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Old 27-07-2003, 05:22 PM   #7
chilli
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some property news.

JULY 24, 2003, ST

If land prices plunge suddenly...

Home owners will suffer. So the Government is focusing its efforts on cutting wages, fees and taxes

THE Government cannot afford to bring down land prices abruptly to ease the cost of doing business in Singapore, as this will eventually cause the housing market to collapse.

This is why it is trying to keep business costs down in other ways, including cutting wage costs, said Senior Minister Lee Kuan Yew yesterday.

Union leader Law Swee Hong had asked what the Government was doing to lower costs, besides getting workers to accept lower wages.

In response, Mr Lee said that the Government was trying to bring down fees and taxes as fast as it can to keep business costs down.

The biggest problem was its high land costs.

'We allowed, or we did not check the rise in land prices and property prices. It went too high. That is a problem.'

But bringing down land costs too quickly would be 'very dangerous', as it would result in the problem that Hong Kong faces now, where its people feel the heat from the depressed value of their property.

Any move to bring down the cost of industrial land, or commercial rent at places like Suntec City, OCBC Building or DBS Building, would eventually result in falling housing values.

'It's all inter-linked and, finally, you find your three-room flat may be worth less.'

And being 'an asset-owning, property-owning society', Singaporeans would be hit badly if this were to happen, he said.

The Government thus had to adjust land prices in a gradual manner.

But since wages made up a major proportion of costs - ranging from 15 per cent in information technology industries to 60 per cent in labour-intensive manufacturing industries - the Government is now focusing on bringing down labour costs.

But how do workers cope with lower wages on the one hand, and rising costs of public amenities such as health care and transport, asked Madam Law.

Mr Lee dispelled the notion that workers were squeezed on both ends - facing lower wages and a higher cost of living.

Transport and medical costs may have risen in recent years, but the cost-of-living index - which tracks prices of a comprehensive bundle of goods and services - had risen by less than 1 per cent.

As for public amenities, it was better to let market forces determine their operations.

Subsidies would distort consumption, he said.

Free medical services in China and a nationalised health system in Britain had resulted in backlogs and poor quality of care.

Elsewhere, government coffers subsidised public transport companies - and as a result they became inefficient.

'The open market, supply and demand settling the price, is the most efficient way of settling what a service or a product is worth.'

So, rather than subsidise the service, the Government decided to help the needy with cash grants or rebates.

'We decided as a matter of basic principle that it's better to give the man the cash and he decides what he's going to do.'

As for the worry that retrenched workers and those who suffered wage cuts cannot service their mortgages, Mr Lee said this issue of 'negative equity' had been examined closely by the Government.

This is the biggest problem in Hong Kong at the moment. It came about following the bursting of the property bubble that had built up over the years there.

People bought property at the height of the market and mortgaged it to the bank.

But when property values came down, many who were jobless or had lower salaries found they could not service their loans.

Fortunately, Singapore did not have this problem, as property prices did not go up as high as in Hong Kong, said Mr Lee.

Also, the bulk of Singaporeans own Housing Board flats.

No one who bought a flat directly from HDB at subsidised prices was in danger of losing it from not servicing his loan, due to HDB's home ownership social agenda.

Indeed, most would still make money if they sold out now.

'We are not going to do anything which will cause us the problem that Hong Kong is facing.

'One of the reasons why our morale is not like Hong Kong is because we don't have this problem,' he said.


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