The Property Tax Has Some Merit
By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 27 August
2009, 7.50 am and 7.20 pm)
Last week, the government backed away from introducing a tax
on profits from property investments. This was after
Singaporeans voiced against it. Or maybe the sellers were
against it. On reflection, the whole economy might be better
served if we had welcomed the tax. There are two reasons for
The first reason is that it would probably stop a lot of
weak investors from going into property and hurting themselves
after this bull run. This is important because when weak
investors get hurt, strong investors will also get hurt.
Singapore property investors are in a buying frenzy now
because they think that high inflation and higher property
prices are inevitable, given the state of global liquidity.
Of course, some inflation is expected when global economies
recover. But it would be a mistake to think that we will get
the kind of inflation that would lead to another surge in
property prices worldwide.
This is because the US Fed is unlikely to repeat the mistake
of not raising interest rates fast enough as it did not in
2003. But that is a problem we have to deal with later.
Right now, the problem is the ongoing global deleveraging
process. Deleveraging is when businesses and consumers cut back
on bank loans, and reduce spending to pay back these loans.
The current state of global leverage is enormous.
Let’s take the US economy as an example, namely its debt to GDP
ratio. This is a good indicator of how leveraged the economy
In the early 1950s, the US debt to GDP ratio was about
1.3. Thirty years later, in the early 1980s, this ratio had
risen modestly to 1.6. It was only in the thirty years between
1980 and last year that this ratio exploded more than 2.3 times
This means that if the US economy were to deleverage
back to the level last seen in the early 1980s, it would have
to reduce loans by a gigantic US$30 trillion, or double the US
GDP figure for year 2008. Repeat this for other countries and
you can imagine the problem.
No one knows how much and when this deleveraging process
will stop. Hopefully, it won’t take decades. But it is
highly unusual to see inflation in a deleveraging world.
Global deflation and falling property prices are more
Hence, if Singaporeans had welcomed the
property tax, we might steer a lot of weak property investors
away from years of substantial frustration.
There is another reason why we should have welcomed
the property tax. And that is to discourage Singaporeans from
over-investing in property. This is an old argument. Basically,
instead of channeling our savings into bricks and mortar, we
should channel them into businesses that we can sell and export
to the world.
The tendency to move into property is understandable.
That’s because it appears easier to become a landlord then to
run a business. At the peak of their empires, many rich Britons
in the 19th century, and many rich Venetians in the 14th
century, also took this path to property.
Perhaps, embracing the property tax now could help
stop Singapore from becoming a nation of landlords and avoid
the disadvantages that it brings along.
Knowing Singaporeans, if and when property investors
lose their pants, they will not blame themselves for rejecting
this tax law. Like many Minibond investors and retired men
exploited by charming foreign women, they will blame the
government for not keeping their pants on.