Thursday, March 22, 2012

The House As A Financial Asset

Remember the sweet siren calls of asset enhancement?

The abstract for the paper "The Impact of Housing Prices on Aggregate Consumption: Evidence from an East Asian City-State" by Phang Sock Yong states clearly that "there is no evidence that housing prices have produced either wealth or collateral enhancement effects on consumption."

There is no need to dwell too deeply into the esoteric academic references to appreciate what we experience in real life. Since CPF "liberalised" the use of the retirement funds in 1980, housing stock is four-fifths HDB, and home ownership is in excess of 90 percent. All this is supposedly good news except that cash was diverted from other necessary expenditures, resulting in the unique Singapore position of being asset rich, cash poor.

The research found that, regardless of the definition of consumption expenditure or disposable income used, the ratio of total consumption expenditure to GDP less personal and corporate taxes fell from 0.59 in 1979 to 0.44 in 1999. Under the myopic hypothese, consumption should track income/wealth movements and respond correspondingly to income/wealth increases and decreases. So where did all that wealth generated go to? Definitely not to the average HDB owner, struggling with a 30-year mortgage repayment schedule.

Phang has an explanation for the negative impact of housing price increase on aggregate consumption: The negative wealth effect of house price increases (on those seeking to upgrade or enter the housing market) is stronger than the positive wealth effect of those seeking to downsize their housing assets (presumably to cash out for retirement needs). In Aesop Fable terminology, those chasing the elusive pot of gold may not realise that at the end of the rainbow, the pickings are not that attractive. The paper concludes with this recommendation, "asset enhancement" polices should make a distinction between price increases for housing vis-a-vis other financial assets. Think twice about before betting big on your house, especially one built by HDB.


  1. After watching a program on Fortknox yesterday, I am curious to know how much we have in our Reserve.

    Based on laymen calculations we should have trillions, not billions but I am not sure. Take CPF for example, even we use the conservative figure of $1,000 contribution per month, CPF should be richer by $3b a month or $36b a year. For the past 40 years, CPF would have $1,000b after minus the amount payout to members (lets say 30%).

    This amount couple with income form businesses, COE, ERP, GST etc, would amount to billions per year. Even the government does not invest, we still have a lot. But do we?

  2. Unless we're property speculators or property developers, such so-called asset enhancement doesn't really benefit the ordinary people. If we're to sell away our highly-priced houses, we have to sleep on the street. Such so-called asset enhancement only result in the transfer of wealth at inter-generational level (the young buying resale houses from the old generation) and the government (biggest landowner) and property developers benefiting at the expense of the ordinary people.

    This is unhealthy! Singapore is actually a bubble economy!

    1. They want you to sell your property and emigrate when you are 45 years old.

      45 years old is about the age that most Singaporeans start to wise up to all the bullshit he has been eating.

      They want you to emigrate before you start voting Opposition.

  3. The lessons of Japan's asset bubble burst since the 90s have been forgotten by most. We should be able to witness it in S'pore wihtin our life time, all thanks to the government. In the meantime, work and pay off that mortgage till your 60s, and see what quality of life you have.

  4. Back in april 2011 just prior to GE, the Mahstermind was quick to dismiss WP's proposal to 'lower land cost of HDB' and liken that to a raid of our reserves.

    In other words, PAP govt thinks its role is to accumulate revenue for itself – on top of its existing $300+ billions in reserves – at the expense of letting the population have affordable homes - essentially alluding HDB is a separate biz entity that competes with the people for space and money, and it must win. To distill his comments to their essence: public housing should equally be a profit-making *asset enhancing* enterprise that follows the pte/resale market demand & supply, however artificial it is (kinda like our public transport).

    He also accused why WP would want to deny people to enjoy their "fruits of labour". LOL....Unfortunately he couldn't back up with the reality that Income has stagnated past decades and has not caught up with the market. And by FOL he meant one has to be perpetually in mortgage debts for most of their adult life, and when they are old and feeble, sell of & downgrade.

    Meantime, it's perfect responsible for them to recycle revenues into huge pointless infrastructure projects like the Marina Bay Park, Budget Terminal & 8 lane road widening exercise at expense of Bt Brown Cemetery.

    Soon, Mr Khaw will have his fingerprints on this too.

    1. LKY Asset Enhancement Prize Nominator3/23/2012 12:01 AM

      guess one doesn't need a lemon law to know what lemonade taste like at the end of the rainbow walk.

  5. //Phang has an explanation for the negative impact of housing price increase on aggregate consumption./

    There's really no surprise there. When you took up a chuck of your salary to pay towards mortgage, and with whatever little is left after the essentials kids/education/HHexpenses/transport etc, what other purchasing power does one have? That's why they need the millions of FT here to stir more consumption while the rest of locales slog off their obligations in NS+Housing while feeding their family and fending off more locusts with their other hand.

    It PAYS to be Singaporeans. I pay tax but would like to see it put to good use by people with a half brain and a healthy-pumping heart. Instead, they give you a lesson on how to 'spend your $1000 salary' to chase that elusive middle class life.

    1. After 10-20 years of progress, if HDB can still present examples of $1k workers in this first world nation, it isn't exactly a glamorous track record is it?! And how many by the boatloads have come here to seek the golden pot from coastal china so they can bus around in circles?

  6. MBT must be on his viagra pill when he was talking about asset enhancement. Good riddance, but his successor continues with his $1k + grant can buy you a hdb flat, QED pitch. More 'bangforthefucked".

  7. Only votes for the Opposition will change anything in Singapore. Every vote counts.

    Presidential elections 2011.
    Tan Cheng Bock (738,311 votes)
    Tony Tan (745,693 votes)
    Difference = 7,382 votes
    The spoiled votes numbered 37,826.

    The spoilt votes of 37,826 would have easily given the victory to Tan Cheng Bock.

    Don't spoil your votes.
    Use it wisely.

    Once every 5 years, you are not a digit.
    Once every 5 years, you truly matter in the eyes of PAP.
    Vote wisely for your children's future.

    So focus on persuading your friends & family to vote for the Opposition.

  8. Slightly off topic from retirement, is there a study that correlates Housing Expense to Health Risk? Because when it comes down to choosing between housing & healthcare, which do you think people tend to ignore?

    Also half suspect most people can't think so far ahead of retirement when they are at prime - foolish really. Half are probably planning to retire elsewhere other than singapore. JB or Batam is a start.

  9. Instead of sticking to the basics for affordable public housing, HDB seems to be building more & more expensive public flats in the name of meeting higher expectations from buyers.

    Along the way, more & more costly features are added which I suspect so that they can price the flats higher and charge a premium for them.

    And in the case of DBSS flats, they introduce additional costs in the form of private consultants & developers adding quite a few layers of profit to be made by each of these middlemen.

    At the end of the day, the poor flat buyer ends up paying for additional hidden costs which could have been avoided if HDB has stuck to the basics. The only reason as to why HDB wants to compete with private housing developers has to be that they don't want to miss out a piece of the action where money can be made, isn't it ?

    When will our PAP Govt ever come clean on the obscene profit they are making out of our HDB flats that they sell to the public? Supposing the hidden profit is 100% they make out of each HDB flat that they sell to the unsuspecting public, do you think you would still want to vote for PAP in the next election ?

  10. The same people should think twice before betting all their eggs in one political basket that sells you - talented performance, financial stability, asset enhancement, swiss world standard, track record, good returns, inclusive blah blah blah...

    In the end, see who's the ones left holding the the case of Bernie Madoff " I was an honest money manager once" ..yeah right

  11. The Americans will ,generally,do not buy a home or an office in another country.They prefer to rent and they know that when that country erupts into trouble they can simply pack and get the hell of there.
    Most Hongkongers cannot afford to buy an apartment and most live in rental public housing.Maybe it is a good thing and if the country erupts into trouble,Hongkongers also just simply leave without leaving a fixed and precious asset behind.
    As for Singapore,there is really no pride in public housing ownerships especially so at current price levels and that the expensive asset is not yours to take away in times of trouble,irrespectivel internally or externally caused.

  12. I didn't know assets had a specific 99 year timespan on them. I understand that assets can depreciate over time and all, but I didn't know an asset can be revoked/lose its value in an instant once 99 years are up.

    Sometimes, you don't even need to wait until 99 years are up. Ask the rochor center ppl.

  13. What is 1 student compared to the 20,000 foriegn scholarship holders we have here