The Rise of Limited Land Myth

In a recent speech at the Committee of Supply debate, Minister for National Development Lawrence Wong said,
“I think we should take comfort that we are moving forward from a position of strength. Despite our limitations of size, we are still far from saturation. There are still many possibilities for urban development and transformation.”
The government has already stated their stand for land use. And it is not the first by any means. Land use for our little urban landscape has been dictated and planned out years before in the White Population Paper and URA Concept/Master Plan – if you have been reading them.
In short, there’re no land shortage on our tiny island. More than enough land has been set aside beyond 2030 for residential, commercial, industrial, military, parks and greenery, and more important land usage for greater economic development.
I’ve always cautioned about believing in the dangerous fallacy property is always a good long term investment because of “limited land”.

The idea “Land is limited so prices can only go up” was perpetrated by greedy corporations (a.k.a real estate developers) to gain a strong monopoly on the multi-billion-dollar real estate industry.
Since owning a piece of property or land became democratic from the beginning of the industrial age, corporations realise there’s plenty of profits to be made if they can somehow brainwash the masses to believe that limited land supply will increase property prices.
This is not a simple supply-and-demand issue in complex real estate markets like Singapore. In fact, even for global markets too. It’s only one reason out of many more complex ones in the movement of real estate prices.
Onerous planning regulations and cheap debt pushed house prices into the stratosphere – and it’s in the interests of the political elite to keep them there.
For instance, England. 
A summary commentary by The Guardian: “Why younger people can’t afford a house: money became too cheap”
“House prices in UK has risen 10% from last year.  Many younger generations born after 1985 are forced to rent or stay on the streets because they cannot afford expensive homes. Between 1997 and 2007 the housing stock grew by 10%, but the population only grew by 5%. If house prices were a function of supply and demand, they should have fallen slightly over this period. They didn’t. They rose by more than 300%.
The cause of house price rises is the unrestrained supply of something else: money. Mortgage lending over the same period went up by 370%. It was newly created debt that pushed up prices in a decade of extraordinarily loose lending, which gave birth to a national obsession. Property owners became immensely wealthy without actually doing anything.
Just 1.1% of rural and urban land in England and Wales has domestic property on it, according to the 2011 National Ecosystem Assessment. Another 1% has commercial property and 2% is roads. The rest is not built on. You could almost double the housing stock of England and Wales, using little more than 1% of available land. But planning laws prevent that - Homeowners vote more than renters and homeowners were happy – they were getting rich – and political parties get re-elected. The collapse of property prices between 1989 and 1994 made the Tories unelectable for half a generation. No party wants such a fate with falling house prices.”
From the middle part of the 20th century, this propaganda has been extremely penetrated in countries like Hong Kong, Japan and Singapore due to their small land size.
In Hong Kong, the real estate market is renowned for the fact that it is concentrated in the hands of a few. Among the 14 wealthiest real estate moguls in Asia, seven are from Hong Kong.
The land bank that private developers are sitting on and the land bank that the government is sitting on in urban areas showed that there is no shortage of land for public housing. There are over 200 hectares of land available for building in the urban areas. The shortage of housing is real but that is because of deliberate manipulation of the market by the Hong Kong government. (Now Chinese)
The bubble economy of Japan in the 80s closely resembled the tulip mania of the 1630s where the price of land, art and even golf club membership rose to extraordinarily high levels. The total value of land in Japan in 1980 at one point was over four times the real estate value of the entire United States. Land ownership in Japan projects status for its owners, for a country that is generally mountainous, real estate was seen as a very limited and priced commodity.
Land development is scarce because of the nature of the Japanese terrain, this made it look certain that real estate values would always rise due to its scarcity. However, that proved to be a false assumption. Land is already one of the most illiquid assets to own, the Japanese solidified real estate’s status by encouraging “long termism”.
Prices of land in Japan started to decline rapidly from 1988, and are still falling in most of local cities, land prices to fall. Firstly, the expectation that land prices would continue to rise forever vanished: one reason in particular being the decline in the population of Japan.
In Singapore, we believe more in this notion than in god because, over the last four decades, we have not seen real estate really crash or fall dramatically. At worst, we have seen small corrections and the worse we have seen so far was a 45% fall in real estate prices during the Asian Financial Crisis of 1997/8.
If the decline in the population of Japan is one reason land prices are still falling today, can we assume the same or worse happening to Singapore with zero resources, extremely small population and no big brother for support (unlike Hong Kong)?
The grim facts appear to be very real by 2025 - an ageing population with slowing population growth.
The whole “land is limited” fallacy however, has been so entrenched in people’s mindset especially so in the older generations that it has become very difficult to change. Thus new generations took up the same dangerous fallacy from their forefathers and fall into the same old trap.
After reading the speech by National Development minister and the directions of our future urban landscape, I hope misinformed buyers will stand up against the delusion “limited land with a 6.9 million population will cause property prices to go up”. It will not.
Private property buyers who’ve bought into the “limited land” propaganda will find the overly-high prices they’ve paid for their properties since 2013 might never pay off in the long term.

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About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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