Monday, April 4, 2011

S'pore has done better than HK

Apr 4, 2011

This is an edited translation of an article that appeared in Guangdong's Time Weekly on March 10.
By Wu Muluan

AMONG the four 'Asian Tigers', the conditions in Hong Kong and Singapore are the most similar, and the average amount of land owned per individual in the two areas are also comparable.

However, housing conditions in Hong Kong are worse than in Singapore.

The Hong Kong government depends on income from land resources. Big developers monopolise the property market, while middle-class citizens indulge in property investments. High property prices have led to young people being unable to 'hop onto the bandwagon' - that is, buy their first property. This has resulted in much unhappiness, with public demonstrations even being held.

The Singapore Government does not depend on income from land resources. There are no big developers to monopolise the property market. Most of the middle-class population live in public housing and the monetary gains from the property market are comparatively more modest. Hence, it is easier for the younger generation to buy their first property and there is less unhappiness in society.

China could consider learning from Singapore if it is to develop public housing.

The public housing market in Hong Kong emerged in the 1950s and 1960s. After World War II, the population expanded from more than 600,000 in 1945 to two million in 1950. The supply of housing could not catch up and many people were left homeless.

In 1972, the then Hong Kong Governor, Sir Murray MacLehose, announced a '10-year housing construction plan' to resolve the housing problems for the territory's 1.5 million residents. Much later, the Hong Kong government launched a long-term housing plan in 1987, encouraging people to buy public housing.

In 1990, the Hong Kong government also launched public housing for specific groups, such as the 'sandwiched class' - those whose income had exceeded the cap for public housing - and senior citizens. About 47.8 per cent of Hong Kongers now live in public housing, with the average space occupied per capita at around 12.4 sq m.

The Hong Kong Housing Authority is overall in charge of public housing. In the early years, the Hong Kong government not only supplied land free of charge, but also provided a huge amount of funds to support the construction of public housing. From 1988, the Hong Kong government stopped funding construction, only providing land free of charge. The Hong Kong Housing Authority was also turned into a self-financing agency. The Housing Authority also oversaw different subsidiaries responsible for different functions such as planning, architecture and finance. Before the launch of each project, the surrounding transport network and amenities would have to be in place. Although many public apartments are in suburban areas, they all enjoy good transport links.

Singapore's public housing system follows that of Hong Kong. However, it is developing better than Hong Kong's.

In 1965, Singapore separated from Malaysia. From the start, the Singapore Government had already included public housing as one of its priorities. Singapore was weak politically and economically. One quarter of the population had no permanent and legal accommodation. In 1964, the HDB launched its first batch of public flats with strict application criteria: Applicants had to be low-income and pay 20 per cent of the price as the first instalment. Many people could not afford the payment then.

Towards the end of the 1960s, Singapore was successful in marrying the Central Provident Fund (CPF) and public housing system. The buyer could use CPF savings to pay for the flat's first instalment. In 1968, the number of flats sold was thrice that sold over the previous three years.

The Singapore Government was not satisfied with merely providing public housing for the low-income. In the mid-1970s, it launched public housing developments comparable to private developments in quality and design. Many from the higher-income group also bought public flats.

Compared with the public housing system in Hong Kong, Singapore's system shows creativity in two main areas. First, the middle-class can also live in flats. Public housing is not only for the low-income group. Second, consider the link between the CPF and the public housing system. People need only to work for several years to be able to afford the flat's first instalment using their CPF savings.

Over the past 50 years, the HDB has launched a total of 900,000 flats. About 85 per cent of the population in Singapore live in public housing. Another 15 per cent live in high-end private property built by private developers. About 90 per cent of households in public housing have bought the deeds to their flats and only a minority are in rental public housing.

The ideologies of the Hong Kong and Singapore governments are poles apart, with the former most famous for its policymaking philosophy of: If it ain't broke, don't fix it. Hong Kong's principle of 'positive non-interventionism' is well known in the academic circle of economists worldwide. Some believe this is an illustration of the free market.

Professor Milton Friedman, a former advocate of the free market for Hong Kong, criticised the territory in the Wall Street Journal in October 2006, saying its 'policy of 'positive non-interventionism' was too good to last'. Hong Kong's Chief Executive Donald Tsang immediately responded, claiming that Hong Kong remains committed to a free market. Mr Tsang's penning of an article to defend the country's position on the free market indirectly reflected Hong Kongers' serious regard for it.

Singapore's philosophy in policymaking is rather different from Hong Kong's. Late Chinese statesman Deng Xiaoping's 'white cat, black cat' theory best sums up Singapore's ideas behind its policies. In other words, Singapore's decision- makers are pragmatic - they bring in any systems that are good and have no qualms dumping the bad ones. They also believe in public policies that forestall problems. Thus Singapore beats Hong Kong by a nose when it comes to striking out dogma.

Both cities also display different countermeasures in housing policies. Hong Kong's property market slumped after the 1997 financial crisis. Then Chief Executive Tung Chee Hwa had this grand plan to build 85,000 apartments every year, and this was widely believed to have sped up the market's decline. In 2002, to protect the interest of home owners, the government announced that it would stop building new public flats for sale. The housing market went into overdrive with property owners profiting from resales as gloom enveloped young people with no properties to their names.

Statistics show that a middle-income family in Hong Kong takes six to 14 years to buy a mid-range private apartment. This has given rise to resentment among the young people. Last year, many Hong Kongers, including HSBC China chairman Vincent Cheng, called for the restoration of the Home Ownership Scheme. They think that the government should do something for young people, who are highly unlikely to be able to afford commercial housing. But this issue seems to be off the agenda for now, because the policymakers are still blind to the major flaws in the housing market that warrant immediate remedies. Besides, the government does not want to upset the property owners in the middle-class. The so-called rationale is that more public housing units would translate to smaller demand for private apartments.

As the Hong Kong government drags its feet, Singapore has moved in with relatively low-key but more effective regulatory measures for its property market. For instance, Singapore recently lowered the loan limit for existing home owners who wish to buy second homes from 80 per cent to 70 per cent. Stamp duty will also apply to units sold within three years of purchase, instead of one. (Editor's note: In January, the rules were tightened further, to 60 per cent, and four years.) The purpose is to raise the cost of speculation.

Hong Kong also launched many measures during the same time, but Singapore's are better. It stepped up land supply, for instance. The ample supply dampened the sentiments of most developers who feel negative about the market. Conversely, in Hong Kong, although more parcels are being offered, auction prices just shoot up.

Comparing the property markets in Hong Kong and Singapore, the greatest differences are that Hong Kong's finances are dependent on land sales and that private developers have great influence over the policymaking process.

For a long time, income from the government's land sales made up more than 10 per cent of the total income received by the Hong Kong government. It was 12.15 per cent in FY2004/2005; 17.38 per cent in FY2007/2008; and 5.35 per cent in FY2008/2009. Although the proportion of income from land sales now is lower compared with that in some cities in China, it is still considered quite high globally. With such heavy dependence on land revenue, it is very difficult for the Hong Kong government to show any determination to reverse the rising trend of property prices.

The Hong Kong property market is also highly monopolistic - seven big developers control 70 per cent of the private property supply.

It is different in Singapore. Although developers have much clout, there is a limit in the supply of homes from private developers. The Singapore Government is also firmer, which makes it easier to control the property market and meet the people's needs. As there are no problems relating to financing from land sales, it is easier for the Singapore Government to make policy decisions on the property market.

Hong Kong's former governor Chris Patten once said that the housing policy was the greatest failure among all of Hong Kong's social policies. Most of the property-related problems are inter-related. The Hong Kong government depends on the income from land sales, while developers monopolise the market; meanwhile, the majority of the middle-class view property investment as the main way to make money. It would be difficult to reverse the current situation in the property market within a short period.

In comparison, although the Singapore Government has been criticised for excessive interference in the property market, it has been more successful in its decisions and policies for the market.

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