SG housing is not just a matter of building and providing housing at affordable levels for the different levels of income.
Sharing a post from South China Morning Post (SCMP) about how China’s city of Shenzhen is looking to drop their Hong Kong model of public housing in favour of Singapore’s, Ho Ching said that housing in Singapore is not just about building and providing housing at affordable levels. It is also about having a proper savings scheme and separating government annual revenue from land sales proceeds.
The SCMP article highlighted that Shenzen, one of the most expensive cities in China, is looking to bring about a “second housing reform” by providing more affordable public housing. The measure is part of the government’s promise to offer 1.7 million homes by 2035, 60% of it being subsidised.
SCMP highlighted that as of 2018, only 20% of homes in Shenzen were government-funded, compared to 45% in Hong Kong and over 80% in Singapore. They want to change this by offering subsidised homes at half the prevailing market rate, according to a consulting paper issued by the Housing and Construction Bureau of Shenzhen.
Said Li Yujia, senior economist with the Real Estate Assessment and Development Research Centre, Shenzhen – a research arm of the Shenzhen government, “Shenzhen would like to be a pioneer seeking a scheme more like Singapore, separating more affordable homes to average individuals seeking a place to live.”
“Currently we are still using a Hong Kong model, where most homes are built and sold as commercial products in the private market and only a small portion of cheap rental flats are designed for the poorest.”
Shenzen’s plan is to split the subsidised homes into three parts: public rental flats leased at 30% the market rent, affordable homes at 50% the market rate, and other homes at 60% the market rate.
“Shenzhen’s home price has soared too high as more are using homes as a tool for asset gains, and the current average price now is far beyond average affordability,” said Fion He, chief analyst with property brokerage Midland Holdings China.
The increasing cost of living is becoming a burden to Shenzen residents and China’s silicon-valley will start to suffer from a loss of skilled labour as people begin to move away to where housing is much more affordable.
“This is a big problem for cities like Shenzhen. Losing skilled workers means losing hold of the engine of economic growth,” said Joe Zhou, Executive Director of Capital Advisor Group, CBRE China.
By adopting the Singapore model, SCMP says Shenzen is echoing President Xi Jinping’s pledge to build homes “for living in, not for speculation.”
Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor has also praised Singapore before for its housing policies, saying that it inspired her in the formation of her own policies relating to Hong Kong’s housing crisis.
SCMP noted that this new model could work in Shenzen as the city’s economic outputs are higher than Hong Kong’s.
Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu said that one reason why the government is brave enough to make such a bold change in policy was that the Shenzen government do not rely on land sales revenue, unlike most cities in China.
In fact, Shenzen only collected less than 45 billion yuan in 2018 from land sales, which is only 20% and 25% of what Shanghai and Beijing collected respectively in that same period.
Going back to Mdm Ho’s Facebook post, the Temasek CEO noted that in Singapore, CPF contribution rates have been gradually built up to the 37% today which is “just nice to cover mortgage payments” so that buyers won’t have to use their take-home pay. But she cautioned this is just one of many factors to consider.
Additionally, Mdm Ho said “a complete housing solution is also about separating govt annual revenues from land sales proceeds.”
On this note, she explained how money from land sales in Singapore is not allowed to be used directly for government annual spending as land is considered part of Singapore’s collective heritage.
She wrote, ‘Instead, money from land sales is treated as past reserves, locked up like other past reserves, a heritage to be protected and shared across generations.”
“So under the protection of past reserves law, only half the expected long term returns income from investing the land sales proceeds can be used for annual govt spending. This is so that the proceeds will continue to generate income across generations as if the land itself has been kept to generate rental income for all generations.”
This, she said, would mean less conflict in government interests as there’s “no big incentive to try to push land sales or keep land sale prices high to get more money for spending.”
“This is what we mean by managing our future sustainably too,” said Mdm Ho.
She further explained, “If a local govt depends on land sales to fund their spending, they would likely have less interest in stabilising land prices. And this will translate over time to higher housing prices as land supply shrinks.”
Mdm Ho then went on to explain another measure the government can take to moderate land prices – preventing land banking. This means that any land the government sells will have to be developed and sold within a few years instead of being hoarded to push prices up further.
“In SG, developers who buy govt land are required to build and sell their properties within 5 years, or face a hefty fine for so long as they still do not develop and sell their residential properties,” she said, adding that there are some exceptions made during periods of economic downturns.