We were seriously considering purchasing a property until I came upon this old archived article from Google News. Amazing how things here in SG today sound so similar to 1997. Makes me appreciate the government here more... I guess this means we just need to bite the bullet and pay rent for at least another year.
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Deflating a Property Bubble,
Singapore Exhales Slowly
By YU WONG and DARREN MCDERMOTT |
Staff Reporters of THE WALL STREET JOURNAL Article
14 Nov 1997
SINGAPORE -- As the financial markets continue to punish Asian economies for their past excesses, this city stands quietly alone in one vital respect: it has administered its own economic medicine.
While Thai developers built condominiums nobody wanted and Hong Kong speculators bid home prices sky-high, Singapore early last year eased down property prices before they left the stratosphere. In the process, it may have saved this island state from the plunge in real-estate prices and accompanying financial shock that some of its neighbors now face.
With home prices tripling in the six years since 1990, Singapore's property market in early 1996 showed all the traits of a speculative bubble: Prices rose 16% in the first quarter alone. Then the government stepped in. Exercising the kind of interventionist policies that transformed this swampy island into today's gleaming financial center, it calmed the frenzy with a set of measures that tightened bank lending, imposed heavy taxes on real-estate sales within three years of purchase and increased the annual supply of new homes by selling more land to private developers.
"Singapore has a master plan, and it's implemented by an obsessive government that leaves nothing to chance," says Steven Choo, an executive director at property consultants Jones Lang Wootton Pte Ltd. and a former government planning adviser.
Since the measures were introduced, residential property prices have fallen 16% and some analysts predict they will slide another 20% by the end of 1998. But the landing -- spread over a three-year period -- will be relatively soft compared with that faced by neighbors like Thailand.
While Bangkok's glutted property market remains paralyzed -- transaction prices have hardly fallen because sellers refuse to settle for less -- analysts expect residential prices will drop by more than a third in the next two years. Property prices in Indonesia, Malaysia and the Philippines are also under pressure, while home prices in Hong Kong may shed 15% to 20% by year end.
Singapore's success -- at least so far -- at dodging a property-market malaise illustrates the pitfalls as well as the benefits of its state-controlled market. In some ways the government set itself up for the bubble: As both the main supplier of land for private development and the only provider of the island's vast publicly built housing, it has long been the ultimate arbiter of property prices. It was only when it relaxed this grip by adding market forces to the mix in the early 1990s that prices started to get out of control, disrupting the social engineering the island state is famous for.
At the heart of this engineering is the Housing and Development Board, or HDB, the envy of many overcrowded and overpriced Southeast Asian cities, which provides homes for 87% of the population. Designed to give citizens a stake in their new nation after gaining independence in 1959, the HDB gradually replaced Singapore's sprawling shanty towns with roomy if somewhat clinical concrete high-rises. Today, newlywed couples can buy a four-bedroom HDB apartment at a fraction of the cost of a small private apartment in Singapore or elsewhere. While a private, centrally located 800-square-foot condominium easily sells for over S$1 million (US$634,520), a five-bedroom HDB apartment costs only S$250,000.
The problem? While the HDB provides shelter, the private market provides status and greater investment returns. By subsidizing publicly built housing, the HDB has freed up personal savings that many Singaporeans have used to realize dreams of owning a private flat, stimulating a demand the government hasn't been able to satisfy. "HDB is too successful," says Lim Jit Soon, research director at UBS Securities (Singapore) Pte Ltd. "Investing in a private house in Singapore is a sign of moving up in the world, not about having a home."
Take Patrick Yeo, who has lived all his life in HDB projects. The 38-year-old manager at a foreign electronics company is moving up from a four-bedroom to a five-bedroom HDB apartment so that each of his three children and a live-in maid can have private rooms. "HDB is the great accomplishment of our government," he gushes.
Still, his dream is to one day be able to afford a private house. "Not because we need it," he explains while his wife plucks their six-year-old son from underneath a bench in the crowded hospital-like waiting room of an HDB office, "because that's everyone's dream."
For a while, some managed to make it a reality. The government created a resale market for HDB apartments in 1989, and Singaporeans who had bought their apartments at subsidized prices could sell them for a massive profit as the booming economy and stock market poured wealth into people's pockets. An HDB flat bought directly from the government in 1990 for S$70,000 can now fetch S$350,000 on the resale market, says Ang Lay-Pheng, a property analyst at Goldman Sachs (Singapore) Pte. A few years ago that was enough for a down payment on a family-sized house, but no longer; by 1996 the rush of Singaporeans jumping from HDB apartments to private real estate quickly catapulted private property prices into the heavens.
Hence Singapore's own bubble. "It was like Hong Kong," says Ong Fook Sin, managing director of construction consultants Fsinn & Andrews Pte Ltd., "totally insane." Housewives, he recalls, would camp out overnight before new private-developer projects went on sale -- and then sell their places in line by morning for hundreds of dollars.
The well-connected got first dibs and discounts without waiting in line: The ruling party earned itself a black eye when it emerged that Singapore patriarch Lee Kuan Yew and his son, the deputy prime minister, received discounts totaling $2 mil lion on a pair of exclusive condos. The Lees weren't accused of any wrongdoing and later returned the discounts, but the damage was done, says Mr. Lim of UBS. "When the market saw the Lees buying, everyone thought it must be a good time to buy," he says.
The government's May 1996 antispeculation measures changed all that, sending speculators running for cover and leaving developers with overpriced real estate. Floundering after years of operating in a one-way market, Singapore's property developers were by July this year desperate. Heng Chiang Meng, president of the Real Estate Developers' Association of Singapore, sent a personal entreaty to Minister of National Development Lim Hng Kiang in late July, warning that unless the government slowed its lands sales, the property market had "nowhere to go but decline." The government ignored it.
But the public was incensed by what it saw as a back-door attempt to influence policy. "I've no sympathy for the developers," says Sharine Wong, another HDB flat owner who aspires to buy a private home one day. "They support the government's policy in public to control speculators, but in private they just want their profits."
The incident created a "crisis of sentiment," says Goldman Sachs's Ms. Ang, which only worsened as Southeast Asia's fortunes succumbed to currency speculators and crashing property markets. "Potential buyers asked themselves: 'Am I the only fool to be buying now?" " And an already slow market came to a full stop.
Consider a recent Jones Lang Wootton auction of 12 private residential lots. Through force of habit, the hall was jammed with hundreds of potential buyers. But the lots failed to draw even a single bid. "It's a joke," said Philip John, an in dependent investor who came hoping for a bargain, but ended up leaving halfway through. "You can negotiate much better prices direct with the developers."
Indeed, developers have tried to drum up sales by offering everything from 20% discounts off listed prices to gimmicks such as free country club memberships or even a one-in-50 chance for home buyers to win a new Mercedes-Benz. But "the property market remains soft," sighs Mervin Tan, a marketing executive at Ad Vantage Pte. Ltd. which represents a group of private developers.
Yet in light of the property-led currency crisis that has toppled Southeast Asian markets stretching from Thailand to Hong Kong, the Singapore government's heavy-handed intervention seems smart.
"The antispeculation measures have succeeded in achieving the objective of stabilizing the property market and removing the speculative froth," says Cedric Peeris, an official with the Ministry of National Development. Analysts agree. "We were saved from becoming another Thailand," says Jones Lang Wootton's Mr. Choo. In the long run, lower property prices will keep Singapore competitive with its neighbors, adds Goldman Sachs's Ms. Ang.
The government has only recently shown signs of moderating its tinkering. On one hand it jacked up land-development costs for developers in September, and fol lowed that up in October by tightening the rules on HDB owners buying private apartments. On the other hand, it also last month cut next year's target for land sales to private developers.
For the moment at least, that hasn't been enough for the market. At a recent government land auction, developers' bids for a prime residential lot fell 25% to 30% below market expectations. Home prices in both the public and private markets continue to fall as poor sentiment clobbers the stock and property markets.
Singapore, after all, won't be immune to a regional economic slowdown, says Mr. Choo. "We've taken care of our own house, but if the neighborhood falls apart, what can you do?"
