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[VIEWPOINT]This is not Singapore

Published: 08 Dec. 2006, 21:18

Nowadays we often hear government officials or National Assemblymen refer to the Singapore model when they present a new real estate measure. The point is that housing prices in Singapore stabilized because the government provides standard housing units at cheap prices. Consequently, a law that stipulates the government provide the land for apartments at low rents, and people own their apartment buildings only, is going to be introduced in Korea.
It is desirable to provide housing to lower-income people at bargain prices. However, when we quote the example of a foreign country, we should scrutinize the reality we are in. Some politicians and journalists talk as if Singapore is a paradise where there is no real estate speculation. However, speculative investment in real estate takes place in Singapore periodically. It is no exaggeration to say that private sector housing is a paradise for real estate speculators. That is because there is no tax on the income from real estate sales, no problems even if one owns a large number of housing units and no limitation on the transfer of purchasing rights of apartments.
In order to talk about the Singapore model, we have to understand the dual structure of Singapore’s real estate market and the philosophy of the government that maintains that structure. At the time Singapore was founded, the government nationalized about 80 percent of the land. On the basis of this, the government started to provide standard housing units for lower-income people and industrial complexes at low prices. The biggest reason the government supplied standard housing units to low-income households was because Singapore is a heterogeneous society made up of immigrants from different countries, and the government wanted to instill patriotism in them by making them home owners. The Singapore government also believed people would concentrate more on their work when their housing problems were solved. In the case of public sector housing in Singapore, it is difficult to make speculative investments. The government has tight control over the price of land, while the housing ministry controls the supply of housing units as it pleases. On the demand side, there is a strict regulation that only Singapore nationals can buy one unit per person. But the Singapore government prefers to increase housing prices gradually so that the wealth of individuals as well as the government will increase. Also, the government has raised the price of standard apartments in accordance with price hikes in the private sector, so that the price gap between the private and the public sector housing units does not grow too wide.
On the other hand, the government leaves the supply and demand of private sector housing to the functions of the market. The government does not intervene in which area’s housing prices may increase or by how much, or who may gain whatever amount. There is no restriction for foreigners, either. Foreign nationals can also buy private sector houses and can borrow from banks up to 80 percent of the value of the housing unit. Around Orchid Street in the center of Singapore, super-luxury apartment buildings of more than 40 stories are under construction. Newly-built apartments like this create a real estate market boom by raising the sales price of apartments gradually.
The reason the government does not intervene in the private sector housing market is because it is wealthy people who enter this market and it is better, therefore, to leave the supply and demand of private housing to them. It is the same reason the U.S. government does not intervene, no matter how high the prices of houses in Manhattan or Beverly Hills may skyrocket.
People who mention the Singapore model seem to emphasize only one side that fits their purposes, instead of studying the double structure of the real estate market as a whole. Even if our government tries to supply standard housing units at a low price, there are many obstacles to overcome. In our case, the proportion of government-owned land is only 30 percent. And it is only 0.1 percent of the urban land that is owned by public organizations. Therefore, the government must pay compensation for privately-owned land if it intends to supply housing units to low-income households. In order to provide the land for housing projects at a low price, the government has to subsidize a large part of the cost of the land.
On the demand side, if public sector apartments are built at good locations, a lot of people who are ready to buy them at higher prices than posted will rush from all over the nation. In Singapore, with a population of 3 million, that may not be a big problem. But in South Korea, with more than 47 million people, we must ponder on how to arrange them.
The real estate measures announced by the government seem to react ultra-sensitively to fields that the government may not intervene in and unrealistically to the fields where it should actually take action.

*The writer is an economics professor at the National University of Singapore. Translation by the JoongAng Daily staff.

by Shin Jang-sup