Transcription
From Sydney to Singapore, Bangkok to Beijing, a lot of young people are worried about being locked out of the property market, Bill. Yeah, that's right, Mariko. And in Australia, the government is trying to do something about that. Recently, there have been some tax changes designed to make things a little more harder and expensive for property investors. The idea is it will maybe, hopefully, bring prices down for those younger first-time home buyers. And Abhi, this is an issue right around the region, right? Yeah. I mean, some countries are turning even to Singapore to look for solutions. But Singapore's public housing model, which is the dominant force here, is not really replicable in many of these countries. And I guess the big question is, can governments actually make housing affordable?
As always, I'm Mariko in Singapore and this is Asia Specific from the BBC World Service. Twice a week we bring you Asia Pacific stories unpacked by those who know them best. I have the editor of the pod, Bill Birtles, welcome back. Hey, Mariko. I also have a senior journalist of the BBC Singapore Bureau, Abhiram Subramaniam. Welcome to the pod. Hi, Mariko.
So, Bill, the housing affordability, this is an issue across the region, but in Australia, the government is trying to address this issue. So just can you just talk us through? Yeah. For many years, the Australian government or the Australian tax system has basically encouraged investors, property investors with a couple of things. If you had an investment property and you later sold it for a big profit, you wouldn't have to pay that much capital gains tax. That was one of the things. But there was this, um, this aspect to Australia's tax system. I don't want to get stuck into the weeds too much, but it was called negative gearing. It is called negative gearing. And basically it works like this. If you borrow money from a bank to buy an investment property and you also have other costs associated with the property, you might make a loss on that property over a year. Yeah, you've got a tenant in there paying you rental income, but you might end up spending more than you're receiving. So for many years, the Australian tax system basically said to you, that's okay, we'll let you offset that loss against your taxable income. So this was a great scheme for investors for many years because yeah, they might make a loss in the short term, but it's being offset. They're gradually acquiring an asset. Everybody wins, right. Except first-time home buyers were finding it increasingly difficult, particularly in the big cities, Sydney and Melbourne, to get their toe on the property ladder. And at the budget this year, the Albanese government in Australia said we're going to largely put an end to that negative gearing scheme. We're also going to basically increase the amount of tax you have to pay on a capital gain.
Has it worked though? Has it had an impact on property prices so far? Yeah, when it was first announced in May, initially, there was a slight drop off in property prices in Sydney and Melbourne, somewhere between about 0.7 to about 1% or so thereabouts. Now here's the thing. There was also an interest rate rise around that time. Which is usually a conventional way of trying to manage the property prices as well, isn't it? Yeah. So there were a couple of things happening at the time which probably put downward pressure on property prices. So although this is supposed to be a long-term policy that gradually reins in the rising costs of housing in those big cities, we have seen initially in these, you know, it really hasn't been very long, a month or so that the announcement at least has cooled sentiment.
As we were saying, this is a regional, global issue, isn't it? But there was a recent survey which highlights how unaffordable houses are across the Asia Pacific region. So can you just talk us through, Abhi? Yeah. So there's an organisation known as the Urban Land Institute. They are basically a non-profit across the world where they did an affordability index on different Asia Pacific cities. And the findings were that broadly, Asia Pacific cities are completely unaffordable. The logic being that you, a person would have to would earn a wage, and they would sometimes have to pay 20 times their annual salary in order to afford afford a house. For listeners who can't see, we have the, the chart on our screen that Abhi's just talking about. I mean, the top of the list is Ho Chi Minh City, though. So we synthesised it as best we could, and we broadly looked at apartments across Asia Pacific. At the top you can see Ho Chi Minh, 25 times, is what a person would have to earn, 25 times their annual salary in order to afford an apartment building there. But you have to also understand in a city like Ho Chi Minh City, what happens is the locals are not purchasing apartment complexes. They are fast developing. So they're having a lot larger of an expat community entering as well. So you see a lot of businesses buying these apartment buildings there for the expat community, also driving up prices as well. So the apartment buildings might be 25 times, but the locals are not a big factor there. Hong Kong? Everybody knows that since the 90s there's been a broad housing... There's been broad problems around their housing, and that's why they still remain at the top. Also, at 25 times. The next two are quite interesting, Shenzhen and Beijing. Despite the fact that China has been trying to cool their property market, their major cities are still having major issues, aren't they, Bill? Well, this study, if you go back to before China reined in excessive lending, which was a few years around about the Covid time a few years ago, the property prices in those major Chinese cities were running, running away and cities like Beijing back then. This study had the median price to income ratio at more than 30. So now they're down at, you know, 23 times the median salary. That's still right near the top of the list, but it's actually better than it was. However, that is still very unaffordable.
So finally, the interesting comparison, and this is where I think I would love to get your take, Bill, is about Seoul. Seoul is a very, very developed city. It's obviously it has a robust population, but their apartment buildings are a common are a common form of property that people want to own. And in that city, you need nearly 18 times your annual median salary in order to afford an apartment building, which is kind of a similar problem that to what you see in Sydney. And we recently did an episode, didn't we, Bill, on how the South Korean government is encouraging people to invest in the stock market instead of property, because prices, especially in big cities like Seoul, were just going up too much. It's a situation where, for the best part of a decade, successive South Korean governments have been trying various measures to bring the price growth of apartments in Seoul down so that young first-time buyers have a chance at getting into the market. And for the best part of ten years, there's been this big emphasis on trying to suppress demand for apartments in Seoul, doing things like using tax as a way to disincentivise property investors from holding multiple properties in South Korea, um, putting regulations in place where there are certain pockets of Seoul where the government says you basically have to be an owner-occupier. You can't just buy the land and speculate all sorts of measures along these lines, seeking to cool down the demand for apartments in that city. It hasn't really worked all that well, particularly since Covid. There has been rampant property growth, which property price growth, which is similar to what we've seen in Australia with Sydney. And part of the reason why is when they put limitations or new restrictions on property investors, what they were somewhat seeing is people offloading properties in other parts of South Korea to use their capital to invest in an apartment in Seoul, because that's where the long-term property price growth is the strongest. And it's been a real problem to the point where the current South Korean government is trying to now focus more on the big issue, supply of apartments, not demand, but supply. Now, Seoul, a little bit like we're talking about Sydney, a little bit like Sydney. There's kind of this issue where it's relatively slow to do the approvals process for new construction, but also there's land scarcity in the sense that it's kind of surrounded by mountains, and there just aren't huge tracts of land or areas of land left for them to do big developments. So the government in South Korea has been focusing on new developments in these sort of outlying satellite city areas like Incheon, near Seoul. Not quite in Seoul. Pretty close though. There's a bit of a push on to try and build about 60 or 70,000 new public housing units in those areas. This would all theoretically help. They're also talking about streamlining the approvals process, less red tape. But it's like Australia. It's going to be a slow, literally like a slow build.
It is a very tricky balancing act for governments though, isn't it? Because you might want to, you don't want prices to go up too much, but at the same time you don't want prices to collapse either. And you know, you were talking earlier about China and how that changes in lending rules that managed to, you know, suppress the prices from going up too much. But now we have a public housing. China does have an interesting element when we talk about public housing. That is, the central government is encouraging lower-level governments to snap up unused or unsold apartments, particularly in like second, third, fourth tier cities are to be used as a form of public housing, either subsidised or perhaps to be used for rentals. But the point is, they're looking at all these unsold apartments and saying, well, maybe we could put a bit of government money in there to try and create affordable housing for people. But the core issue is that's not really happening in Beijing or Shenzhen. That's happening in the cities where there are too many unsold apartments. People don't really want to live there because the best jobs, the highest paying jobs, the best universities, they're all in those big cities. It's the same in every country. It's the same for Seoul. It's the same for Australia.
I guess a successful government intervention, one could argue, that Singapore has been kind of the the role model to other governments in the region. I know there are still complaints about, you know, some of the apartments getting too expensive. It was interesting earlier on that survey, a clear difference between private apartments versus what's known as HDB. Do you want to just explain to our viewers and listeners who might not be familiar with the system in Singapore. Sure. So in Singapore system, uh, most of Singapore, most Singaporeans are living in public housing. So about 80% actually live in public housing. Can I stop you there? That sounds like an incredible figure when you say it that way. 80% live in public housing, but it's not public housing as it's known overseas, right? Yeah. So what happens is in Singapore, most of the land, unlike in other in other major cities, most of the land is owned by the government. More than 90% of the land is owned by the government. The government does what it wants with the land. Most people think it's a normal thing to live in a public house in Singapore, what is termed as HDB apartment. Stands for Housing Development Board. That's exactly. Right. Got it. Housing Development Board. So unlike in in a in a city like Sydney or Seoul, where you buy a house and you have it for life, you can pass it on across generations in Singapore, what you're paying for is essentially a 99-year term to own that house. And if, say, for example, I own a 99-year apartment, I decide after 30 plus years, I want to sell the apartment, I'm selling it to you. You will now have 69 years left in my apartment. And so by extension, that means that there is a term end, somebody would end up with zero years on the apartment, and the apartment would then go back to the city. But in the meantime, it still trades as much like a normal house between buyers in the market. And that goes back to the thesis that the Singapore government believes that it controls the land and it needs to recycle land, and therefore it needs to manage, and therefore it cannot allow permanent land to be given to most of the population. I think a lot of people would listen to this from abroad and say, okay, 99-year lease, what on earth happens to your unit at the end of 99 years? I would love to know. I own one of them. So Singapore gained independence in 1965. So that's when the first few apartments came around that time. It's 2026 now. It's been 60 years. So in that 60. So many of these leases that we are talking about, some of them are hitting that 30, 30-plus year mark. What does that mean? Um, that's almost 30 years to go. There are only 30 years left on their leases effectively. What the government is saying when it goes to zero, it goes back to the government at no cost, which is the worst-case scenario. But would, would Singaporeans allow that though? I mean, wouldn't there be quite a lot of anger and upset? So the government's solution to the problem is, how about you give the property back to the government prior to the lease terminating. So that way I pay for the remaining lease as the government, but it won't be obviously at the market premium level, because we already know that there's perhaps ten years, 20 years, 15 years left. So the government is willing to pay it at a lower price. But it's obviously a loss for some people.
So this isn't really public housing. This is something completely different, right? Because I think of public housing as in government owns it and subsidises the rent for renters. Or something along those lines. But this is a 99-year lease is essentially private housing. But there's a time limit. And I imagine the value of the asset goes up and up and up and up and up to a point. And then maybe with what, 30, 20 years to go, it's surely going down and down and down and down. So fundamentally, when you are approaching some public housing, how the government sees it is that they can basically create a social environment for young people to access the market as quickly as possible. If I'm if I do not have capital at a young age, the Housing Development Board is able to be my loan guarantor, if the bank is not willing to guarantee my loan. So I'm able to access the housing market in the first place. Secondly, if I'm still not able to to afford an apartment at a certain location, the government is willing to pay grants to subsidise those apartments. So what it does is it allows people at a young age to quickly access the property market and build their life around it and then use it at that point in time. But I was also reading how like the South Korean government, other Asian governments are looking at Singapore as maybe a model to copy or try to imitate. I guess the big question is, is that possible? Because Singapore is a, you know, a small city-state with a population of, what, six million? Yeah. So it's easier to manage by the government, whereas like you wouldn't be able to do that in Sydney, for example. Because the government doesn't own all the land. It owns limited pockets of land. And from time to time, when elections happen, they say, oh, we're going to free up this defense land and build houses on there. But it just it's like a blip. It really can't substantially make a huge difference to prices because the government doesn't own the land. I think the Singapore example reminds me most of China, where China's government essentially owns land and can from time to time free up large tracts of land, give them to developers to build houses. In fact, they did that too much in recent decades. That's why there's an oversupply outside the big cities. But with Singapore, it seems to me if you don't have a government that owns the land in the first place or substantial amounts of land, then you're kind of limited to what degree you can build these sorts of subsidised housing projects. The other part of the equation is the fact that the moment the the government becomes a big buyer of the land, let's say a government has a surplus and they're like, we're going to buy a lot of land to build up public housing, a premium suddenly going to be attached to land in these cities, because this is a phenomenon that hasn't existed for 50, 60 years. You're suddenly introducing it. There's going to be a premium that's suddenly being attached. And so land prices are going to just shoot up as a result. And you're going to see a lot of people, especially in cities like Seoul, they're not going to be willing to give up their land. If it's too difficult for other Asian governments to, I guess, copy the Singapore model. What can governments do? Like, I know that the Japanese government has been trying to move jobs outside of big cities. Hasn't really worked. I mean, what what do you think are options? I actually think that is something that governments can do. You look at Beijing's a classic example. Xi Jinping, the Chinese leader, has built Xiong An, the city to the south of Beijing. And a lot of the government offices have been moved or are in the process of moving from Beijing to Xiong An. Partly to ease the pressure on Beijing. What would that mean? If you're a bureaucrat? It would mean you basically would have to pack up and move to the new city with your family. Your kids would go to a school in the new city. Now, Xiong An is quite close to Beijing. Maybe it's not the best example, but that is perhaps a solution that governments across the region can do when they're basically tapped out in one major city, whether it's Seoul or Sydney, then the answer would be trying to put as many, I guess, government departments and perhaps, you know, if you build new universities to try and build those in other parts of the country. This might work in 20 years, 30 years. Once the universities, the schools, all of these things, all of these institutions have established themselves in the different areas. But you have to deal with the short-term demand problem currently, and you have to deal with the fact that young people do not have that capital as well, and they can't access the market quickly enough. I guess it also depends on whether or not young people are okay not to live in those big cities where opportunities are.
Thank you so much for joining me, Abhi and Bill. Thanks, Mariko. Thank you. You've been watching Asia Specific from the BBC World Service with me, Mariko Oi in Singapore. If you have any questions or thoughts on what we covered in this episode or any other stories from the region, please leave us a comment below. You can also get in touch with us on email: AsiaSpecific@bbc.co.uk and click like and subscribe so you never miss an episode. See you next time.