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[h=2]Flawed argument by Minister Khaw that PRs shouldn’t be blamed for high COVs[/h]
January 27th, 2012
According to the National Development Minister Khaw Boon Wan, permanent residents (PRs) should not be blamed for the rising prices of resale flats (Asiaone, Jan 16, 2012).
Based on reports in The Straits Times, Mr. Khaw said that the PRs pay the lower cash-over-valuations (COVs), and the higher COVs are often by private property owners, or former private property owners, especially the enbloc owners or residents who probably have a lot of cash. Specifically, he emphasized that these group of residents are the ones who have bid up the COV, and have emphasized that PRs typically paid the lower COVs.
Mr. Khaw’s conclusion is fundamentally flawed based on two reasons. First, Mr. Khaw’s analysis seems to be based on average data for the entire resale market in Singapore. However, if the data is segregated by different residential areas, then it is possible that we see the scenario where PRs and new migrants are buying into specific areas (e.g., Woodlands, Sengkang, etc.) that traditionally command lower COVs. Nevertheless, the fact remains that they could have bid up the COVs in these areas, while the richer Singapore local residents bid up the COVs in more mature and centralised areas such as Bukit Merah and Bishan. To clarify this point, Mr. Khaw should release the COV data classified by different areas over the years for public scrutiny.
Secondly, the data on COVs is the outcome of a hidden process. In other words, COV data reflects realised transactions after the bidding and bargaining process. This is similar to the case of an efficient auction where the winning bid reflects the highest willingness to pay among the bidders but does not reveal any other information, such as the identities and number of bidders. It is thus possible that the increasing numbers of PRs and new migrants have inadvertently pushed up the final transacted price, which is then paid by the local Singapore residents.
In short, the ‘common perception’ that the increasing prices of resale flats, as well as the escalating amounts of COVs, are due to PRs, as pointed out by Member of Parliament, Mr Zaqy Mohamad, should not be dismissed so easily with just the revelation of a single set of data. Even if the PRs and new migrants were not solely responsible for the high COVs, they could be a major cause. However, it is right that we should not blame the PRs for causing high prices in the resale flats market since they will need housing to reside in Singapore. Rather, we should blame the blunt government policy that has allowed for massive migration without accounting for infrastructure to develop in sync to accommodate the higher population growth.
.
Yong S. K.
Based on reports in The Straits Times, Mr. Khaw said that the PRs pay the lower cash-over-valuations (COVs), and the higher COVs are often by private property owners, or former private property owners, especially the enbloc owners or residents who probably have a lot of cash. Specifically, he emphasized that these group of residents are the ones who have bid up the COV, and have emphasized that PRs typically paid the lower COVs.
Mr. Khaw’s conclusion is fundamentally flawed based on two reasons. First, Mr. Khaw’s analysis seems to be based on average data for the entire resale market in Singapore. However, if the data is segregated by different residential areas, then it is possible that we see the scenario where PRs and new migrants are buying into specific areas (e.g., Woodlands, Sengkang, etc.) that traditionally command lower COVs. Nevertheless, the fact remains that they could have bid up the COVs in these areas, while the richer Singapore local residents bid up the COVs in more mature and centralised areas such as Bukit Merah and Bishan. To clarify this point, Mr. Khaw should release the COV data classified by different areas over the years for public scrutiny.
Secondly, the data on COVs is the outcome of a hidden process. In other words, COV data reflects realised transactions after the bidding and bargaining process. This is similar to the case of an efficient auction where the winning bid reflects the highest willingness to pay among the bidders but does not reveal any other information, such as the identities and number of bidders. It is thus possible that the increasing numbers of PRs and new migrants have inadvertently pushed up the final transacted price, which is then paid by the local Singapore residents.
In short, the ‘common perception’ that the increasing prices of resale flats, as well as the escalating amounts of COVs, are due to PRs, as pointed out by Member of Parliament, Mr Zaqy Mohamad, should not be dismissed so easily with just the revelation of a single set of data. Even if the PRs and new migrants were not solely responsible for the high COVs, they could be a major cause. However, it is right that we should not blame the PRs for causing high prices in the resale flats market since they will need housing to reside in Singapore. Rather, we should blame the blunt government policy that has allowed for massive migration without accounting for infrastructure to develop in sync to accommodate the higher population growth.
.
Yong S. K.
