Perils of asset enhancement for younger Singaporeans

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Apr 18, 2011
Perils of asset enhancement for younger Singaporeans
NATIONAL Development Minister Mah Bow Tan stressed the policy of keeping prices of new HDB flats pegged to resale market prices, and said there was nothing wrong in giving Singaporeans an asset that grew in value over time ('WP's housing proposal irresponsible, says Mah'; last Friday).

Such an 'asset enhancement' policy sharpens the divide between the rich and the poor. Households and families that have already bought an HDB flat would be able to enjoy the benefits of having the values of their homes rise, whereas young people who are yet to purchase a home, whether single or married, would be left sitting on the outside looking in.
In effect, the real value of the savings of persons who have not purchased a home, or who do not own property, are continually depressed by the rising values of residential assets caused by the asset enhancement policy.
The asset enhancement policy has worked in the past because real incomes grew faster than the rate at which property values grew, so the depreciating effect on the value of savings was not felt because savings grew faster than property values.
However, in recent times, two effects have set in. First, the maturing of our economy has led to slower growth in productivity, real incomes and real savings. Second, the large influx of foreign workers has driven up the demand for rental property, which has in turn made property attractive for the high rental returns they give to investors.
The young today must work harder, possess more qualifications, and earn higher real incomes to be able to afford housing of the same size and standard that their parents' generation were able to afford as they started out. This raises the danger that late bloomers today will be mired in a poverty trap, unable to afford to own their own homes, or start their own families.
Tan Jiaqi
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