PAP
Weakening a strong card
Ruling party believes housing upgrading demand will not disappear; otherwise it will lose a strong election hand. By Seah Chiang Nee
Sept 28, 2003

Kiasu Singaporeans, who are incapable of turning down a bargain, have surprisingly rejected a deal that is virtually unheard of anywhere else in the world.

Under the unique scheme, the government has been refurbishing or enlarging progressively the owners' old public flats and paying 75% to 90% of the cost of doing so.

In better years, being chosen for the project was tantamount to striking a lottery. It is part of beautifying Singapore.

Nearly 90% of 3.25 million people live in these Housing Development Board (HDB) flats. A few are a quarter of a century old and need upgrading; lifts and water pipes have to be changed.

The residents contribute only as little as 10% (for the smallest, most basic unit). The government budget is about US$1bil a year for 15 years.

It prompted a visitor to remark once: "Where in the world does a government pay you to do up your house?"

But it also benefits the ruling People's Action Party by helping it to gain votes in elections.

Theoretically, the oldest flats get upgraded first but early selection is conditional to a precinct voting for the PAP candidate.

Government critics, especially the opposition parties, see it as an effort to remain in power.
If all else are equal, it has explained, an opposition ward will have to wait until after the PAP-precinct is upgraded. Since it started 13 years ago, no opposition constituency has been selected.

After the 1997 general election, Prime Minister Goh Chok Tong admitted that this linking of the upgrading programme to electoral support was the "most important" factor in the vote swing to his party.

Recently, a shocker came when residents of the west coast precinct of Pandan Gardens voted "no" to the government offer.

Some 68.8% of its nearly 1,000 residents voted for the upgrading, which is short of the 75% minimum required, which rendered the offer invalid.

This is the first rejection since the project started in 1992.

It sent ripples through the property market with political implications for the ruling PAP. If its popularity disappears, the party will lose a strong election card.

The turn-off is obviously the economic weakness, which has resulted in the highest unemployment rate in 20 years and the recent cut on the employers' contribution to the Central Provident Fund (CPF), used by many to buy property and finance the upgrading.

Property values remain weak, which means the gain in value of an upgraded apartment is much less than before. In the past, it was worth up to S$100,000 more. Today it's minimal.

Another reason is the changing demography.More owners are above 40 to 45 years old, an age group that is the most vulnerable to the current retrenchments.

At Pandan Gardens, some 45% of the residents are 45 or older. Many of them find the S$2,700 to S$5,300 they have to fork out too stiff and risky a commitment.

There are concerns that other precincts may also reject the scheme. In the first six months, five precincts had been selected with 80% to 90% approval. This has prompted calls for putting the whole thing on hold until the economy recovers.

Convinced the Pandan Gardens is an exceptional case, the government wants to continue with it, possibly at a slower pace.

It all boils down to the weak property fundamentals. Since its peak in 1996, private property values have dropped by some 35% and few expect any recovery in the next three to five years. This, in turn, leads to a weak HDB market.

The forecast is for a worsening trend in the next three to five years; the only difference is how bad the decline will be.

The tone was set by Senior Minister Lee Kuan Yew's comment earlier this year that the government had been wrong to allow property values in Singapore to rise too strongly. He said it would allow them to drop gradually.

The government is caught between a rock and a hard place.On one hand, it needs to let prices fall to reduce business costs.

On the other, too steep a fall would be disastrous to Singaporeans' biggest asset. At 90%, property ownership here is the highest in the world.

It's not difficult to see its immediate direction. Even if the economy recovers next year, job creation and property values will not rise substantially.

Within the next five years, the property market will likely decline to a new equilibrium.

Many will stay away from buying - or upgrading - a home for fear of losing their jobs. The reduction of employers' CPF contribution to 20% (from the peak of 30%) will reduce the pool of potential buyers.

Meanwhile, several proposals have been raised to improve the lots of HDB owners.
They are now allowed to rent out rooms or the whole flat (earlier they were permitted to register their homes for business).

The authorities are also considering reducing the size and tenure of their HDB flats - from 99 years to 60 years - thus making subsidised flats a lot cheaper.

"Property is like a vampire sucking the life out of our economy and erasing a large part of our wealth," said one chat message.

There are too many regulations that stand in the way of using public flats to earn revenue. Owners hope things will change with the Remaking Singapore exercise.

So what will happen to the refurbishing scheme? Will it fade away?

No. Despite Pandan Gardens, it is believed that demand will quickly resume because it is a great deal for owners. Basically, people want to live in a nice home.

However, the government should allow - indeed, encourage - HDB owners to use their flats to earn revenue.

Until now, regulations had been the other way round, making sure they don't make money from it.

Some important steps have already been taken: permitting owners to rent out rooms or the whole flat and being registered for business or even, it is hoped, operating as B&B (board and breakfast) rooms for foreign tourists.

When they take effect, the HDB will assume a brand new role and the demand for upgrading will strengthen.

I understand there's already a rising incidence of one-man service business in HDB flats - hairdressing, cake-making, dressmaking and, of course, computer-related work.
(This article was first published in Sunday Star Sept 28, 2003)