Old Model of depending of public contributions to fund government spending will not work anymore, it is not sustainable

From Chua Soo Kiat
04:45 AM Dec 01, 2012

As pointed out in the letter “Dual public housing system is sustainable, better: SDP” (Nov 22), revenue from land sales goes into government reserves. As seen in the Housing and Development Board’s (HDB) latest annual report, its land cost was S$4.4 billion.

Thus, if we were to accept the Singapore Democratic Party’s (SDP) proposal of Non-Open Market flats, which strips out land cost, we would have to accept lower contributions to the reserves from land sales.

The more NOM flats there are, the less the contributions and the lower the net investment returns contributions (NIRC) in the future, ceteris paribus.

NIRC is a key government revenue component to help fund programmes from education to defence and, increasingly, social and medical spending.

With NOM flats, the tax increase the Prime Minister spoke about at the National Day Rally may come sooner than projected, as taxpayers would be asked to pick up any shortfall in NIRC.

The psychological impact of NOM flats cannot be underestimated, too. Between an NOM flat and an open market flat in a similar location, Singaporeans who want to be owner-occupiers would naturally go for the former.

After all, land proceeds can be viewed as contributions to a national social fund, so why contribute if you have a choice? Furthermore, social benefits such as Goods and Services Tax Vouchers and Workfare bonuses do not depend on how much land cost one pays.

In fact, one may get more social benefits in a NOM flat, as it should come with a lower assessable value, given the restrictions on rental and sale. Strong demand for NOM flats would curb any price appreciation in the open market, and a vicious circle may form.

Nevertheless, the SDP’s NOM paper is a commendable effort. I hope to hear from ministers and elected opposition members on this, given its proposed impact on the reserves and the value of HDB flats.

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NOM flats will only work if you restrict the sale of the flat ie if the family does not need it or upgrade, he must return back to HDB at a price determined by HDB, inflating HDB land to market forces will only create an endless bubble where there is no end to the high cost of everything in Singapore, if you cannot create a range of flats to cater to the diverse interest of public needs, then what is HDB setup for? Due to restrictions, the impact on the property market will be minimum but it will cut down the demand of an ever increase that has no end, creating affordable flats for the masses. The NOM component can be based on 50% of the market land costs, in this way, you still derive a profit but much lower, there are hundreds of other ways to make money like creating more shops, shopping centres, amenities, mrt etc, and it will create a better public opinion for the government. Ideally, the location of these flats should not be in central but sub-urban areas, where there is widespread land to be used to built new towns. You want to raise billions of dollars to enjoy a Swiss Standard of Living? Then start privatising the balance of HDB flats area by area. Let private bankers control the expansion of credit so as to control inflation, there will be liquidity in the markets to fund anything you want. Example valuation of flat is $500K, paid up is $300K, so the person cannot borrow more than 80% or 70% of the valuation of the flat, so you would have created an expansion of credit for $X amount of dollars.

– Contributed by Oogle.

Author: Gilbert Tan TS

IT expert with more than 20 years experience in Apple, Andriod and Windows PC. Interests include hardware and software, Internet and multimedia. An experienced Real Estate agent, Insurance agent, and a Futures trader.

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