For decades, citizens had been buying – and upgrading – public flats and private condos as earnings rose. A high 40 percent of Central Provident Fund savings had been used to buy homes.

Singaporeans’ preoccupation with property is unmatched anywhere else. In fact, it has long exerted a powerful sway on an over-housed society.

In his recession-troubled Budget speech on Friday, Finance Minister Lee Hsien Loong said that a review is under way to determine how much CPF money should be allowed in the buying of property.

Developers, however, heaved a sigh of relief when Lee, who is also deputy prime minister, did not reveal any measure to limit the amount.

It is evident the government wants a dampening of this enthusiasm and such a step is likely to be announced in a few months.

Instead Lee announced major tax changes, cutting corporate tax (from 24.5 percent to 22 percent) and personal (26 percent to 22 percent) and raising consumption tax from 3 percent to 5 percent, to attract investments and cut business costs.

Three days ago, Labour chief Lim Boon Heng said lifestyles would be affected by new economic measures.

“We have to review our choices. Do we want to continue to invest heavily in property or should we save more for our retirement?” he added. “We could see more rational housing prices

CPF contributions, which were cut and partially restored, stand at 36 percent (16 percent employers) – 4 percent short of the norm.

Some observers believe that when restored, the 4 percent will go to the Special Account that cannot be touched until retirement, raising it to 8 percent. It was taken from the Ordinary Account, which could be used for property investment (as well as shares, gold, insurance, etc) before it was cut during the recession.

This investible account stands at 26 percent but those seeking greater retirement protection want it to be cut to 15 percent -17 percent, with the rest going to untouchable old-age savings.

Such a measure is bad news for developers and is likely to further depress the property market.

Together with the tax cuts, lower property prices will contribute to lower business costs. In the last few years, salaries and the Sing dollar, both contributory causes, had also dropped significantly.

Cheaper property will also help to attract skilled foreigners.

With property prices in general retreat, real estate has lost some of its lustre as an investment tool – unlike the boom years when everyone made money from it.

People changed their apartments for bigger and better ones or for profits as property values and earning levels rose.

In the last 10 years, 58 percent of the 3.2 million population changed homes. Among private homeowners, it is almost 70 percent.

By doing so, a large portion of the workforce became asset rich but cash poor as they neared retirement. About half the Singaporeans who are close to retirement have insufficient cash.

There are two reasons for this love for property.

Firstly, land is scarce, precious and finite. Secondly, it is considered a good investment because, while supply is limited, demand will grow as long as there is economic growth and stability.

Since independence 37 years ago, the government has been promoting home ownership as a crucial tenet of nation building. The rationale: For people to stay and defend this place, they must have a stake in Singapore.

National servicemen might not fight as hard if told they were defending Orchard Road or Shenton Way, but they would defend their own HDB homes, said Lee Kuan Yew in the early years.

Lee knows how much his people treasure property. In recent years he dangled it like a carrot to encourage the new generation to work harder.

Likening the next 30 years as a marathon race, the Senior Minister said the runners who finish it, not only the winners, would get a prize –- a second property.

This now seems unlikely, at least in the foreseeable future.

But a 100 percent home ownership remains a national target, although with nine out of 10 Singaporeans owning homes, the task is not easier to achieve.

A recent survey by the National University of Singapore shows that high property prices (insufficient financing and over-regulation) top business concerns here.

But the government is careful about reducing property prices because it would affect every Singaporean and create widespread unhappiness.

It explains why the government is maintaining a higher-priced HDB market, which has dropped less than the private sector.

Residential home prices fell 11.7 percent last year, the largest decline since 1998. Resale HDB prices, however, fell by only 1.4 percent.

This has led some business circles to believe that fears about impending limits to the use of CPF money for property are overdone.

In a research paper, Goldman Sachs said the Singapore government could achieve its aim of increasing retirement savings in the pension scheme without negatively impacting real estate affordability.

“We believe property affordability is unlikely to collapse on the back of pension scheme reforms,” the report said.

Since the government raised its concern about excesses, the property index of the Singapore market has dropped by 6 percent.

“It is positioned now for a third quarter revival of stalled home-buying momentum once the pension scheme uncertainty is removed and unemployment is stabilised,” Goldman said.

In their fightback, developers have been controlling the releases of new supplies and cutting back prices.

As a result sales have improved, including foreign buying, but the comparison is with the previous year when business was very poor.

Unless the economic restructuring proves successful and Indonesia returns to normalcy, short-term property will not see a repetition of the runaway prices of the early 1990s.

In the longer term, however, property will remain a strong force in land-short Singapore.

Seah Chiang Nee is a veteran journalist and editor of the information website littlespeck.com

                                                            Home