For the second time in five
months, the executive chairman of Hong Leong Group Singapore and City
Development Limited (CDL), Kwek Leng Beng, has called on the government to
review property
restriction measures here
He
told the press on Tuesday that “foreigners were choosing to plough their
investment dollars into countries like Britain, Australia and the US over
Singapore, while Singaporeans have been investing abroad.”
Image from
theonlinecitizen
Now,
anyone who has an iota of common sense will know that advice from a property
developer to the government to remove curbs on property speculation is prone to
bias.
Kwek
Leng Beng goes on to state that, “We are losing these investments to other
countries even though these foreign properties have a higher risk profile,” Mr
Kwek told The Straits Times. “It is unlikely these investment dollars will
return to Singapore.”
Although
there is probably some truth to Kwek Leng Beng's statement, the bigger question
is whether foreign investment in property is desirable for the country.
Yes,
investments in properties create jobs and contributes heavily to the GDP. If
party A buys a Condo from the developer at $1M and sells it to party B for $2M
within 1 year, the GDP for the economy increases by $3M. After factoring for
agent commissions, lawyer's conveyance fees, the contribution to the GDP is
slightly higher. Add to that the various taxes, stamp duties and fees which
contributes to the government's coffers, it is easy to see how attracting
foreign investments in property can be a lucrative business. After all 3
out of the 10 richest persons in Singapore have their source of wealth
derived from property, with the top 2 having their wealth derived almost
entirely from property
However,
the jobs created in this industry are few and the technological advancements,
even fewer. This is exacerbated when it is just the same property exchanging
hands, multiple times without any new product or services created for the
society.
Despite
all these, foreign investments in property might do more harm than good to a
society with scarce land space and an increasingly densely populated
population. Encouraging property speculation results in runaway property prices
that prices out many locals from home ownership. Although, Singapore has
managed this well by providing government housing through the HDB, the very
high difference in land sales prices between land earmarked for HDB development
and land earmarked for private property development gives the government a lot
of incentive to prefer one type of land sales over the other. Furthermore, it
discourages upwardly mobile locals from owning private property, leading them
to compete with "less upwardly mobile" locals for government
property.
Instead
of encouraging foreign investments in property, we should encourage foreign
investments in businesses which creates jobs, technological advancements and
products and services which benefits the society at large.
Compared
to US, where none of the top 10 richest persons derive their richest from
property, we can see a very glaring difference between the 2 countries. This is
one reason why despite strong push from the government, a solid infrastructure
network and a highly intelligent workforce, we do not have breakthrough
entrepreneurial companies like Facebook or Google incubated on this island.
After all, who wants to take the risk of entrepreneurship when rents are sky
high and you can easily make a lot of money as a property agent. Why would any
foreign investor, invest in a local start-up when investing in property gives
much better yield?
To
add insult to injury, our tech entrepreneurs, Sim Wong Hoo and Tan Min Liang.
have to run off to California to find angel investors willing to invest what
would later become the world renown companies, Creative and Razer.
End
of the day, we do want foreign investments in Singapore. We want foreign
investments in business that creates jobs for Singaporeans. We want foreign
investments in technology to create technological advancements in Singapore. We
want foreign investments in arts, culture and sports to make Singapore a
vibrant city. But we do not want a repeat of the Tulips mania by having foreign
investors exchange overly priced property around like a game of musical chairs.
Back
in the 70s, Dr. Goh Keng Swee laid the foundation stones for Singapore's
economy by promoting foreign direct investments by multi national companies to
Jurong Industrial Estate and not by building thousands of condos for foreigners
to invest in, because he knew that this was the kind of investment that would
lead to Singaporeans developing more skills, create jobs and improve standards
of living. Let's move away from speculative property investments and direct
foreign investments to projects that will have better positive externalities
for the society.
L.A.M.
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