Singapore: Property rights paradise

Tyler Cowen directed me to this article by Stephen Smith:

Now onto the case of Singapore. Singapore has highly encouraged homeownership as a means of social engineering (despite its free market bonafides, Singaporean housing policy is highly interventionist), and has been very successful at it: at 87 percent, its homeownership rate is trumped only by former communist countries that simply deeded people’s state-owned apartments to them after the fall of the wall (which I’m sure is going to become a huge problem once Eastern Europeans become wealthy enough to want to redevelop their infamous housing blocks).

But Singapore is also an incredibly dense city-state where the vast majority lives in multifamily buildings, so “homeownership” means owning your own strata unit (their term for a condo, also used in Australia, New Zealand, and Canada). And like all strata and condo buildings, the owners will almost never reach an agreement to sell, so they cannot be redeveloped by conventional means. Combine that with the ugliness of the buildings and the fact that Singaporeans, like all East Asians, place a high value on new homes, and you can begin to see the problem. (Worthwhile to note that en bloc sales were not allowed until a few decades after the homeownership policy took off, and it wasn’t private investors who built the unredevelopable strata towers in the first place – it was the government.)

So to solve it they instituted something called en bloc sales in 1994. The basic idea is that if a certain percentage of a designated building’s residents choose to sell their units (it used to be 90 percent, now it’s 80), then the developer wins the option to buy all the units (including apartments belonging to the “minority owners,” or those who did not approve the sale), which he can exercise at whatever price the supermajority agreed to.

.   .   .

En bloc sales are very controversial, though (there’s even a TV show about them), and I can’t imagine a non-authoritarian country like the US or Japan tolerating that sort of routine violation of property rights quite the way Singapore does it.

In contrast, in America the government can take and demolish your condo (via eminent domain) with only 0% of condo residents in favor.  But of course we are a “non-authoritarian” country, not an elected dictatorship like Singapore.  Our Supreme Court vigorously defends the constitutional right of people to say no to a forced government buyout, unless for public purposes.  Oh wait.

Seriously, I’d guess that Singapore also has eminent domain rules.  But here’s my question:  Why should the government have any say in determining property rights rules in this area?  Why not let each condo developer specify the percentage of owners who need to agree to a buyout?  I’d much rather buy a condo in a development that could be redeveloped after an 80% or 90% vote of residents, than one that required a 100% vote.  If I’m the exception then so be it, let 1000 types of property contracts bloom.



24 Responses to “Singapore: Property rights paradise”

  1. Gravatar of Alex Godofsky Alex Godofsky
    7. July 2012 at 07:08

    I think the argument runs something like this: a 100% vote creates transaction costs that aren’t fully internalized, thus there’s an externality etc etc -> case for government intervention.

  2. Gravatar of ssumner ssumner
    7. July 2012 at 07:13

    Alex, But what about my proposal?

  3. Gravatar of dtoh dtoh
    7. July 2012 at 07:49

    Japan has en bloc rules too. The problem in Japan is that the courts typically overrule what is in the contracts, so the legislation is really an attempt to limit the courts’ discretion.

    Scott, you’re suggestion is a good one, but there is a certain amount to be said for having simplified standardized rules since it reduces transaction costs.

  4. Gravatar of WRD WRD
    7. July 2012 at 08:32

    How would this proposal interact with zoning laws, which already severely restrict property rights in many areas?

  5. Gravatar of Mikko Mikko
    7. July 2012 at 08:57

    Exactly. In Finland, we have condo type apartment blocks. The typical arrangement is for the building to be fully owned by a corporation – and you get a right to live and utilize an apartment by buying marked shares of that corporation (e.g. shares number 11-20 give you the right to control the apartment 2 in the second floor of the building). Most of the costs are apportioned according to the number of shares – and shares are typically apportioned according to the number of square meters an apartment has.

    All matters related to the building are settled by the board or by the shareholders meeting. Some issues require a supermajority to pass (depending partly on the regulation and partly on the rules of that particular corporation.

    It’s not easy to tear down a building to redevelop something better in this setup, but it does happen. Big investments to maintainance are routine – my apartment building will be spending on the order of 2-3M€ in repairs this year and next. With 61 apartments, the cost is on the order of 40-50k€ per apartment.

  6. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    7. July 2012 at 09:19

    Contracts won’t develop with this kind of latency. It takes like 30 years before you can tell if contract was optimal or not.

    Do you really want all condos which were bought in 1980s to be unredevelopable?

    Law moves slow, but in this case it’s much faster. You don’t really know what’s going to be optimal in 30 years, or which other problems will come up.

    Contracts have pretty awful track record with anything on that time scale.

  7. Gravatar of MkeC MkeC
    7. July 2012 at 09:19

    I guess it depends on what the eminent domain rules (and culture) are like but I’d argue that from the government’s perspective one eccentric resident in one 100% building in exactly the wrong place could create too many problems. A 20 percent no vote would represents an actual constituency by contrast, and at 20 percent it would be less prone to illicit coersion.

  8. Gravatar of david david
    7. July 2012 at 09:41

    I can confirm Singapore has eminent domain to a far greater extent as well, and regularly applied in ways that make Kelo look minor. The powers of the Urban Redevelopment Authority are vast.

    Two points re: % policy. Smith says: “it wasn’t private investors who built the unredevelopable strata towers in the first place – it was the government.)”. This is not quite exactly true. It is true that there are “public” housing towers that are re-developed through state-initiated en-bloc, but the scheme also applies to private developments built in the 70s and 80s, including low-rise gated developments. The developers did not in fact include options for en-bloc sale at the time; this method for mass selling property titles got foisted upon all private developments.

    Second, it’s not redevelopment as in renovation, it’s redevelopment as in complete demolishment and replacement with a new structure after several years of construction. You will have to move out; in general you will not be able to stay in the same neighborhood at the same price. Hence the resistance of new development toward such terms. It’s like marriage: nobody expects to be in the wrong place for your lifestyle, it’s just something that happens.

  9. Gravatar of John John
    7. July 2012 at 10:40

    Just putting this here because I didn’t want to bug Scott on email, but I nearly coughed up my breakfast when I played this Globe and Mail video on the stance of monetary policy:
    (didn’t realize at first who Mike Moffatt was).

  10. Gravatar of Paul Paul
    7. July 2012 at 11:28

    At least the Singapore en bloc sales rule seems like a compromise solution. Pity the homeowner in any country faced with eminent domain demolishing their family home because some developer promises greater tax revenues to city officials.

  11. Gravatar of Keith Keith
    7. July 2012 at 12:25

    Prof Sumner: “But here’s my question: Why should the government have any say in determining property rights rules in this area?”

    I guess for the same reason government determines property rights in any area. Namely, because it’s societal consensus, via government, that establishes the right of individuals to own land in the first place.

    I mean, here’s an expanse of land, there’s a human, what else gives him the right to fence the land off for his exclusive use and deny it to others?

  12. Gravatar of Jim Glass Jim Glass
    7. July 2012 at 12:48

    On an unrelated (or not) note, Argentina has now formally banned it citizenry from buying and saving dollars.

    Why Krugman has chosen to put so much effort into plugging Argentina as a model to follow, “a remarkable success story, one that arguably holds lessons for the euro zone” — as it criminally prosecutes economists for reporting accurate inflation numbers, seizes private pension plan accounts, remains shut out of world credit markets, uses central bank reserves (and seized pension account funds) to pay govt debts, etc. etc. — is beyond my fathoming.

  13. Gravatar of Major_Freedom Major_Freedom
    7. July 2012 at 13:41

    “God I hate ideologues.”

    Eminent domain “isn’t going away anytime soon” in this country. Let’s be “pragmatic” and “work with what we have”, instead of “overhauling the whole system.”

    Let the state use eminent domain “to accomplish social goals”, instead of using property rights as a “litmus test” to judge all policies.

  14. Gravatar of Negation of Ideology Negation of Ideology
    7. July 2012 at 14:54

    I’m in agreement with Keith on this one. The government refuses to enforce all sorts of contracts – indentured servitude comes to mind. We have bankruptcy written into our Constitution. Some states have recource mortgages and some states have no-recource mortgages. Most states have anti-usury laws which limit interest rates. Credit card companies get around them by basing themselves in South Dakota, but the Supreme Court said Congress could limit interstate interest rates if it chose to do so.

    Does any corporation require 100% of its shareholders to approve decisions? Would it be legal if it was chartered that way? I have no idea, I’m just throwing it out there. It seems to me a condo should work the same way. You own a piece of a building, not the whole thing.

  15. Gravatar of ssumner ssumner
    7. July 2012 at 18:54

    dtoh, Maybe the market can discover those “standards.”

    WRD, I’d prefer to weaken zoning laws.

    Mikko, That sounds good.

    Tomasz, I’m not sure how that relates. I’m not proposing any sort of “latency.”

    MkeC, Good point.

    David, Thanks for the info.

    Thanks John.

    Paul, I agree.

    Keith, And how does your comment relate to this post?

    Jim Glass, The were smart to devalue, but everything since has been stupid.

    Negation. I don’t follow your logic. Because the government does not enforce every single contract that has ever been dreamed up, that somehow makes my proposal a bad idea? Don’t you need to sort of give a reason? Who would be hurt if it was 100% voluntary?

  16. Gravatar of dtoh dtoh
    7. July 2012 at 19:12

    Actually in Japan, there has been some progress in this regard. The developer generally creates the initial Articles of Association for the Home Owners Association. Developers need to sell their developments so they generally create “saleable” Article of Association. This has resulted in some improvements, noticeably provisions requiring regular contributions to a maintenance fund and “en bloc” drag along property disposition rules. I generally think a market solution is a good one as long the government has a “transparency” requirement.

    Regarding zoning laws however, I’m not sure how you come up with a good market solution.

  17. Gravatar of dtoh dtoh
    7. July 2012 at 19:24

    One other thing while we are on the topic on efficient property use, is the issue of taxation. One of the problems in Japan is very low taxes for holding property but high taxes on property transactions. Property taxes in Tokyo are only about 5% or 10% of what they are in major U.S. cities. The effect of this is to reduce liquidity in the property market.

    Taxes on holding property are also a solution to one of the theoretical problems with a consumption tax….i.e. how to fairly and efficiently tax consumption of housing. Property taxes are a pretty good solution, and would also allow you to have a reasonable separation of national and state/local taxes, i.e. a national tax on non-housing consumption and a state/local tax on housing consumption.

  18. Gravatar of Negation of Ideology Negation of Ideology
    7. July 2012 at 20:18


    I was referring to the quote Keith referenced from your post –

    “But here’s my question: Why should the government have any say in determining property rights rules in this area?”

    I’m not saying your proposal is necessarily a bad idea. If your proposal were implemented it might work perfectly fine. But if it turned out there were some unforseen problems – maybe cases popping up where one or two people trying to hold out to force the other members to buy their units out at a premium before they allow an En bloc sale or something – then the government could regulate it.

    I don’t know enough about condo contracts to say how or if they should be regulated. I just disagree that the government shouldn’t have any say in determining property rights rules. But maybe you meant “Why should the government bother if there’s no problem” more than “why should the government have any say”.

  19. Gravatar of mbk mbk
    7. July 2012 at 21:13

    Scott, your proposal would make a lot of sense because at least you’d know ahead of time what you’re buying into.

    As David said the Singapore situation is quite a bit more complex. Eminent domain was used extensively, e.g., to build all those public housing blocks in the first place. Government owns most of the land and the 87% home ownership rate doesn’t quite mean the same thing as in the West because the typical Singaporean simply owns a 99 year lease to a government-built and government-owned housing project flat. Most residences in Singapore are of this type. The 80% rule isn’t used here and neither is eminent domain. If the government wants to build, say, a freeway junction on the location of five housing flat structures, as it will soon in central Singapore, it simply tells the flat residents that in 2016 they will be relocated to other government flats. People will be given some choices of flats and locations.

    The 80% rule applies to private condos or other shared forms of private property. What happened empirically in Singapore is that property prices almost tripled within 3, 4 years. Redevelopment was therefore attractive because of the property price differential. The demolished blocs were often just 15, 20 years old and in perfectly good condition. But 150 flashy small new units built in lieu of 100 large old units would be profitable in spite of demolishing and reconstruction costs. The original residents move somewhere else – nothing to do with the original condo anymore since it is sold. En bloc sales initially took off fast because the sellers did not realize that they would not be able to get a replacement unit for the same money they got for their condo. When it sunk in that many en bloc sellers ended up moving in with their kids or had to move to public housing, en bloc sales decreased dramatically and became hotly debated. There were some high profile court cases because of pressure applied to recalcitrant owners that prevented the reaching of the 80%. So, the 80% rule does not prevent the “eccentric loner” from “damaging” the interests of the majority because he does not want to sell. Government also stepped in to dampen excesses. And so forth.

    In general, regarding efficiency: What I do not understand is that no one here seems to defend the idea that principle should stand above short term expediency. Yes, upholding principles could sometimes lead to short term losses in efficiency. But why does efficiency always have to be maximized?

  20. Gravatar of Saturos Saturos
    8. July 2012 at 02:35

    “Why not let each condo developer specify the percentage of owners who need to agree to a buyout?”

    Well that’s no good for all the complexes that have already been developed, which is the source of the problem in the first place.

    I think Keith’s comment was quite reasonable.

  21. Gravatar of J.V. Dubois J.V. Dubois
    8. July 2012 at 03:08

    I agree with Keith and Saturos. If ability to do buyouts with less than 100% majority would weight as heavily on willingness to buy a condo in the first place as you suggest, I think “markets” would already come up with some solution to all this. Since they did not, I would say that the this problem is almost a non-issue for the buyer of a new condo unit.

    Anyways even if I am not as good with this, the whole topic reminds me the recent advent of squeeze outs of minority shareholders in publicly owned companies. Maybe someone more knowledgeable could try to make some comparisons between these two similar areas?

  22. Gravatar of mbk mbk
    8. July 2012 at 06:41

    There’s one more angle to this. A condo / appartment is always a shared property to some extent. You just can’t take the thing out of the building context. Typical maintenance and renovation issues must already be dealt with using some kind of voting system. So the redevelopment by majority sale is just one step further in the same direction.

    On the other hand, and this is what I meant by “principles”: property rights should be among the founding principles of a free market economy, a liberal society (as in classical liberal) etc.

    As far as I know in Europe there is a dual solution to this problem. One, as mentioned for Finland above but also used elsewhere in Europe, is “cooperative development”. Here, you don’t “own” the condo, you own shares in the development company corresponding to your unit, and thusly you may be outvoted. You also can’t re-sell your unit on the open market – there are waiting lists established by the cooperative on the next applicant in line etc. And two, there is “real” ownership. Here you can’t be forced to sell your unit if you don’t want to. But you’re still subject to voting on renovations etc.

  23. Gravatar of Bill Ellis Bill Ellis
    8. July 2012 at 15:46

    This is one lib who loves your idea. Why limit it to condos ? Why not home owners associations too?

  24. Gravatar of ssumner ssumner
    9. July 2012 at 11:54

    dtoh, Thanks for the info, I agree.

    Negation, But why in the world would we assume that the government is likelier to come up with a better set of rules than the private sector? It does no good to say “let the private sector set the rules, unless the government thinks they are a bad idea.” That assumes the government is in a better position to judge. It’s a mistake assume the government is omniscient, they have the same weaknesses as the private sector, and more. If there’s a market failure, then obviously there’s a case for government intervention. I was asking “where’s the market failure?” A bad outcome doesn’t count. It would be like saying the fact that a wino buys a bottle of wino shows the government needs to regulate alcohol.

    mbk, Thanks for the info. I’d add that in many cases “principle” does lead to “efficiency” in the long run. That’s why I’m a “rules utilitarian.”

    Saturos. I was just talking about new projects, so I don’t see how Keith’s point made any sense. If it’s all voluntary, who would be hurt?

    JV, You said;

    “I agree with Keith and Saturos. If ability to do buyouts with less than 100% majority would weight as heavily on willingness to buy a condo in the first place as you suggest, I think “markets” would already come up with some solution to all this.”

    I think you completely missed my point. If people were free to do this now, and weren’t doing it, then I’d agree with you.

    mbk, I agree with your second post.

    Bill, Yes, it would be better than zoning laws, I would think.

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