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Policies Supporting Government’s Land Dividend Extraction Strategy
The truth is that the increase in population is more to facilitate the extraction of land dividend. The bigger population helps to provide the needed traffic volume for the MRT network and the malls; to fill up job vacancies in the low value-add labour intensive domestic services sector; and to depress wages in the lower and middle rungs. Today, Singapore not only has a burgeoning gig economy but is also one of the few developed countries without a minimum wage because of the absence of an independent union movement. Meanwhile, prices are surging, public services standards are slipping and infrastructure is buckling under the strain of overcrowding.
11 September 2019
Two areas of public policy are critical to the success of Government’s land dividend strategy: MRT-centric public transport policy and population policy.
REITs Benefitting from a Comprehensive MRT-centric Transportation Network
Before wealth can be extracted from the rising land value through the REITs, it must first be generated and enhanced. One of the most important wealth generation tools is the construction of mass rapid transit (MRT) system. Where the MRT stops, the value of land and properties rises.
For the REITs, having a mall co-located with a MRT station is particularly important because of the human traffic the trains bring. The higher the human traffic, the higher is the rental REITs can charge their tenants.
CapitaLand Mall Trust (CMT) REIT’s Portfolio as at 31 December 2018
Source: Extracted from CMT’s website in September 2019
Singapore’s urban design today is such that every town centre has one or more ritzy shopping malls co-located with a transport hub providing MRT and bus services for their residents. The town centre serves as a confluence point through when residents go about their daily activities. While transiting through the town-centre malls, they may also dine, pick up groceries or run errands before going home. During weekends, the town-centre mall is often also where families converge. Alternatively, residents may choose to travel out of town to megamalls such as VivoCity and Jewel for a wider range of shopping, dining and entertainment options. In short, the mall is the center of modern living in Singapore. All the 15 malls owned by CapitaLand Mall Trust (CMT), for example, are co-located with a MRT station as the figure above shows.
Likewise, commercial and industrial properties owned by REITs such as Ascendas are also located near a MRT station to ease workers’ daily commute. Warehouses and logistics hubs, on the other hand, are situated alongside expressways to provide convenience access for trucks. The figure below shows the locations of business and industrial parks as well as warehouses and logistic hubs of Ascendas REIT, also owned by CapitaLand Group.
Ascendas REIT’s Portfolio as at 31 Mar 2019
Source: Extracted from Ascendas’ website.
In the end, the MRT system brings convenience to the commuters but the new wealth generated is really extracted only by the MRT operators that manage it; the REITs that own the various retail, commercial and industrial properties; and the Government who owns the land and some of the REITs.
The costs of constructing the MRT system, on the other hand, are fully borne by the Government (hence taxpayers) while the costs of operating the MRT system are borne by commuters (who are also taxpayers).
In effect, the arrangement guarantees both the MRT operators and retail REITs a handsome profit. Before the frequent train breakdowns, the SMRT positioned itself more as a rent collector than as a train operator. The appointment of a retail-industry veteran as the first CEO to run the train company is a reflection of that rent-seeking mentality which distracted the company from investing in the maintenance and upkeep of the system. As the system became strained by the influx of population, the neglect led to the frequent train breakdowns and disruptions. Yet a case is being made now to increase fares to help MRT operators allay the costs of providing a reliable train service, which should have been the train operators’ primary operating goal to begin with.
Rising Population to Sustain the Malls and MRT
The construction of more malls and MRT lines is only half the picture. The other half is the traffic volume needed to generate revenue. To turn in a profit, MRT operators need to have sufficient ridership every day to generate enough revenue. Likewise, malls need high human traffic to justify the premium rentals charged to the tenants.
The implication therefore is that the more malls and MRT lines Singapore has, the bigger will be the population needed to sustain them.
Indeed, Singapore’s population has been growing in line with the increase in supply of retail space and the expansion of the MRT network. Take retail space for instance. Between 2004 and 2011, while the shopping floor space supply grew from 43.8 million sq ft to 55.7 million sq ft, the population increased also in tandem from 4.16 million in 2004 to 5.2 million in 2011. This works out to only a slight increase in shopping space per person from 10.5 sq ft to 10.7 sq ft.
Shopping Space per person (2004 - 2011)
Source: Extracted from Bobby Jayaraman. (2012).. Pg 77.
Population growth is therefore the most critical support policy the Government implemented to ensure the success of its land-dividend extraction strategy.
Hence, even though Singapore has built more MRT lines and the island is full of malls over the past two decades, both the trains and the malls are brimming with human traffic. Singapore’s population continued to grow despite the fact that economic growth was slowing down from an average of 8% in the past to the current 1% - 2% even in good years. In short, the economy is now achieving low-quality slow growth by increasing numbers.
Moreover, it also means that with more mega-development projects and new MRT lines in the pipeline, Singapore will need to further increase its population in the coming decades.
In 2013, the Government’s Population White Paper ‘projected’ that, by 2030, Singapore’s population would increase by about another 2 million to 6.9 million. In unofficial channels, there was chattering that Singapore could comfortably house 10 million. There were even talks, in closed-door discussions, about Singapore’s ability to accommodate 20 million by increasing the intensity of housing its resident through innovative architectural designs.
The low total fertility rate (TFR) has often been cited as the reason for the need to increase population. But even though our population has doubled over the past decades, our primary schools are closing, secondary schools as well as junior colleges are merging, polytechnics are streamlining their programmes while the army also sees a declining intake of new recruits. Meanwhile, our TFR has fallen to an historic low of 1.14 in 2018. The increase in migrant population has not resulted in higher fertility rate or stopped the trend of ageing population.
In other words, we are not bringing in the right people to address the problem of ageing population as claimed by the Government. Over the next 2 – 3 decades, the new residents today will also age and the future government will be faced with an even bigger fiscal burden of taking care of a bigger ageing population. The current Government is basically generating wealth today at the expense of future generations.
Singapore’s Scheme of “Ponzi Demography”
The truth is that the increase in population is more to facilitate the extraction of land dividend. The bigger population helps to provide the needed traffic volume for the MRT network and the malls; to fill up job vacancies in the low value-add labour intensive domestic services sector; and to depress wages in the lower and middle rungs.
In the end, the rising rentals and land costs amid stagnating wages and declining business profitability mean that the economic pie has been re-sliced to benefit the Government (i.e. as land, capital and business owner) and the REITs (i.e. as capital owners) at the expense of SMEs and workers.
Today, Singapore not only has a burgeoning gig economy but is also one of the few developed countries without a minimum wage because of the absence of an independent union movement. Meanwhile, prices are surging, public services standards are slipping and infrastructure is buckling under the strain of overcrowding.
Singapore is ranked as the most liveable city for Asian expats according to a survey by human resources consultancy ECA International. But for the masses in general, Singapore is only the 40th most liveable city in the world, even behind Hong Kong (Note though that the 2019 index overlooked the recent political unrest there) according to Economist Intelligence Unit’s 2019 Global Liveability Index. Tellingly, other studies also reveal equally less appealing non-material wellbeing of living in Singapore. The Cities for the Best Work-Life Balance 2019 study, for example, ranks Singapore as the second most overworked city. The 2018 World Happiness Report, on the other hand, ranked the city-state 34th in happiness level.
Former United Nations demographer, Joseph Chamie, calls Singapore’s population policy “Ponzi demography” which posits that what governments do with having more and more people is the human equivalent of what Bernard Madoff did with money:
“The human-pyramid scheme works like this: Population growth, either through births or immigration, boosts demand for goods and services, increases borrowing, boosts tax revenue and adds to corporate profits. Everything seems grand and leaders take a bow. It’s a bubble, though, and it eventually bursts when population growth stalls. Incomes top out, high debt crushes consumption and investment, the need for public assistance rises, environmental degradation increases and angry people take to the streets. As households are left to pick up the tab once Ponzi demography runs its course, government leaders issue dire warnings about economic decline if the flow of fresh talent stops.”
This is not unique to Singapore. It is a sad story that is happening all around the world particularly in countries (particularly in Hong Kong) where inequality is high because of systemic rent-seeking that benefits capital and asset owners disproportionately. The only difference in the case of Singapore is that the rent-seeker is the Government, who is not only the policymaker and regulator but also the biggest capital and business owner.
Again, the question is that if the rent-seeker is the Government, who then is to keep the Government in check?
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 Bobby Jayaraman. (2012). "Building wealth through REITs." Marshall Cavendish. Note: This writing on REITs market development summarizes Bobby Jayaraman's informative and insightful writing on the topic. Pg 76
 See Straits Times (2019). “Singapore again tops ranking of most liveable city for Asian expats, Hong Kong slides lower.” 29 January 2019.
 See Straits Times (2019). “Singapore slips to 40th most liveable city, behind Hong Kong.” 4 September 2019.
 See William Pesek. (2013). “Singapore’s Population Bubble.” Bloomberg. 14 February, 2013.