by Foong Swee Fong
When foreigners snap up property here, prices are bound to go up, given the scarcity of land.
According to the Straits Times (HDB resale prices up again as record 45 units crosses $1m, 7/10/22), “…resale prices increased by 7.8 per cent in the first nine months of 2022, fuelled by hot money from private property downgraders flowing into the HDB resale market…..”
“Hot money”, by definition, means short term money from another country looking for a quick gain. Thus, even though foreigners are not allowed to buy HDB flats, their transactions in the private property market pushes up HDB resale prices, which in turn pushes up prices of flats sold directly by HDB.
In a study by National University of Singapore (NUS) entitled “Foreign liquidity to real estate market: Ripple effect and housing price dynamics”, the authors noted that foreign liquidity shocks can greatly impact housing price growth in not only the central region, where foreigners are more active, but also the less central region.
They go on to say that even though foreigners are not allowed to buy HDB flats, the ripple effect of foreign liquidity shocks can reach the public housing market.
In fact, the correlation between foreigners’ share of property purchases and the national price index was 0.7 during the period of their study. (1 is complete correlation and 0 is no correlation.)
The inflow of foreign currency thus causes prices to spike, but instead of curbing the inflow sufficiently, the government punishes the locals by preventing them from buying a HDB resale flat within 15 months of selling their private property. How sensible is that?
But not only does the government not curb the inflow sufficiently, it actually encourages it!
The United States has long accused Singapore of manipulating its currency to attract foreign investments, keep exports competitive, consumption low and savings high.
According to economist Linda Lim and MBA candidate Nigel Chiang, “…the Monetary Authority of Singapore (MAS) typically sells the Sing dollar to weaken it, such that it is undervalued by various international measures. One measure used by the International Monetary Fund (IMF) puts the undervaluation at 14 percent in real terms…”
While this policy works well to raise national income as it is good for international business, albeit unfair to other countries because it is classic beggar-thy-neighbor, it causes persistent inflationary pressure within the country which is very disadvantageous to the working class.
As it is, property prices has shot through the roof, including that of supposed subsidized HDB flats. It is high time the government do more to mitigate the disadvantages which its policies impose on the working class.Clearly, it has not done enough.
This opinion was first posted on Mr Foong’s Facebook page and reproduced with permission.
