Speech by Minister Lawrence Wong at the Institute of Real Estate and Urban Studies (IREUS) Conference on ‘Real Estate and Urban Studies’

May 24, 2019

I am very happy to join you today for this inaugural conference on “Real Estate and Urban Studies”.

Real estate is something that is close to the hearts of many Singaporeans, and certainly many people in Asia and around the world. I read the findings of a recent HSBC survey – which said that Singaporeans spent more time on property searches than they do reading bedtime stories to their children, or even speaking to their parents. It is quite astounding; I am not sure what to make of these finding. I don’t think that is necessarily a good thing. But it perhaps shows how strongly Singaporeans feel about real estate. It’s not surprising because residential property is both a home and the single largest asset for many people.

Property and real estate is also an issue of interest for academics and the government. The whole nature of the real estate environment is changing because of major trends, such as technology and new innovations. Let me highlight three broad areas in real estate where the Singapore Government is interested in and focused on, and governments everywhere are looking at similar issues.  

First, how we continue to optimise and ensure the best use of land. 

The economists will say let the markets decide. For example, when there are companies competing for land, then how much they are willing to pay for the land reflects their opportunity cost, and allocating by price is how you can ensure the “best use”. 

But if we only rely on the market, many uses will be priced out – externalities will not be accounted for. We will not have green, recreational spaces, or places for community and civic uses. So we need zoning and land use rules. But it is not always easy to regulate, especially amidst changes in our operating environment. The traditional ways of zoning by residential, commercial and industrial land is coming under some pressure because these definitions and traditional lines are blurring. Manufacturing companies are taking on more service-like processes – a food manufacturer may be going into logistics, delivery, even retail, and they want to do all of that within the same building. Is that considered a commercial or industrial building? 

Even residential homes nowadays can become hotels, with the rise of short term accommodation. Actually, it is not a new phenomenon. In the past, we used to call them condo-tels – condominiums and hotels, now we just say that it is AirBnb. Different name, but it has become more prolific. In Singapore when we did a survey recently, there are a minority of property investors who own investment homes or apartments, who would like to rent out the place for short term accommodation. I can understand why – it will help to maximise the yield. But, in fact, the vast majority of Singaporeans whom we surveyed wanted more safeguards and more restrictions. Understandably, because they had bought their apartments on the basis that these were for home ownership, and they wouldn’t like strangers or tourists coming in and out, and making use of the swimming pool, the gym and other common facilities. These are tensions that will need to be managed, and it poses challenges for regulators. Regulators will have to continuously review and update our rules – some may have to be changed and made more flexible, while some may still be needed. 

But even as we go about this process, we also have to guard against the tendency to keep rules to the point where they become too deeply entrenched and rigid. This is not just a theoretical concern. I read a recent New York Times article about the housing situation in California where there is a shortage of homes, there are proposals for rezoning and intensification, but there are huge objections from the community, and so the government is unable to move. Where these things happen, then it encourages NIMBY, you can’t go about doing any change of use, and it is difficult to get any new developments done.

We are always mindful of the need to find the right balance in Singapore. Even as we develop, for example, we continue to safeguard green spaces, and advance our City in a Garden. Today, our green spaces – nature reserves, nature areas, parks and park connectors – account for about 7800 ha of land; over the next 10-15 years, we are increasing this by another 1000 ha. So contrary to the perceptions that you sometimes hear, that we are getting more built-up, and we are compromising our greenery because of urbanisation – this is not happening. 

At the same time, we continue to facilitate the recycling and redevelopment of land. When leases expire, and existing uses become less relevant, we phase these out, and replace them with new, more relevant uses, creating new opportunities. A good example is the land in the Southern part of Singapore. The land is now occupied by port terminals, an old power district in Pasir Panjang and Keppel golf club. Altogether this is more than 1000 ha of prime waterfront land. The leases for the terminal in Tanjong Pagar and Pasir Panjang will expire from 2027 onwards. When they do, we will shift them to the West of Singapore where we have reclaimed land for a new terminal. This will take time. Meanwhile, the power stations in Pasir Panjang – the leases have already expired, and the lease for the golf club is expiring soon. When the leases expire and the land reverts to the State, we can begin the process of redevelopment in these areas. We can then progressively transform the entire waterfront – from Pasir Panjang and Keppel onwards, to build a new Southern Waterfront city, stitching all the way to where Marina Bay is and extending our downtown area. It opens many new possibilities and opportunities for development and growth. 

This interplay between markets and state intervention is always at work in real estate, and this brings me to my second point, which is an evergreen issue – how to ensure the affordability of housing.  

This has become a major concern for cities everywhere in the world. The old paradigm here used to be that we let the market decide. The experience here in Singapore and abroad has shown that, left to itself, the property market tends to go through large price swings. Speculators, perhaps some investors, may like these price swings. But they harm many more genuine home buyers and owners. If corrective actions are not taken to prevent a bubble forming, then the costs will eventually be larger and more painful for everyone.

This is why in Singapore we now have a range of macro-prudential measures in place to ensure a stable and sustainable property market.

Basically, we have concluded that the government cannot take a hands-off attitude to the property cycle and allow bubbles to develop – this is not what a responsible government should do. Our aim is not to bring prices down but to steady the cycle and to stabilise the market – to have a steady and sustained property market, moving broadly in line with income growth. Imagine what the alternative would be – prices rise sharply; euphoria builds up; the very powerful force of FOMO – fear of missing out – kicks in, and people just for no rational reason start jumping on the bandwagon; then prices continue to rise further. Like in any bubble, this will be followed by a sharp decline in a few years’ time – perhaps when more supply enters the market, or when interest rates go up. Then, many more people will be hurt. In contrast, if we have an approach where there is a steady and stable property market, many more will benefit, with prices that rise steadily over time in line with fundamentals.  

So this is our approach now with regard to the property market. It is a shift from the past where we tended to be more laissez-faire and hands-off. Governments in other countries have shifted too – some have been more effective at steadying the market than others, but across the board, there has been a change in thinking. We have not quite moved to the extent of what Central Banks do with monetary policies and the business cycle. There you have a long history of intervention and a lot of literature about what works and what doesn’t work, what instruments to use, and how monetary policies can be effective at stabilising the business cycle. We are learning from our own experiences and what other countries have done; this is certainly an area where we can all benefit from more in-depth research and analytical work. 

Thirdly, with these changes in policy thinking and urban environment, investors also have to consider what it means to buy property and the implications for property values. It is not just about trying to time the market – buy low, and then flip when prices are high – especially when governments are trying to stabilise the market, you may be caught in the wrong cycle. You will need to think more carefully about fundamental valuations over the longer-term.  

Likewise, property developers and owners should be proactively looking at ways to create and enhance value in their real estate. You cannot continue with status quo, and assume that property prices will always just rise regardless of fundamentals. The old saying is that property is all about location – location is important, but good location alone may not be enough. Already, some property segments like retail are coming under severe pressure due to the rise of e-commerce, even in places with good locations, and this trend will just continue. Increasingly, real estate is not just about bricks and mortar. It is also about the full suite of urban solutions that can contribute towards greater value for customers and better urban living for people. Property developers and owners have to start thinking about that. 

This is where innovation and technology are not just disruptors, but they also open up many new opportunities. We hear a lot in this field about FinTech. But there’s also the rise of Prop Tech or Urban Tech, which is also attracting a significant share of global venture capital investments 

It opens up many new areas of opportunities and growth. For example, how to think about designing more adaptable and flexible spaces, especially with changing economic needs; how building designs can be more adaptable and flexible; how to have better solutions for last mile delivery and urban logistics – a big growing concern in cities everywhere because everyone is going for food delivery and e-commerce; how can retail malls be better designed to accommodate improved urban logistics; how can buildings and building owners adjust their properties to meet these new demands; how can we have more productive ways of construction (which we are already focusing on in Singapore) and how we can have more efficient ways of maintaining and operating older buildings and infrastructure. These are all global issues of concern. There are many possible new solutions with technologies like automation, robotics, artificial intelligence, and the internet of things. 

There are also many areas for inter-disciplinary research. The traditional areas in real estate have been in business, finance, architecture, engineering. But with the broader suite of urban solutions, then you also have to think of urban designers, social scientists, economists. These are people who can think of behavioural responses – how design interacts with human behaviour, how better design of buildings and infrastructure shape human behaviour and responses. The Government in Singapore is stepping up investments in this field, we are putting in more resources for R&D in urban solutions. We stand ready to partner with our universities and academics – to do more research in this area. We would also like to encourage the private sector to join in this effort. Let us know what your challenge statements are, what are the issues you face, how you think R&D can help you create more value in your properties. Then work with the Government and with our research institutions to put out the challenge statement – there is even government funding for the R&D. It is really a win-win-win deal – the universities benefit, the Government benefits and the companies benefit. What we would like to do is to create new versions of urban living that are more fulfilling and sustainable than before. These can be progressively test-bedded, piloted and then scaled up as we continue to transform and remake our city.  

Conclusion

With all these changes, it is very timely that the Institute of Real Estate Studies has changed its name, and is officially launching its new name as the Institute of Real Estate and Urban Studies. It is not just a cosmetic change, because it is a recognition that the operating environment is changing, and there is a need for more holistic view of real estate and urban issues. 

Today’s conference is the first for the Institute after its new mandate. I hope it will be a useful platform to foster lively debate and sharing of knowledge and best practices; and it can help sow the seeds of many exciting new urban solutions that can contribute to Singapore’s future.

On that note, I would like to wish you all a fruitful and enriching discussion at today’s conference. Thank you very much.