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  Today Online 8 Feb 07
Where's the good in en bloc sales?
Kenneth Yeung isay

Today Online 2 Feb 07
Taking over private turf for public's good
The State is right to acquire land if it is clear the purpose is to benefit the majority
Ngiam Tong Dow

In my 40 years of service, I conclude that what works is what counts. The embedded rhetorical question is--works for whom and counts for whom?

Looking back, one of the most satisfying pieces of work that I did for Dr Goh Keng Swee, my first Minister for Finance, was helping to draft the Cabinet paper setting out the economic and social rationale for the introduction of the Land Acquisition Act.

A news item titled, "In China, land seizures fuel unrest in rural areas", in The Wall Street Journal (Asia) of Nov 10-12, 2006, reported that hundreds of enraged farmers in Guangdong province's Sanzhou village surrounded a granary during its inauguration ceremony, and for almost 24 hours refused to allow the departure of dozens of officials and investors inside the encircled building.

The farmers complained that the money paid by the investors for the seized land was significantly higher than the compensation paid to them, and alleged that corrupt local officials pocketed at least part of the difference.

I would now dissect this Chinese episode from the viewpoint of a Singapore administrator. At the outset, I would state that, in principle, the larger interest of the community must take precedence over the rights of the individual.

If property rights are absolute, then HDB towns could not have been built to house 85 per cent of our population. The modern city we now call home would have remained a town of slums and swamps.

The core principle of the Land Acquisition Act is that private land can only be acquired for a clear public purpose. In Singapore, private land is compulsorily acquired for infrastructure, such as roads and expressways, low-cost HDB housing, the Jurong industrial estate, schools, hospitals, and public parks.

The process is open and transparent. No Singapore Cabinet would have approved the acquisition of the granary in the report cited above as a granary built by private investors is clearly for commercial gain and not for a public purpose.

A Land Acquisition Act is a very powerful tool, and in the wrong hands, it can be easily abused. Acquisition can easily degenerate into expropriation, where corrupt officials in the name of the State turf out peasants and resell the land for a huge premium.

When the Singapore Government acquires private land for public purposes, it pays--from public revenue--compensation to the landlord. Land is priced at its market value in its original undeveloped state. The Chief Valuer does not take into account the potential commercial value of the land.

It is the State that builds the infrastructure. The community pays for public infrastructure out of tax revenue. Hence, any increase in value of the land from public investment should rightly accrue to the State.

The individual landlord is entitled to the value of the raw land, not the incremental value created by public investments. The large landlords in Singapore appreciate that it is in their larger long-term interest for the Government to invest in public housing and infrastructure.

As Singapore grows economically, all land in Singapore appreciates in value, sustaining the value of homes and offices, including their own.

A more difficult problem in land administration is the resettlement of tenants and squatters who do not own the land.

The Singapore Government pays what is called ex-gratia compensation. Unlike the landlord, the squatter is not entitled to any legal compensation. The State, out of the goodness of its heart, compensates on the basis of fixed assets, such as his hut and pig-pens. He is offered priority in the allocation flats by the Housing Board, sometimes offered taxi licences or market stalls, so that he can find alternative means of livelihood.

By being fair to resettled families, public infrastructure has been built for the good of the larger community without public discontent.

Purist economists are for an individual's absolute freedom to choose and against any form of state intervention in the economy's functioning.

As a former practising administrator, I would think that the second part of the equation is just as important. The state can and should intervene in the working of the marketplace when it is manifest that public interest will be better served.

The Land Acquisition Act enables the Government to acquire huge tracts of private land for the construction of low-cost housing. Individual rights were violated, but not trampled upon. Compensation was paid, but not at its full commercial potential.

Were any mistakes made? Yes, but they paled into insignificance compared to the larger national achievement of building a modern metropolis.

When the MRT system was being built, the Government adopted a policy of acquiring all private land and properties within a certain radius so that small lots can be consolidated and tendered publicly for comprehensive redevelopment.

The intention was benign, but did such acquisition pass the test of manifestly being in the public interest? Could the free markets be used instead to achieve comprehensive redevelopment without state intervention?

Private capital and expertise could have been used to develop such strategic sites to reap better economic value for the community, instead of the Singapore Land Authority playing the unfamiliar role of developer.

The happening Boat Quay redeveloped by the private sector contrasts sharply with the sterile atmosphere of renovated Chinatown shophouses.

Of course, private enterprise is no guarantee of commercial success. The old Lau Pa Sat redevelopment is an example of private sector failure.

Take en bloc redevelopment sales of private property. There may be one or two individual owners who, for good reasons, are not willing to sell their properties. Should a minority of one be allowed to stop all the neighbours from unlocking the value of their aging condominiums in a buoyant market? Should the economy miss out on the economic value-add of public infrastructural investment such as the MRT?

When en bloc redevelopment succeeds, the public revenue benefits from development charges paid for higher development intensity. The happy outcome is that both individual and public interest are served.

In the economic domain, there is no need for conflict of interest between the majority and the minority. Fair and transparent pricing serves the interest of both parties.

What is in the best public interest will ultimately have to prevail, provided the State does not allow the majority to oppress the minority. In a multi-racial country such as Singapore, the burden of leadership must fall on the majority.

This was adapted from former Permanent Secretary Mr Ngiam Tong Dow's speech at the Singapore Academy of Law's Professional Affairs Committee on Wednesday.

Today Online 8 Feb 07
Where's the good in en bloc sales?
Kenneth Yeung isay

When a distinguished former Permanent Secretary of Mr Ngiam Tong Dow's stature writes a piece, it has to be read. It provides good insights into policy decisions of yesteryear.

His articulation on the State's right to acquire private land, for the clear purpose to benefit the majority of the public, has been well argued.

However, the citation of the The Wall Street Journal (Asia) article "In China, land seizures fuel unrest in rural areas" somehow relates better to the ending paragraphs of his article on private en bloc redevelopments.

I was somewhat baffled by his extension of his argument of public good to private en bloc redevelopment sales. Sure, all the key arguments of unlocking value — extraction of economic rent from developers through higher development charges for higher plot ratios, higher density occupancy in housing, spin-offs for the finance, construction and ancillary supporting industries, employment, and so on — are supposed to produce nett public good.

But is it really so? Developers buy high, sell higher. Producers' surplus is the norm; it is an imperfect market, skewed towards developers and abetted by the media.

The consumer has no control of the information that he gets, and those who own the information only have the incentive to tell all the good news and lock away most of the bad news until such time it becomes someone else's problem.

The resources spent — in procuring the estate en bloc, demolishing the existing buildings, and building new ones — is not a productive activity. All the cost of energy put into building the development some years ago also goes to waste.

If the building is 40 to 50 years old, redevelopment is perhaps necessary.

However, we get en bloc sales for estates that are as young as 10 years old. This is outright wasteful.

Capital invested in real estate has a greater propensity to be speculative as it filters down to the end consumer. The available capital can be better employed in producing real value by, for instance, farming it out for biomedical research and development.

As more building materials are consumed, the environment also naturally deteriorates. Pollution also comes with en bloc redevelopment, what with all the digging, demolition, transport of materials, and so on. Fuel is burned to produce and move materials and equipment, adding to global warming.

Social tensions as a result of en bloc sales is another cost that becomes apparent when legal proceedings are instituted. Specific to private en bloc redevelopment, wealth is concentrated, increasingly, with those who already have a lot. It is a sure profit proposition.

The Government's release of more land maximises the State's extraction of an economic rent but does not dampen irrational pursuit of speculative profits in a hot market.

We need to move a step back from this madding crowd. How much of a direct good has private en bloc redevelopment produced for the public?

This was contributed by a reader.
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