Tuesday, January 5, 2010
TKL Practical Guide to Financial Planning
I am sending the book for printing soon. It comprise of about 100 pages. This is based on draft 6 (which was published earlier) but has since been further corrected. The book is expected to be ready by early February in the bookstores. Please give your views of an acceptable price for this book.
A new pricing formula for HDB flats
I will be stating what is obvious to most people - the Government is able to control the prices of public housing in Singapore.
As private housing (i.e. landed properties and condominiums) is very high relative to the income level, most people have to depend on public housing built by the Housing and Development Board (HDB), by buying a new flat directly from the HDB or from an existing owner on the resale market.
The HDB now uses the resale price on the market to set the prices for new flats. In turn, these prices will determine the prices on the resale market. This seems to be an incestious situation.
A market works well only if there is elastic supply, elastic demand and market competition. In the case of public housing, the supply is virtually in the hands of a monopoly, i.e. the HDB. The demand is also not elastic, as each person has to find a place to live in and is allowed to own only one HDB flat. In the resale market, the seller has to find another place to live in, before he can sell his HDB flat on the market. Hence, the demand cannot drop, even if the prices are too high.
By controlling the supply of new flats, HDB is able to control the prices in the resale market, and indirectly the prices of new flats.
There is also a large element of speculation. If the market perceive that HDB is restricting supply, the speculators (e.g. people renting flats) will buy the flats in the resale market and cause a panic that prices are rising. This causes prices to rise.
If we recognize that the resale market is not a true market (and is affected by supply control and speculation), it is better to adopt a different policy to price the new flats. I suggest that it should be priced relative to average national income - a benchmark price is computed on this principle and the actual price is adjusted to reflect relativities due to location, distance to MRT station size of flat and standard of construction.
HDB should release a large supply of new flats (still under construction or ready for occupation) to be selected by the people on the waiting list, based on these pre-determined prices. If there are several buyers vying for the same flat, the flat can be allocated by a ballot - which can be efficiently managed using IT technology. The unsuccessful applicants will automatically be considered for the next flat of their choice.
The flats determined by HDB will be much higher than the cost of land and construction and will give a profit margin which is revenue to the state. It will stabilize the prices of new flats to be more reflective of the true market (rather than prices that are affected by speculation and lack of information). In turn, the market for resale flats will follow the prices of the new flats, on a relative basis.
As housing has become a large part of the cost of living in Singapore, it is time for the Government to review the pricing for HDB flats, and to find a better system that reflects the true market and keeps the prices in line with the ability of the people, based on their income levels, to afford them. We may return to the good days of Singapore a few decades ago.
Tan Kin Lian
As private housing (i.e. landed properties and condominiums) is very high relative to the income level, most people have to depend on public housing built by the Housing and Development Board (HDB), by buying a new flat directly from the HDB or from an existing owner on the resale market.
The HDB now uses the resale price on the market to set the prices for new flats. In turn, these prices will determine the prices on the resale market. This seems to be an incestious situation.
A market works well only if there is elastic supply, elastic demand and market competition. In the case of public housing, the supply is virtually in the hands of a monopoly, i.e. the HDB. The demand is also not elastic, as each person has to find a place to live in and is allowed to own only one HDB flat. In the resale market, the seller has to find another place to live in, before he can sell his HDB flat on the market. Hence, the demand cannot drop, even if the prices are too high.
By controlling the supply of new flats, HDB is able to control the prices in the resale market, and indirectly the prices of new flats.
There is also a large element of speculation. If the market perceive that HDB is restricting supply, the speculators (e.g. people renting flats) will buy the flats in the resale market and cause a panic that prices are rising. This causes prices to rise.
If we recognize that the resale market is not a true market (and is affected by supply control and speculation), it is better to adopt a different policy to price the new flats. I suggest that it should be priced relative to average national income - a benchmark price is computed on this principle and the actual price is adjusted to reflect relativities due to location, distance to MRT station size of flat and standard of construction.
HDB should release a large supply of new flats (still under construction or ready for occupation) to be selected by the people on the waiting list, based on these pre-determined prices. If there are several buyers vying for the same flat, the flat can be allocated by a ballot - which can be efficiently managed using IT technology. The unsuccessful applicants will automatically be considered for the next flat of their choice.
The flats determined by HDB will be much higher than the cost of land and construction and will give a profit margin which is revenue to the state. It will stabilize the prices of new flats to be more reflective of the true market (rather than prices that are affected by speculation and lack of information). In turn, the market for resale flats will follow the prices of the new flats, on a relative basis.
As housing has become a large part of the cost of living in Singapore, it is time for the Government to review the pricing for HDB flats, and to find a better system that reflects the true market and keeps the prices in line with the ability of the people, based on their income levels, to afford them. We may return to the good days of Singapore a few decades ago.
Tan Kin Lian
GST exemption - penalty or benefit
Printed in Today paper, 5 January 2010
I run a small business with a turnover that falls within the GST exemption limit.
This exemption was supposed to be a benefit to assist small businesses but it turned out to be a penalty. I have to pay GST on my rental, utilities and purchases of supplies and services, but I am not able to recover the GST inputs from my sales to business customers. I cannot increase my prices to these customers to cover my GST inputs, as they do not receive any GST credit for purchases from exempt entities.
With great reluctance, I decided to “volunteer” to be a GST registered business and bear the burden and cost of keeping GST records and submitting quarterly returns to IRAS.
IRAS accepted my voluntary registration and sent me a written notice that have to attend a GST briefing within three months, failing which my registration would be cancelled. I tried to register for the next briefing but it was fully taken up. I sent an e-mal to register for the next briefing but have not received any reply after two weeks. I get the impression that IRAS does not really welcome a small business to volunteer to be registered for GST.
Instead of making life difficult for small business, I hope that IRAS will tell the Minister of Finance why small businesses are volunteering to register for GST, when they are not required to, and why it is troublesome for IRAS to collect small amounts of GST revenue from these volunteers.
It will be better for the penalty on small businesses to be removed, so that they do not have to volunteer to be registered for GST. This can be achieved by allowing all eligible purchases by business entities to be treated as GST credit, regardless of whether they were purchased from exempt or non-exempt suppliers.
Apart from helping the small businesses, it will simplify the GST system and reduce the burden to businesses of keeping separate records to comply with the accounting of GST. The loss of revenue to IRAS would be quite small and could be offset by the savings in their administrative cost. More importantly, there will be cost savings for the economy by reducing the unproductive work.
Tan Kin Lian
RESPONSE
I receive a call from IRAS to explain the delay in replying to my registration. I told them that the delay is unimportant. It is more important for the Minister of Finance to review the implementation of GST to remove the unintended consequences, i.e. many people "volunteering" to register for GST when they pay little GST. This has caused unnecessary work for the small business and IRAS.
I run a small business with a turnover that falls within the GST exemption limit.
This exemption was supposed to be a benefit to assist small businesses but it turned out to be a penalty. I have to pay GST on my rental, utilities and purchases of supplies and services, but I am not able to recover the GST inputs from my sales to business customers. I cannot increase my prices to these customers to cover my GST inputs, as they do not receive any GST credit for purchases from exempt entities.
With great reluctance, I decided to “volunteer” to be a GST registered business and bear the burden and cost of keeping GST records and submitting quarterly returns to IRAS.
IRAS accepted my voluntary registration and sent me a written notice that have to attend a GST briefing within three months, failing which my registration would be cancelled. I tried to register for the next briefing but it was fully taken up. I sent an e-mal to register for the next briefing but have not received any reply after two weeks. I get the impression that IRAS does not really welcome a small business to volunteer to be registered for GST.
Instead of making life difficult for small business, I hope that IRAS will tell the Minister of Finance why small businesses are volunteering to register for GST, when they are not required to, and why it is troublesome for IRAS to collect small amounts of GST revenue from these volunteers.
It will be better for the penalty on small businesses to be removed, so that they do not have to volunteer to be registered for GST. This can be achieved by allowing all eligible purchases by business entities to be treated as GST credit, regardless of whether they were purchased from exempt or non-exempt suppliers.
Apart from helping the small businesses, it will simplify the GST system and reduce the burden to businesses of keeping separate records to comply with the accounting of GST. The loss of revenue to IRAS would be quite small and could be offset by the savings in their administrative cost. More importantly, there will be cost savings for the economy by reducing the unproductive work.
Tan Kin Lian
RESPONSE
I receive a call from IRAS to explain the delay in replying to my registration. I told them that the delay is unimportant. It is more important for the Minister of Finance to review the implementation of GST to remove the unintended consequences, i.e. many people "volunteering" to register for GST when they pay little GST. This has caused unnecessary work for the small business and IRAS.
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