Tuesday, January 27, 2015

Land cost for everything - Singapore


Lately, I've noticed that there is land cost on everything and when the oil price falls to half it was last year, the petrol prices are only lowered by 15%. "Since June 2014, the benchmark Brent oil price has declined from a peak of US$115 per barrel to around US$50 per barrel recently."

From an unverified source, the tender for 10 years to run a petrol kiosk Temporary Occupancy License can cost up to S$40 million. This means $4 million a year of rent, on top of the high petrol tax in Singapore.

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Building of Condos can be an expensive risk for developers. Many developers though old loopholes and partnership with Temasek Holdings, have already made it big. The newer estates that was up for tender in 2014 in Punggol and Seng Kang are about S$280 per sq ft per plot ratio. Lowest since 2011.

This means that the apartment that you buy (excluding taxes and stamp duties) $280 or up to $700 per sq ft. goes to the government. The government gets the land free or at low cost (formally grass or forest), and sells it at a profit, driving up housing prices.

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Looking at this trend, it seems that everything that the government says, "fair market value" and they call for tenders, it means there are market forces (which may be related to government linked companies) that will buy and drive up land cost and overall property cost. This translates to higher rents and expensive housing.

Compared to various other countries, like German, and even land scarce Japan, many of the industrial land has "rent control" and certain pricing in place, favoring the industries and businesses in the area, ensuring that the rents are kept low to keep the country's export and business cost competitive.

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Driving up cost in everything, allowing speculators to come in, declaring "market value" on things like coffee shops, public housing and many other properties which should be regulated will only drive costs up.

For a small coffee shop, the cost can be S$10 million, and the rents of each stall can be $10,000 a month. This usually mean the rent actually cost more than labor costs. And in Singapore, the business owner that is faced with high rent can either increase price, lower quality of materials used, or exploit their workers.

I'm no economics guy, but I'm certain that everything you buy, coffee, a watch, clothes, etc. A significant portion of what you pay, actually goes into rent cost. I'm not sure if I like paying more thing because rent is high, even in far away places.

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So where does the money go?

The money that SLA make from land sales, property taxes, stamp duties and the excess taxes collected by the government, along with ERP, COE, and various other schemes to siphon money. Along with your CPF, medisave and other $$$, along with profits made by Temasek holding and GIC, say about S$10B a year for about 10 years, will see about S$100B or more in the reserves.

I'm not sure that the "rainy day fund" will every be used to better the lives of Singaporeans, and the excess money now seems to lead to "constant over budget" on projects which do not really benefit the average Singaporean.

I do wonder if anyone knows how much in the reserves do we actually have, and how is it audited, since it is managed by Temasek Holdings and GIC, and whether are there plans to use the money in the near future perhaps when the funds grow beyond S$200B (say a 5% return) eliminate GST, and have more programs to benefit the ones who are left out in the Singapore success story.

I personally do not think such a high reserve is necessary, and I do feel that a lot of people in Singapore are not doing as well now compared to 10 years ago, and something needs to be done to help them aspire more and keep their dreams alive, so that we can all have prosperity and progress for our nation.

-- Iron Bowl

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