2008 Nov 9: SPEECH BY MINISTER MENTOR FOR TREE PLANTING DAY CUM TOUR OF THE PINNACLE@DUXTON

SPEECH BY MINISTER MENTOR FOR TREE PLANTING DAY CUM TOUR OF THE PINNACLE@DUXTON, SUNDAY,
9 NOVEMBER 2008

The Pinnacle is the HDB’s most daring project matching the private sector for sale to those who are eligible for buying HDB homes with joint incomes below $8,000. Those who bought early have gained from the rise in flat prices despite the fall in residential property prices with the worldwide liquidity crunch and falling share prices. In Singapore, with limited land, to own a property especially at favourable locations like near MRT stations or the CBD (Central Business District), property values are bound to go up in the larger form because the government is continuously building more infrastructure, and attracting higher value investments that provide higher wages to employees.


In the nature of a capitalist system, from time to time, the world goes into a deep decline. This recession is the most severe since the great depression in the 1930s. The problem started in America with the sub-prime mortgages. The bubble in residential property prices was caused by very low interest rates, easy borrowings because of high liquidity in the economy. People were buying homes which they could not normally afford, expecting it to rise in value, then spending on the expectation of higher market price. When the bubble burst, they could not pay the instalments due on the mortgages and the banks found themselves recovering properties which are now worth less than the unpaid part of the mortgage loans. That led to failure of many American banks, especially investment banks. In September, Lehman Brothers that had taken in large amounts of derivatives called collateral debt obligations, went bust. No one knows what the real values of these derivatives are.


The world’s economy is now globalised. When American stock markets, properties and banks go down, those in Europe also drop because their economies and banks are closely interlinked. Even Asian banks, not involved in these derivatives, have been affected because the financial services industry is inter-linked world wide, as are the stock markets and property prices. Prices in emerging markets were high because besides domestic buyers, foreign fund managers have bought them on behalf of wealthy investors from developed countries. In the downturn, these fund managers had to sell these shares and properties to get cash.


Nobody knows how long this recession will last, or when the America, UK, EU and Japan economies will stabilise and recover. Meantime, all feel poorer with the loss in asset values of their shares, properties and other assets. So their consumers have stopped buying expensive goods, like cars, or machinery. Japanese carmakers, including Toyota, expect to sell fewer cars and have to retrench workers.


The Chinese economy, although not so advanced as the Japanese economy, is nevertheless affected because a significant part of their GDP, 10% consists of manufacturing for exports to America, Europe, Japan and the rest of the world. At the Canton trade fair held recently, exhibitors had reduced demand for high-end products like machine tools and increased demand for low-end consumers’ products like clothes, shoes, items that Walmart buys. China has to boost its economy by spending on infrastructure, railway networks, roads, telecommunications, especially in the west. They have the financial resources and the building capacity to revive the residential housing construction that is still in high demand because many Chinese have savings in the banks and money at home, saved to buy homes. There will no longer be the speculatively high prices properties commanded before the crash.


This downturn is just beginning. No one can say how long it will last and how deep the downturn will be. Recovery will come when the property market in America reaches bottom and begins to rise. That may not be for many months or even years. Fortunately, in Singapore, having learned from the 1997/98 financial crisis, we have not allowed a speculative rise in residential property prices. Few citizens have bought homes that they cannot afford to service their instalments on their mortgages. High price condominiums and office properties have declined in prices. But HDB flat prices have remained steady, going down only slightly. It is because there is real demand from our own citizens, especially new citizens. And permanent residents are buying used HDB flats in the open market. These have kept our HDB flat prices up.


Singapore’s economy is strong. Our reserves can see us through this crisis without the country going broke although we have no natural resources, no oil, gas, palm oil, whatever. Also jobs are available in the two integrated resorts, each needing to hire 10,000 workers, and investments by high-end manufacturing companies like Renewable Energy Corporation (producing solar cells) and Halliburton (producing oil and gas equipment). The government will prime up the economy, and also buffer our citizens from reduced purchasing power, especially the lower-income earners and those who may be unemployed. We have all lost purchasing power as prices of imported food and goods have risen. We cannot restore people to what they were enjoying before the worldwide crash. But we will make sure that nobody falls below the poverty line. After studying the situation carefully, we have to make a realistic estimate of how much we can afford in additional U-save and Work-fare and other alleviating measures. Much depends on how long and how deep this recession will be.


By the next budget in March 2009 in about 4 months, the government will be ready to decide on assistance programmes for the lower-income earners. But to return to where we were before the crisis and enjoy the same standard of living, we have to wait until the recovery of the world economy. We all have to accept some sacrifices and cut-backs. But compared to our counterparts in neighbouring countries, Malaysia, Thailand, Philippines, Indonesia, Myanmar, Cambodia and Vietnam, our low-income earners are much better off. We will make sure that nobody falls through the cracks and drops below the poverty line. The government has to be prudent. Everyone has to put up with some austerity until the economy turns around when the world economy picks up. Our external trade, imports and exports, is more than three times our GDP. When the external demand goes down, our GDP will be affected, and it may go on for many months before we recover.


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