigners”.

Furthermore, on the same day (Feb 19), it was also announced that Polytechnic and Institute of Technical Education (ITE) fees will be increased from April. The press reported that “The Government decided to keep fees at the status quo last year because of the economic recession but this year, as the economy turns, it is timely to raise the fees” (“Fees for poly and ITE students going up in April”, ST, Feb 19).

If we really want to widen the distinction between Singaporeans and permanent residents (PRs) and foreigners, why can’t we just raise fees for PRs and foreigners, instead of raising fees for Singaporeans too?

Since we want to take on the “challenges such as increasing productivity and raising skills across the board” and the government has acknowledged that “every worker also has to be re-skilled, re-trained and re-educated to achieve higher standards of capabilities”, why are we raising vocational education fees so soon before wage cuts are restored?

In this connection, another example is the reduction of the subsidy by five per cent for PRs in Class C wards in hospitals from next year, and by another five per cent the following year.

Actually, a five and 10 per cent reduction in subsidy from the current 70 per cent subsidy, translates to a 16.7 and 33.3 per cent increase in medical fees, respectively.

With regards to the assertion that “we always give preference to our own citizens”, with the total increase at 100 per cent, from the former 80 per cent subsidy to 60 per cent eventually, many Singaporeans may bear the brunt of the increase if they have PR or foreign spouses, dependents or employees.

So, why not increase medical fees for PRs and foreigners, but reduce fees for Singaporeans instead of maintaining the status quo?

So, incomes are down, GDP has contracted in the last quarter, but fees are going up.

Let’s hope that other fees and costs will also not start to go up, citing the reason that the economy is recovering.

Those who may suffer the most when costs go up and incomes go down may be the poor.

On the same issue, there have been media reports that charities need more donations.

For example, the National Kidney Foundation (NKF) had a budget deficit of $0.9 million, its biggest shortfall in 10 years, for the 2008/2009 financial year ended in June (“NKF to dip into reserves of $270m: Charity hit by economic downturn and drop in donations”, ST, Nov 29, 2009).

According to its annual report for 2007/2008, the surplus was $9 million, and the surplus for 2006/2007 was $19 million.

Does this mean that the 2007/2008 net surplus of $9 million alone, not counting the 2006/2007 surplus of about $19 million, may be enough to cover about ten times or ten years of the current year’s $0.9 million deficit?

There has been a significant reduction in investment income from $11.6 million in 2006/2007 to $3.2 million in 2007/2008, and to just $80,000 now.

What has NKF been investing in such that its investment income can fall from $11.6 million to $80,000, a drop of more than 99 per cent in two years?

NKF has $270 million of reserves now, compared to $262.8 million in December 2005.

When the NKF saga broke in 2005, one of the issues which riled Singaporeans was that it had some 30 years or so of reserves instead of the three years that the public was led to believe.

Its 2007/2008 report states that “After adjusting for inflation, the existing surplus fund is expected to last for only seven years”.

Now, it says that its current reserves of $270 million can only last for five years or so.

I am somewhat puzzled by the figures — if $262.8 million in 2005 was deemed to be about 30 years of reserves, why is it that $247 million in June 2008 was expected to last for only seven years, and now $270 million for just five years, despite cost-cutting measures like giving cubicles instead of rooms to managers?

How does the NKF fare in the light of the new guidelines for charities on the accumulation of reserves?

Despite the current year’s $0.9 million budget deficit, is NKF still the largest charity with the most reserves, and the most number of years of reserves?

Finally, with regards to the statement “Without growth, Singapore will not be what it is and the key to our growth is a government taking right decisions and labour unions, employers, and the government working together. No other country in the world has got this combination”, let the following statistics speak for themselves:

• There are 24,000 needy residents in just one CDC — North East Community Development Council. How many needy in total in Singapore?
• Singapore’s workers continue to lead the pack when it comes to the number of hours they put in at work, according to a report by the International Labor Organization (ILO). The report puts them at the top of 13 economies in the group’s Global Wages Report for 2008-09, surpassing even the notoriously hardworking Japanese and Taiwanese.
• Only 60 per cent are projected to have at least $67,000 in their CPF in 2013, according to a CNA report.
• 60,000 flat dwellers were given financial counseling by the HDB as a result of having difficulty in paying for their flats in 2008, and 30,770 flat-owners were in arrears over three months as of September 2009.
• According to the Department of Statistics’ Household Expenditure Survey released in December, the Average Monthly Household Income by Income Quintile for 2008, was $1,274 and $3,476 for the 1st–20th and 21st–40th quintiles respectively.
  • 105,965 households earn below $1,000.
  • 116,092 households earn $1,000 – $1,999
• Yhe bottom 20% of households’ monthly income declined by minus 1,4 per cent per annum in real terms from 1998 to 2008, and the 21st to 40th quintile of households’ income increased by only 0.9 per cent (2.3 per cent increase less 1.4 per cent inflation) in real terms.
• The unemployment rate for cleaners, labourers and related workers was the highest across all sectors in June 2009 at 8.3 percent, according to the MOM’s Workforce 2009 report released last year.
• Part-timers’ median income in 1999 was $600. The increase for the last 10 years was only $20, or an annual increase of only 0.3 per cent, without adjusting for inflation. And it is important to consider that a possible reason for the $20 increase may be that a part-timer is now defined as one working 35 hours or less, instead of 30 hours.
• 401,600 resident workers earned less than $1,200 a month as of June 2009.
• The number of children applying for the Straits Times Pocket Money Fund reaching an all-time high of 11,642.
• For the poorest 20% of households, their Expenditure at $1,760 in 2008, was 38% more than their Income of $1,274.
• Singapore was ranked very high at No. 10 in Mercer’s 2009 Cost of Living Survey.

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Headline picture from quachee’s blog.

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Related posts:

1. $2 billion in PAP town councils’ sinking funds but need to increase charges?
2. Annual fees too high in Special Needs Trust Fund
3. Medisave contribution may increase to cover costs – Leong Sze Hian replies

I refer to the article “$2m fund to help 24,000 needy residents” (ST, Feb 18).

It states that “More than 24,000 needy residents from the North East District stand to benefit from a $2 million community partnership between the North East Community Development Council (CDC) and religious society Zhi Zhen Tan Dao Xue Hui”.

If there are 24,000 needy residents served by just one CDC, how many in total are there in Singapore, since there are five CDCs?

With 24,000 needy residents benefiting from $2m, does it mean that on the average, each needy resident may get only about $7 a month ($2 million divided by 24,000 residents divided by 12 months)?

I also refer to media reports (“33,000 turn to ComCare”, ST, Jan 27) stating that a record 33,000 households were successful applicants for ComCare schemes last year, an increase of 47 per cent compared to 2008.

As the ComCare budget was $63.7 million in 2008, with an increase of 47 per cent, on a proportional basis for the first nine months of the current financial year, the amount disbursed should be about $70.2 million ($63.7 million 2008 budget x 1.47 x 9/12 months).

So, why is it that only $51.3 million of this year’s $77 million budget has been used?

Does it mean that on the average, each needy household received about $173 monthly ($51.3 million divided by 33,000 households divided by 9 months)?

Using the same methodology, the average assistance per household per month in 2008 was $236 ($63.7 million divided by 22,449 households (33,000 divided by 1.47) divided by 12 months).

Why is it that the average monthly assistance appears to have declined by 27 per cent from 2008 to 2009 ($173 out of $236)?

The above is a very rough analysis based on the statistics publicly available.

Of course, applicants will be approved on a rolling basis in the course of a year, and assistance for some existing needy households will terminate when they are deemed to be no longer requiring help.

So, what we need to know is the average assistance per month per household for these 33,000 households, instead of just the total figure of $51.3 million used to-date.

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Related posts:

1. Household Expenditure Survey 2007/08: How many poor people in Singapore?
2. More than just money needed to help poor
3. Why the poor needs help now

By Leong Sze Hian

I refer to the article “HDB resale prices: Don’t just find a scapegoat – It is not an issue of us-versus-them, but one of a rise in demand” (ST, Feb 11).

It states: “But actually, what exactly is the issue? Are rising HDB resale prices an issue?”

Well, the issue is that the HDB’s Market Subsidy Pricing policy pegs the prices of new flats to that of the resale market. This makes new flats increasingly an affordability issue for Singaporeans.

As for the statement “Surely not to the majority of 880,000 or so households who already own an HDB flat, to whom rising flat prices means rising asset values”, what good is a higher priced HDB flat if you need to downgrade to a smaller flat in order to have enough money to retire?

Under current rules, downgraders can only purchase a resale flat. As the price differential between a larger and smaller resale flat may not be very substantial, the alternative of downgrading to a new smaller flat may mean a wait of 5.5 years (2.5 years waiting period plus 3-year Build-to-order (BTO) construction period).

This problem may be further compounded by the change in policy last year that after age 55, any shortfall in the CPF Minimum Sum (MS) must be topped-up from property sale proceeds (CPF monies utilised plus accrued interest), before the balance can be used for housing again.

With the MS at $117,000 now and projected to increase to $161,000 and $271,000, in 2013 and 2023 respectively, anyone selling to monetise their flat may not have much left after meeting this Minumum Sum rule and the price of a smaller resale flat.

The article also stated: “What of the charge that some people are buying HDB flats for rental income? Actually, this is patently the case – and rightly so. HDB’s 2008/09 annual report states there were 22,754 flats that were sublet. No one knows how many more flats are being sublet illegally. A number of HDB flat owners will also be renting out some bedrooms for income”.

Actually, the 22,754 flats that were sublet as stated in HDB’s annual report had their applications approved in just one year.

So, how many flats in total are being sub-let entirely?

How many applications were not approved?

How many are sub-letting their flats because of financial difficulties?

For those in financial difficulty, is it possible to apply for a waiver of the 5-year and 3-year rule before flats purchased with or without a housing subsidy can be entirely sub-let?

For those with genuine financial difficulties, this option may be better than compulsory acquisition of their flats at 90 per cent of valuation.

I agree with the statement that “(people have) to acknowledge that the market is moving faster than one’s income and savings can keep up with”.

In this context, the problem may be that some of the HDB’s policies are out-dated and do not reflect the reality of a changing environment, such as the 2.5 year waiting period, because in the past the HDB built to sell, as opposed to today’s BTO approach. This may effectively mean waiting for another threee years for a flat on top of the usual 2.5 years.

The income ceiling of $2,000 and $3,000 for eligibility for 2-room and 3-room new flats have also not been changed for many years, despite rising new flat prices and the higher cost of living.

I also refer to the “Special report : Homeless wanderers – Number of homeless people doubles” (Sunday Times, Jan 31).

It states that “About 60 flats are voluntarily surrendered to the HDB every month”.

Many of the occupants became homeless because they could not afford to pay for HDB flats.

In this connection, I refer to the articles “New flats to stay affordable” (ST, Jan 27) and “HDB flat supply will meet demand : Mah” (ST, Jan 14).

The latter states that “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 …. This means they can comfortably buy any of the flats (three-room and some four-room) offered in the latest BTO projects this month”.

A typical financially prudent household of four persons (couple with two children) may find it hard to make ends meet with a disposable monthly income of $2,100 ($3,000 less 30 per cent for the HDB mortgage).

A breakdown of a typical household’s expenses is as follows:-

food ($40 x 30 days) $1,200

education ($200 x 2 children) 400

transport 300

utilities 150

insurance (various) 100

telephone/internet 70

service & conservancy charges (S & CC) 40

property tax 20

television license 10

medical 10

_________

Total: $2,300

The household may be left with no savings or any money for leisure activities.

If the household has more than four people, like those staying with their parent(s) or have more children, it may be quite difficult for them to survive.

As there are hundreds of thousands of people with a disability or chronic illness, a household surviving on a $3000 per month income with such a family member may also find themselves stretched financially.

Affordability depends on individual circumstances, and it may not be quite appropriate to generalise that a $3,000 household can afford a HDB flat.

According to the Department of Statistics’ Household Expenditure Survey report, there are about 106,000 households with less than a $1,000 monthly income, and about another 116,000 households with less than a $2,000 monthly income.

I therefore estimate that there are about 300,000 households earning less than $3,000 a month.

So, does it mean that about three in 10 households may find these new BTO three-room flats beyond their means?

The issue of affordability may be further compounded by the HDB’s Income Ceiling policy, whereby a household earning over $3,000 a month is not eligible for a new three-room flat, and has to purchase a new four-room or bigger flat.

As the HDB celebrates its 50^th anniversary this year, instead of just the HDB determining affordability, I would like to suggest that an independent third party be engaged to study the affordability of HDB flats.

Related posts:

1. HDB flats – “affordability will always be there”, says Mah
2. Year In Review: HDB flats – subsidy, affordability, prices.
3. A final farewell to Ms Lo Hwei Yen

I refer to the article “Singapore envies Kiwi lifestyle” (New Zealand Herald, Feb 9).

It states that
“The bait was better working hours, cheaper cars and housing – and in three weeks thousands from Singapore have registered their interest in living in New Zealand.

An Immigration New Zealand pilot project aimed at attracting Singaporean migrants has resulted in over 1000 registrations each week since it was launched last month, with 3565 potential immigrants having registered their interest in just three weeks”.

According to another article “Survey finds that workers in Singapore put in longest hours” (The China Post, Jan 12),

“Singapore’s workers continue to lead the pack when it comes to the number of hours they put in at work, according to a report by the International Labor Organization (ILO). The report puts them at the top of 13 economies in the group’s Global Wages Report for 2008-09, surpassing even the notoriously hardworking Japanese and Taiwanese”.

Singaporeans are among the hardest workers in the world, but do not have enough, upon retirement, to live in comfort in their home country. Is there any wonder why they should choose to migrate to other places that are much more affordable?

Cars for example, are so expensive in Singapore that a car owner may end up with $2 million less in retirement. This is calculated from an estimated cost of $1,000 monthly compounded at 6 per cent over 40 years.

To explain the poverty of retired Singaporeans, we’d have to explore the possible link between the 2 largest entities that effectively ‘lock up’ the wages of Singaporeans – HDB and CPF.

Increasing flat prices decrease the amount of CPF upon retirement

In line with the government’s policy of letting Singaporeans use their flats for asset enhancement, many Singaporeans have bought their flat, using the bulk of their CPF in a typical 30-year mortgage, in hope that the continued increase in property prices would serve as a boon during retirement.

By pricing flats under ‘market subsidy’ pricing, asset ‘enhancement’ schemes such as upgrading inevitably become a burden to Singaporeans who have no choice but to use even more of the CPF for their upgraded HDB flat. In addition to that, HDB has never disclosed the cost of building flats. Thus, flat pricing, and the amount of CPF ‘locked’ in it, is really at the whim of property speculation.

With 80 per cent of the population living in public housing, and with a bulk of a typical homeowner’s CPF savings ‘locked’ by the flat, social security for the average Singaporean is contingent on HDB policies. When you can’t pay your mortgage, you may lose your home and maybe your life CPF savings too.

Consequently, with the bulk of their CPF ‘locked’ in unliquidated assets, many Singaporeans end up with very little CPF when they retire.

CPF gets transferred out of Singaporeans’ hands, into HDB’s pockets

When the HDB sends a notice of Compulsory Acquisition to flat owners, 90 per cent of the flat’s valuation is used to offset the loan arrears; HDB makes a profit of 10 per cent of the valuation. While it is understandable that HDB as a statutory board has to run on a sustainable business model, it seems counterintuitive that a public housing board should profit from the destitution of its citizens.

For example, flat owners in addition to losing 10 per cent of their flat valuation to HDB, are only given one month to vacate their flats. Why does the HDB not give them a bit more time to find alternative accommodation?

As a public housing authority with the mission to provide affordable housing for Singaporeans, is the HDB not in a sense, in breach of its fiduciary duty, in this arbitrary practice of ‘pinching’ 10 per cent of the valuation?

Are there any public housing authorities in the world that takes an additional 10 per cent profit on foreclosure?

Parliamentarians may like to raise this issue with a view to refunding the ‘pinched’ valuation to all past foreclosed flat owners.

Why it’s almost impossible to get enough cash upon retirement

Effective last year, if you sell your HDB flat after age 55 to downgrade to a smaller flat and to monetise your flat for retirement, any CPF utilised plus accrued interest has to be returned to the CPF account if the CPF Minimum Sum (MS) has not been met.

With the current MS at $117,000, what this policy change means is that this sum cannot be used to purchase the smaller flat downgrade.

Why are we making it harder for Singaporeans to downgrade to monetise their flat for retirement?

Many Singaporeans subscribed to the call for asset enhancement by purchasing HDB flats – only to be hit by the policy change now, which in effect, may result in their inability to cash out of their “enhanced” HDB asset.

The CPF Minimun Sum (MS) was raised from July 1, 2009, for those aged 55 years, to $117,000, up from $106,000. 

This is an increase of 10.4 per cent, much more than the inflation rate for the previous year, which was 6.5 per cent. How can the increase in MS be “an adjustment for inflation, is to ensure that Singaporeans set aside sufficient savings for their retirement?”

Similarly, the MS was increased by 6.4 per cent in July 2008, from $99,600 to $106,000, when inflation was only 2.1 per cent in 2007.

With the current recession, some of those reaching age 55, may have lost their jobs or failed in their businesses, and thus a large increase in the MS, may cause some financial stress to them. 

As last year’s increase is the highest in the history of the MS scheme, at its current quantum of increase, does it mean that by 2013, the MS may be about $161,000 ($117,000 now plus $11,000 increase for 4 years)?

Can anyone afford to retire in Singapore in future?

The Longevity Insurance Committee’s (LIC) CPF Life report last year only projected a MS of $134,000 in 2013 (chapter 4). 

Adding the projected Medisave Required Amount (MRA) of $36,000 in 2013, does it mean that those reaching age 55 may only be able to withdraw $5,000, if they have less than $197,000 (MS $161,000 plus MRA $36,000) in their CPF? 

How many Singaporeans will have more than $197,000 in their CPF in 2013?

The answer can be found in the LIC report: only 60 per cent are projected to have at least $67,000 in their CPF in 2013.

At the current rate of increase of $15,500 per year ($11,000 MS + $4,500 MRA), will the combined MS and MRA be $352,000 and $507,000 in 2023 and 2033 respectively?

In conclusion, is it any wonder why so many Singaporeans may be thinking about migrating to New Zealand?

Photos courtesy of Wilfed Wong

Related posts:

1. Higher HDB prices good for Singaporeans?
2. We are Singaporeans, race should not matter?
3. Are Singaporeans clueless about retirement, and if so, why?

I refer to the report “Measures to encourage low-wage workers to take up training expected during Budget” (CNA, Feb 7).

It states that “Manpower Minister Gan Kim Yong has hinted that issues such as making it easier for low-wage workers to continue to upgrade themselves and making the Workfare Income Supplement Scheme more accessible will be tackled in the Budget later this month”.

Since this statement and the Economic Strategies Committees’ recommendations on manpower are hinged on the rationale that more training, skills upgrading and Workfare will help to solve the problems that low-wage workers face, I think a good starting point may be to evaluate the success of the SPUR scheme.

In this connection, I refer to the articles “Fewer in full-time jobs” (Today, Jan 7), “42,000 workers have found jobs after Spur training” (Today, Dec 22), “42,000 unemployed find jobs through Spur” (My Paper, Dec 22), and media reports that 264,000 people have committed to training under the SPUR programme.

Since two-thirds have either started or completed training, does it mean that one-third, or about 88,000, have not even started training yet, after one year of the SPUR scheme?

So, is it correct to say that the initial goal of having 220,000 training places has been exceeded?

Media reports state that 42,000 who went through SPUR have managed to find jobs.

So, how many people are still unable to find jobs, after re-training under SPUR?

How many of the 264,000 who have committed to training are employees, and how many were not employed when they were on a SPUR course?

If we add the SPUR unemployed trainees to the average number of unemployed residents last year, which was about 87,000, what would be the total figure?

How many of the 87,000 unemployed have gone through SPUR?

The above statistics may help all stakeholders to review, evaluate and re-design SPUR, so that its effectiveness can be benchmarked for analysis in the future.

The rhetoric on more training and upgrading skills to help low-wage workers is not new, but it does not appear to have been very successful, given the fact that 401,600 resident workers earn less than $1,200 a month as of June 2009, and after adjusting for inflation at 1.4% per annum, the real increase in income for the first two quintiles of households from 1997/98 to 2007/08 was -1.7 and 0.9 per cent per annum respectively.

By the way, the CNA report “Survey shows Singapore in bottom 10 of salary rise rankings” (Apr 7, 2009), stated that: “Employees in Singapore will see some of the lowest pay rises this year compared to their counterparts in other places.”

Out of 53 countries surveyed, Singapore is in the bottom 10 — at number 43. Why is this so?

Mr Gan said his Ministry is studying if the qualifying period for Workfare should be shortened.

To qualify, low-wage workers must have worked for at least three months in a six-month period during a calendar year, or at least six months in a year.

Mr Gan said: “Having discussed this at length with our tripartite partners, we feel that an important objective of Workfare is to encourage regular work.”

”As part of the Workfare qualifying criteria, we will still require a minimum qualifying period and hopefully we encourage our Workfare recipients to go for regular work all the time, so that they can receive Workfare on a regular basis”.

I think the logic of the argument may not be quite sound — it may not be so much that low-wage workers don’t want to work for “at least three months in a six-month period during a calendar year, or at least six months in a year”, but whether they can get work in the first place?

Why would any low-wage worker choose not to work “regularly”, as the minister put it?

Perhaps one could get feedback from low-wage workers and apply some common sense rather than rely on “tripartite partners”?

In my view, perhaps the most important consideration may be to ask why should a low-wage worker be penalised by not making him or her eligible for Workfare, just because he can’t get “regular” work?

With 328,000 qualifying for Workfare, if we include those who did not qualify, or the self-employed who may have chosen not to contribute because the entire Workfare goes to their CPF making them even more “cash poor”, how many older (over age 35) workers are there in total?

If not for the temporary assistance during the recession, given to low wage workers through the one-off WIS Special Payment, which was given in cash, instead of CPF, will the number of workers receiving Workfare decline again from the 2006 figure of 362,000 to the 2008 figure of 297,000?

Why did a staggering 106,000 self-employed Singaporeans drop out of Workfare in 2007, after just 1 year?

According to the CPF Board Question and Answer website:

Q: Why do Self-Employed Persons (SEPs) and informal workers not get cash under Workfare but all the Workfare is paid into Medisave instead?

A: A key principle of Workfare is that each beneficiary has a personal responsibility to save for his own future needs. If Workfare for SEPs and informal workers is given in cash, the net result would be that the Workfare recipient would not be saving on his own.
The Workfare payment for SEPs/ informal workers are fully credited to their Medisave Account as SEPs/ informal workers are required to only contribute to their Medisave Account and at much lower rates compared to employees. To benefit informal workers, we have decided to allow informal workers to contribute to Medisave at the rates applicable to SEPs.

I think the answer and consequently perhaps the solution may be obvious — give Workfare in cash to the self-employed and employees too, as putting all or the bulk of Workfare in the CPF Medisave account does not really help low-wage workers in their already very tight cash-flow.

You can’t use Medisave to put food on the table — only when you are hospitalised or need out-patient treatment for a chronic illness!

Related posts:

1. Serving Workfare Bonus to benefit workers
2. Low-wage workers better off – really?
3. Low-wage workers better off, now everybody worse off?

I refer to the Report of the Economic Strategies Committee released on 1 February.

It states that

“The majority of households have seen significantly higher real incomes over the decade, with median incomes rising by over 20 percent. Increases have also been seen at the lower end of the income ladder. At the 20th percentile of employed households, real incomes per capita have grown by about 10 percent over the last decade”.

According to the Department of Statistics’ Report on the Household Expenditure Survey 2007/08 released in December 2009, the Average Monthly Household Income of the poorest 20% decreased from $1309 to $1274 while the next two quintiles increased from $2778 to $3476 and $4207 to $5480 respectively, from 1997/98 to 2007/08.

This is a per annum increase of – 0.3, 2.3 and 2.7% respectively for the above mentioned three quintiles.

After adjusting for inflation at 1.4% per annum, the real increase was – 1.7, 0.9 and 1.3% respectively.

So, how do we reconcile the above data to the statement that “the majority of households have seen significantly higher real incomes over the decade”?

How can a -1.7 to 1.3% real increase in income be described as “significantly higher”?

According to the Cambridge Advanced Learner’s Dictionary, “significantly” means “in a way that is easy to see or by a large amount”.

To make things worse, the Average Monthly Household Expenditure of the three quintiles increased by 0.4, 2.3 and 1.7% respectively for the same 10 year period. In other words, the increased expenditure of the low and middle income classes may offset the already very insignificant increase in incomes.

To make things even worse for the poorest 20%, their Expenditure at $1,760 in 2008, was 38% more than their Income of $1,274.

Clearly the majority of Singaporeans have not enjoyed the benefits of the ‘significant’ increase in overall household incomes, yet this statement was found on page 4:

“Household incomes went up fastest between 2006 to 2008, coinciding with the period when the foreign workforce was growing most rapidly”

An analysis of the Ministry of Manpower’s (MOM) 72-page report “Significant progress for low wage workers since 2006″, indicates that the wages of the 20th percentile of full-time employed residents increased by just $6 per 2 years, or 0.25% per year after adjusting for inflation.

Perhaps the word “significant” has a different meaning in so far as income statistics are concerned in Singapore?

Even if we were to take into account government transfers, as the statement below suggests:

“This (household incomes) does not include the benefits derived from Government transfers (net of taxes), such as the Workfare Income Supplement (WIS) and enhanced housing grants for lower income households”,

the cash to CPF ratio is 1 to 2.5 for WIS. So, with the bulk of the WIS going to CPF, there is very little cash that can be considered as income that workers can actually use. The lack of spending power amidst an abundance of ‘unusable income’ is reflected again in the ‘enhanced housing grants’, which also may generally have lagged behind the increase in HDB prices.

According to the article “Singapore aims to ease fears over immigration” (Financial Times, Jan 31),

“Singapore will seek on Monday to reassure multinational companies that plans to tighten immigration curbs will not affect the city state’s openness to relocation by white-collar expatriates.

In a report to be presented on Monday, the review committee will say that the focus of reductions in the flow of foreigners must be on relatively unskilled blue-collar immigrants, who work mainly in the service, construction and transport industries, rather than on workers concentrated in the financial sector and professions such as law and accountancy”.

This may be of little comfort to Professional, Managers, Engineers and Technicians (PMETs) who cheered the recent announcement that the foreign workforce will be scaled down, as it may appear now that some of their problems, like over 40 year old PMETs  having the highest long-term unemployment rate, may not go away so soon after all.

Going forward, the key measure of the success of the recommendations may be not so much an increase in productivity per se, but whether wages, particularly that of the lower-income, will rise “significantly” relative to the rising cost of living in Singapore.

Related posts:

1. Uniquely Singapore – F1 or F9: Income statistics?
2. Budget debate statistics: Uniquely Singapore?
3. Uniquely Singapore, F1 or F9?: Inflation up, HDB property tax up, statistics disappear, Ministers’ pay up again soon

I refer to the report “Medisave contribution may go up to cover costs” (ChannelNewsAsia, Jan 28).

It states that

“Medisave contribution may go up as the need for long-term care increases with Singapore’s aging population. Health Minister Khaw Boon Wan said the current contribution rate of 6.5% to about 9% does not build up enough reserves to pay for both big medical bills and long-term care”

Introduced in 2004, the MRA was scheduled to increase by $2,500 each year until it reached $25,000 on 1 January 2013. Yet last year, there was a big jump in the increase from the original $2,500 to $4,000.

This year, the increase is even higher at $4,500. Starting 1st January 2010, the Medisave Required Amount (MRA) has also been increased from $18,000 to $22,500.

Arguably, the inflation in 2008 was at a high of 6.5 per cent, so perhaps the increase of $4,000 then, could be justified. Yet, last year’s inflation was 0.2 per cent.

So, why is this year’s $4,500 increase even higher than last year’s? More importantly, what criteria was used in determining the MRA increase?

If the MRA continues to increase at its current rate of $4,500 a year, it will be $36,000 by 2013, instead of the originally scheduled sum of $25,000. This is 44 per cent more than when the MRA was first announced in parliament.

Last July, the CPF Minimum Sum (MS) was increased by $11,000, from $106,000 to $117,000.

With almost zero inflation last year, I hope that the MS will not also increase by $11,000 or more, come July this year, like the MRA.

Otherwise, at the current rate of increase of $11,000 per year, the MS will be $161,000 by 2013.

This means that Singaporeans with less than $197,000 ($161,000 MS plus $36,000 MRA) may only be able to withdraw $5,000 at age 55 from 2013, because of the gradual phase-out of the 50% Withdrawal Rule from1 January 2008.

According to the Longevity Insurance Committee’s report, only 60 per cent of Singaporeans are projected to have at least $67,000 in their CPF in 2013.

This begs the question of whether the CPF was initially designed as a welfare scheme for Singaporeans. After all, how many Singaporeans are projected to have more than $197,000?

Cartoon taken from CPF website.

Related posts:

1. Healthcare costs increase the most, but MediFund payouts declining?
2. 5 Minutes With… Leong Sze Hian on rising inflation
3. 5 Minutes with… Leong Sze Hian on the economy and jobs

I refer to the articles “Big gains in jobs, mostly for locals” (ST, Jan 30), “The optimism gets real: Employers’ caution giving way to confidence, as orders grow: Hudson survey” (Today, Jan 22), Raymond Koh Joo Guan’s letter “Pay a decent wage and no job will be “unwanted” (Todayonline, Jan 12), and media reports about the reply made by Manpower Minister Gan Kim Yong to MP Halimah Yacob in Parliament, saying that as of June last year, there were 87,400 resident employees on short term contracts of less than three months and they represented 5.7 per cent of the workforce.

Whilst it is good news that more jobs, and higher pay and bonus are expected, there are still many lower-wage workers.

Since 67.2 per cent of resident employees on short term contracts of less than three months earned below $1,000 a month, it means that 58,733 of them earned below $1,000.

As these workers on short term contracts are actually working full-time, why are there so many workers earning below $1,000?

8.4 per cent of total resident employees, or 156,200 people, are on part-time employment. Of these, 70.8 per cent – 110,590 people – earn below $1,000.

This makes a total of 169,323 short term contract workers and part-time workers earning below $1,000.

But this is only part of the picture. How many full-time workers and workers on short-term contract of three months or more are also earning below $1,000? How many low-wage and unemployed residents are there in total?

According to the Ministry of Manpower (MOM) Singapore Workforce 2009 report, there were 401,600 employed residents (full-time and part-time) with gross monthly income of $1,200 or below as of June 2009.

Considering that from 2009 onwards, those who work less than 35 hours a week, as compared to 30 hours previously, are classified as part-time workers, why is it that so many – 22 per cent of the resident workforce – earn so little?

We could attempt a rough estimate of the number of low-wage workers and unemployed in Singapore, by taking the sum of the average number of unemployed in 2008, discouraged unemployed who have given up looking for a job, and the unemployed who are participating in the Skills Programme for Upgrading and Resilience (SPUR).

This gives us a total of about 542,200 – 401,600 full-time/part-time + 87,000 unemployed + 11,100 discouraged unemployed + an estimated 42,500 SPUR unemployed who may be earning less than $1,200 or have no income.

There are also 328,000 older low-wage workers, aged 35 and above, who earned less than $1,500 and qualified for Workfare benefits for work done in 2008.

If we add to the above total of 542,200 those on Workfare benefits who earned between $1,200 to $1,500, how many low-wage and unemployed are there in total? 600,000 perhaps? Or even 700,000?

This could account for about 30 per cent of the resident workforce.

As to the net employment gain of 43,000 among locals and the drop of 4,200 in foreign employment for the whole of 2009, if we make an adjustment for the estimated 100,000 new permanent residents and citizens in a year, and new entrants to the workforce from school and national service, how much of the employment gain went to original citizens?

As long as there is no break-down of the data into Singaporeans and PRs, we do not know.

Singapore’s economic strategy focus of growing our gross domestic product and increasing the average per capita income may need to be reviewed, in the light of the fact that so many are earning so little whilst the cost of living is so high here.

Photo 1: Associate Press

Photo 2: Wilfred Wong

Related posts:

1. Low-wage workers better off, now everybody worse off?
2. Do upgrading skills and Workfare help low-wage workers?
3. Low-wage workers better off – really?

In my letter to the Today newspaper titled, “A precious resource”,  I had asked why two blocks of flats in Toa Payoh were being reserved for rental to foreign workers from the two Integrated Resorts (IRs). I had said that HDB flats, being public housing – a precious, limited resource, and much in demand – should only be reserved for Singaporeans.

The HDB replied to my letter in Today titled, “Priority given to truly needy”.

The HDB’s reply states:

“The flats cited by Mr Leong Sze Hian are vacated flats due for demolition.  In the interim, they are being used for short-term rental”.

This does not address the point that I was trying to make in my letter, which was why thousands of needy Singaporeans have to wait for more than a year before they are able to rent a flat, when these IR foreign workers can rent upon their arrival in Singapore.

Shouldn’t these “vacated flats due for demolition”, which were vacated by Singaporeans in the first place under SERS (Selected En-bloc Redevelopment Scheme) and “being used for short-term rental”, be given to needy Singaporeans instead of foreign workers?

Also, why does it take so long (two years) to demolish flats under the SERS programme?

Who is the HDB, whose mission, duty and responsibility, is to provide affordable public housing to Singaporeans, to arbitrarily decide that these flats are not suitable for needy Singaporeans, but suitable for foreign workers?

For every flat rented to foreign workers, there may be needy Singaporeans deprived of it and are living and being homeless at a beach park somewhere in Singapore.

The HDB says that “Mr Leong alleged that foreign workers pay much less than Singapore citizens when they rent flats.” The reality is that Singaporeans have to pay at least $400 to rent a room, compared to these foreign workers who pay as low as $140.

Even under the HDB’s Interim Housing Programme, designed to help needy Singaporeans who cannot get a HDB rental flat, rental starts from $400 a month to share a flat, as I understand it.

If EM Services, the HDB’s managing agent or the HDB itself  starts advertising to rent out these two blocks in Toa Payoh to Singaporeans who are willing to share a room/flat, I think they may be taken up in no time.

The fact is that there is no rental scheme available to Singaporeans to rent a shared room/flat from $140 in the open market.

According to EM Services’ web site, it was founded as a joint venture between the HDB and Keppel Land Limited.

Is there a possible conflict of interest?

The HDB’s letter says:

“EM Services Pte Ltd, HDB’s managing agent, rents these vacated flats at prevailing market rates with no special rental concession or subsidies.  Current market rent is about $1,500 per month for each flat”.

The HDB also says:

On the other hand, HDB provides highly-subsidised rental flats under the Public Rental Scheme to eligible Singapore citizens, with rents as low as $26 per month.

Clearly, one would make more money renting the flats for $1,500 than renting it for $26 under subsidised HDB rental schemes.

The HDB should not on the one hand be the sole provider of rental flats to needy Singaporeans, and yet also at the same time have an interest in a company that rents HDB flats to foreigners for a profit.

With regards to the HDB’s statement that “[those] who are assessed to require housing urgently are given priority allocation”, why are foreign workers given priority over Singaporeans for these two blocks of flats?

HDB says that it “will be building 7,500 units of new one-room and two-room subsidised rental flats in the next three years to cater to Singapore citizens who are in financial difficulties.” Is this not an admission by the HDB that many more Singaporeans are in financial difficulties in respect of housing, despite its consistent rhetoric that HDB flats are affordable? (“80% pay flats with CPF”, ST, Jan 13).

There were:

-          30,770 HDB loans in arrears over three months as of September 2009,

-          An estimated 50,000 plus in arrears over three months in their Service and Conservancy Charges (S & CC)

-          About 77,200 households in arrears on their television licence fees which is only $110 a year (“Why viewers must pay fees on time”, Today, Jan 5).

Looking at the above statistics, is it any wonder that despite more than 40,000 rental flats now, another 7,500 will be built in the next three years?

The HDB should have built more rental flats much earlier, so that Singaporeans do not have to be so angry now over this issue of HDB flats being rented out to foreigners.

The HDB says:

“Mr Leong also alleged that foreign workers do not have to wait when they rent a flat, but Singapore citizens do.  This is also misleading and untrue.  The facts cited by Mr Leong are no different from flats available for open market rental.”

If what the HDB says is true, it should tell us where and how a Singaporean can rent a flat for $140.

The fact is indisputable that these foreign workers get a flat to stay upon their arrival in Singapore, whereas thousands of Singaporeans are waiting to rent HDB flats.

The HDB then asserts:

“Any person, Singapore citizen or otherwise, can also rent similar flats from the open market without waiting.”

Can the HDB please give us a listing of such “similar flats” in the open market which are being rented out for $140?

Instead of saying that “Mr Leong’s friend can contact HDB for advice on housing options if he is truly in financial difficulties”, may I suggest that the HDB go and ask the homeless who are currently staying at places such as the parks in Singapore?

—–

Related posts:

1. SERS flats to be rented out to foreigners again – this time in Bedok
2. Public housing flats – Singaporeans come first or foreigners?
3. HDB flats – a precious resource for foreign workers?

Leong Sze Hian

I attended the HDB’s Resale Seminar which was attended by over one hundred persons.

Judging from the 75 minutes Q & A, during the 3 hour 45 minute seminar, and mingling with the crowd during the break, I estimate that about 80 per cent  of the attendees were permanent residents (PRs).

Many questions centred on when PRs could sell or rent out their flats, and when they can repatriate profits from the sale of their HDB flats, when they leave Singapore.

To what extent has HDB policies led to undesirable outcomes for Singaporeans, relative to PRs?

Minimum Occupation Period (MOP)

A PR can sell his or her resale HDB flat after just 1 year’s MOP.

A Singaporean who buys a resale flat with a bank loan, can also sell after just 1 year.

However, many Singaporeans buy new flats, or resale flats with a CPF Housing Grant, which have a MOP of 5 years.

For resale flats with a HDB loan, the MOP is 2.5 years.

The increasing “headache” for some Singaporeans may be that they cannot afford the Cash-Over-Valuation (COV) on a resale flat.

Since foreigners do not need to contribute to CPF, they generally may have more cash to pay for the COV, when they become PRs.

As to new flats, since a typical Build-To-Order (BTO) is about 3 years, plus another 5 years MOP, it may be about 8 years before a Singaporean can sell his or her flat.

What if you can’t service your mortgage before your MOP?

What if you need to be divorced without children before your MOP?

Let me use an analogy. You want to invest in a property and also need a house to stay.A property developer offers you a private property at a discount of 20 per cent, using its unique “market subsidy pricing” policy, but it will take 3 years to build, and you cannot sell it for the next 5 years.

Another developer offers you a similar property that you can stay in immediately (and save on your rental for 3 years), and allows you to sell anytime.

Which property would you buy?

I think the developer with the “subsidy” may hardly get any customers at all.

But, many Singaporeans are fixated with the notion that a new flat is sold with a “discount”.

Imagine you had applied for a new BTO flat in 1990 and saw your flat appreciate greatly in value until the last peak in 1996, and then declined in price by as much as 40% for the next 13 years.

Your headache may be that you couldn’t sell when the price was high, because of the MOP.

Will PRs ever have this “headache”? No, because they can’t buy new flats. A blessing in disguise perhaps – no need to wait, can buy immediately and sell after just 1 year.

Resale Levy

When a Singaporean buys a second new flat, the resale levy has to be paid, based on the first flat type sold earlier.

For those who may be financially stretched, who can’t afford to pay the Resale Levy, they will have to purchase a resale flat instead.

Do PRs have this “headache”? No.$

In fact, when they become citizens, they can buy their second flat, which is considered as their first subsidised flat, with a 1st-timer grant as well.

HDB Concessionary Loan

When a Singaporean buys a second flat, he can only get a second HDB loan if the flat purchased is a bigger one.

This may entice him to buy a bigger flat than he can afford.

PRs don’t have this “headache”.

When they become citizens, they can buy their second flat of any size and get a HDB loan.

Since bank loans are typically lower than the HDB loan’s 2.6 per cent interest for the first  3 years of the housing loan, a PR who becomes a citizen within say 3 years, may actually pay a lower interest than HDB’s in the first 3 years, and then convert to a HDB loan when they become citizens, say before the 4th year.

Income Ceiling

Singaporeans are subject to the $2,000 and $3,000 Income Ceiling for the purchase of new 2-room and 3-room flats. This may in a sense “force” Singaporeans to buy a bigger flat than they can afford.

For example, if your household income is $3,001, you must buy a 4-room or bigger flat, as you have exceeded the 3-room Income Ceiling.

Why is it that the Income Ceiling is $8,000, instead of $3,000, for 3-room flats in mature estates like the recent Queenstown (Dawson) where the prices of flats are very high?

Since the lower the household income, the higher is the Additional CPF Housing grant, Singaporeans may be tempted to buy a flat before they can really afford it.

For example, a household with monthly income not exceeding $1,500 gets the highest grant. But, how many households earning less than $1,500 can really afford to buy, and run the risk of default over the next 30 years?

So, to buy earlier so as not to cross the Income Ceiling and get a higher grant may be a “headache”, if you can’t pay in the future.

Buy later when you can afford, but risk crossing the Income Ceiling, and be “forced” to buy a bigger flat, also a “headache”.

PRs don’t have this “headache”. They just buy any size resale flat that they can afford. Even if a PR earns $1 million, he can buy a 2-room resale flat as there is no Income Ceiling for resale.

CPF Housing Grants

Some Singaporeans also perceive that it is better to get a CPF Housing Grant. But you may have noticed in recent years that every time the grant is increased, the prices of new flats increase by even more.

So, is an increase in a grant that is less than the increase in the price, really a benefit?

Renting Out Rooms

PRs may generally have smaller families as they may not have their parents in Singapore, or not have children yet.

So, some may rent out rooms immediately after they buy a flat. [PRs can rent out rooms immediately but not for the entire flat.]

Some foreigners may also be accustomed to sharing a flat before they become PRs.

So, they may be able to pay higher prices for resale HDB flats, because they plan to rent out the rooms for income.

Singaporeans, on the other hand, generally buy flats to stay without the intention to rent out rooms immediately, as they may generally have larger families of parents and children.

I think most Singaporeans see a HDB flat as their home for life, and not as a temporary investment, providing income as well as saving on housing costs whilst in Singapore.

How can our housing policy allow PRs who own private property to buy a HDB resale flat and   rent out the rooms immediately, as long as they stay in their HDB flat as well?

Are these some of the possible contributing factors to why HDB resale prices are skyrocketing?

In this connection, HDB resale prices rose about 8 per cent last year, compared to only about 2 per cent for private property.

Why is it that two PR siblings of any age can buy a resale flat, whereas two Singaporean siblings must be either orphans or age 35 and above before they can do so?

Review HDB Policies

HDB policies could be reviewed, with a focus on the undesirable outcomes for Singaporeans, and at the same time vis-a-vis PRs.

Policies should not be maintained for reasons of solving a problem – like PRs need housing too, IR foreign workers need housing too, etc.

Policies should also not be maintained for reasons of avoiding a problem – such as if new flats are priced lower on a cost-plus basis, the property market will crash and HDB resale prices will not grow.

This reasoning is in my view fundamentally flawed, as even if new flats’ prices are gradually reduced on a cost-plus basis, it will be about 8 years (3 years BTO plus 5 years MOP) before they can be sold in the open market.

So, it may not cause resale prices to drop.

Instead, it may help to moderate the current skyrocketing prices which may be an increasingly unsustainable asset bubble.

—-

Related posts:

1. Providing affordable housing – HDB should re-look policies
2. Homeless in the parks – a symptom of flawed housing policies?
3. Tilting the playing field in favour of lower income group?

I REFER to “Asset that keeps growing” (Dec 30) and reports that two Housing and Development Board (HDB) blocks in Toa Payoh will be rented out to foreign workers from the Integrated Resorts (IR).

The report states that, “Looking to next year, Mr Mah said the opening of the two Integrated Resorts will lead to higher demand for housing.”

It also quoted Mr Mah Bow Tan as saying: “But we’ll increase the supply as well.”

My friend, who is unemployed, asked me what is the cheapest rental that he, as a single person, can get in Singapore, as he can no longer afford the single-room rental in an HDB flat.

I understand that the cheapest single- room rental in an HDB flat is about $350. As far as I know, the cheapest rental is $140 in a shared HDB flat, from EM Services. However, this option is only for foreigners and is not open to Singaporeans.

Why is it that a Singaporean has to pay at least $350 for a place to live, when an IR foreign worker can rent for as little as $140?

While thousands of Singaporeans have to wait for months to get a rental flat, why is it that foreign workers can rent and stay in HDB flats immediately?

So why are these blocks now being used to house foreign workers for rental profit?

This is not the first time that HDB flats are being rented out to foreigners, as I understand that there are flats in Woodlands used for this purpose.

HDB flats, being public housing – a precious, limited resource, and much in demand – should only be reserved for Singaporeans.

Related posts:

1. Not all foreign workers are counted?
2. Foreign workers are akin to the lowest life forms in Singapore
3. MOM takes action against illegal lodging for foreign workers

Part 1 is here: Year In Review: HDB flats – subsidy, affordability, prices.

Related posts:

1. Year In Review: HDB flats – subsidy, affordability, prices.
2. TOC & Talk Politics hold successful Year in Review forum
3. “Live” from Post Museum – TOC’s Year End Review

Our columnist picks apart the latest announcements and replies from HDB.

I refer to the HDB’s latest announcement on Build-to-order (BTO) flats for December – in Queenstown (Dawson), Bukit Panjang and Sembawang.

Once again, the HDB is saying that HDB flats are affordable, citing data that the Installment to Income Ratio for a 3-room flat, are 25% (Queenstown), 23% (Bukit Panjang) and 21% (Sembawang) respectively. This figure is derived using the typical selling price of $320,000, $150,000 and $140,000 for a 3-room flat in each of the three locations.

The HDB’s reasoning on affordability may be flawed, as only those who can afford would apply and so, using applicants’ median income is, in my view, a continuing illusion that HDB flats are affordable despite rising new HDB flat prices. To illustrate the fallacy of the HDB’s affordability assertion, even if a HDB flat is priced at say $1 million dollars, the Installment to Income Ratio may also be around 25% because obviously only those who can afford to will apply.

Perhaps a better measure of affordability is to see how many households cannot afford to apply in the first place.

According to the Department of Statistics’ Household Expenditure Survey released in December, the Average Monthly Household Income by Income Quintile for 2008, was $1,274, $3,476 and $5,480 for the 1st – 20th, 21st – 40th and 41st – 60th quintiles respectively. It showed that:

- 105,965 households earn below $1,000

- 116,092 households earn $1,000 – $1,999

- About 20 per cent of the total 1,091,399 households had income below $2,000.

With the Applicants’ Medium Household Income at $4,700, $2,100 and $2,100 for a 3-room at the three locations, I estimate that about 50% and 30% of applicant households may not be able to afford to apply for Queenstown and Bukit Panjang/Sembawang respectively. This is assuming that most applicants may be new couples whose combined household incomes may generally be lower than their current household income data which may include other working household members as well.

So, how can we say that HDB flats are affordable when 50% or 30% cannot even afford a new 3-room flat?

Another measure of affordability may be the statistic that as of September, 30,770 HDB Loans (about 7% of HDB Loans) were in arrears over 3 months. Another measure of HDB “affordability” may be the number in arrears on their Service and Conservancy Charges (S & CC), for over 3 months. However, since the co-co-ordinating chairman of PAP-run town councils had declined to give statistics on the total number in arrears, we can only estimate that about 53,108 HDB households (average of 6% of the total number of flats since 3% to 9% were in arrears) were in arrears.

The HDB has stopped building smaller 2-room flats for many years and built lesser 3-room flats relative to larger flats. Although the HDB has started to build more 2 and 3-room flats, the typical 3-year period to completion for BTO and the minimum occupation period of five years before a new flat with HDB loan can be sold may continue the supply shortage of smaller flats in the open market to meet rising demand.  Thus, the prices of smaller flats may continue to skyrocket, making them beyond the affordability of more and more Singaporeans, especially singles and downgraders.

The HDB “affordability” data also assumes a 30-year HDB concessionary loan and applicants over the age of 35 who may only qualify for a shorter loan period will have to take a bank loan with higher interest rates because they have used up their two times HDB loan if  they had previously applied and upgraded with their parents’ flat or are downgraders, resulting in higher monthly installments and thus increasing the Installment to Income Ratio. Furthermore, the  HDB also assumes that applicants are first-timers who qualify for housing grants.

Moreover, since the “Applicants Median Household Income is based on applicants’ income in our Oct 2009 Sale of Balance Flats Exercise”, the data may be skewed as quite a lot of Balance Flats may be higher-priced units which people could not afford to accept in the first place.

Point-by-Point Rebuttal

I also  refer to the articles “Flat prices will continue to rise but still be affaordable” (ST, Dec 14) and “Soaring home prices plaque China couples” (My Paper, Dec 14). My point-by-point commentary on the former article is as follows:

“Singaporeans can expect the prices of HDB flats to keep on rising as long as the economy continues to grow, Minister Mentor Lee Kuan Yew said yesterday“

Although the economy grew from 1996 to 2009, HDB resale prices went through a 13-year bear market with prices taking 13 years to recover to their last high in 1996.

“However, he assured young couples that the Government will help them to own their first flats“

In recent years, the housing grants given has not been able to catch up with the rising price of new HDB flats. If the price increases more than the grant, is it really a grant or subsidy?

“The Housing Board will also keep building affordable homes ’so that each generation of Singaporeans will continue to have a stake in the nation’, he added. Mr Lee gave the assurance when he visited the newly-completed crown jewel of Singapore’s public housing which he said is symbolic of the spectacular transformation of the country”

Affordability of HDB flats has increasingly become an issue with the bottom 20% of households’ monthly income declining by 0.3 per cent per annum in nominal terms (before adjusting for inflation) from 1998 to 2008, and the 21st to 40th quintile of households’ income increaing by only 0.9 per cent (2.3 per cent increase less 1.4 per cent inflation) in real terms.

“Later, he told reporters that the direction of HDB home prices depends on the people. If they have confidence in the country and support the Government, then prices ‘must go up’ as they have every year since 1965, he said, in response to reporters asking what he would say to young couples lamenting the sharp price increases in recent years. The alternative, Mr Lee said, is grim. ‘They’ve got to decide if the country is going to go up or go down. If the country is going to go down, then the economy will go down, people’s incomes will be down, unemployment will be up and property values will go down.’“

Actually, the main determinant of HDB prices is the HDB’s “market subsidy pricing” policy which has led to increasing HDB prices. Perhaps the best indication of affordability is the statistic that 30,770 HDB loans are in arrears for over three months which is about seven per cent of HDB loans. There are no statistics available for HDB bank loans in arrears or foreclosed.

“In the last 45 years, HDB home prices have soared. For instance, a three-room flat in Queenstown in 1964 cost $6,200, but would fetch at least $200,000 today. However, much of the increase in prices has taken place in the past few years. In his speech, Mr Lee also dwelt on the many benefits of a home-owning society, which had its roots in the policy introduced in 1964. It gave a community of immigrants a sense of rootedness in Singapore, he said, adding: ‘It is the foundation upon which nationhood was forged.’ Owning their homes also gives people a pride that is critical in preventing housing estates ‘from turning into slums, which is often the fate of public housing estates in other countries’, he said. But the key advantage is that the policy gives people ‘a tangible stake in worth’ and motivates them to work hard. If Singapore prospers, their flat values will appreciate and they share in the growth,’ he said“

So, your three-room flat has appreciated. How can you benefit from the growth? Downgrade to monetise your $200,000 three-room flat. But, to downgrade to a new smaller two-room flat you have to wait 30 months. Where are you going to stay during that 30 months? If you have to downgrade immediately to a smaller resale two-room flat, the price differential is very small – so, how to monetise?

“He added: ‘If all the 900,000 HDB flats built over the past 50 years were rental flats… We would not have the stability, progress and prosperity that a stake in home ownership of a growing asset has made possible.’ As assets, HDB homes have become more valuable partly because their prices have moved in tandem with the economy, thus allowing citizens to share in the fruits of growth, said Mr Lee.“

If most Singaporeans had rental flats, very few would have lost their homes and life CPF savings when they defaulted on their mortgage. Most Singaporeans would have more than a million when they retire, instead of the 25 per cent projected to have less than $40,000 in their CPF at age 55 with only 60 per cent to have more than $67,000 (source: Longevity Insurance Committee report).

To put this into perspective, a 20 year-old earning just $1,500 a month with no pay increase for the rest of his life will have $1.05 million at age 65 ($517.50 CPF monthly contribution compounded at five per cent for 45 years).

“It has 1,848 flats. At the first launch in 2004, its four-room flats cost an average $335,000 and the five-room flats, 395,000. This year, the HDB priced these same-sized flats at an average of $486,000 and $590,000 respectively.“

So the HDB must have made a lot of money instead of the $2 billion deficit for the last year!

“Mr Lee described the building of the Pinnacle as ‘a strong testament to our tenacity and capabilities as a people’. ‘I see more and more of these old blocks being demolished, and new blocks like the Pinnacle being built,’ he added.”

More Singaporeans having affordability problems with HDB flats, and ending up with very little when they retire.

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