Development of national housing and Employees’ Provident Fund

Today we account for over 15,000 shanty dwellers in our Capital City and most of them are below any respectable standard of human living – Pic by Shehan Gunasekara

‘Singapore’ has become a buzzword in the media circles today. Media speak is centred round many issues. Extradition of the fugitive Central Bank Governor appointed to the post on a recommendation by our PM, now missing and reportedly taken refuge in Singapore, is the main topic. A recent trade agreement alleged to be highly disadvantageous to Sri Lanka and entered into unilaterally with Singapore, is the other current issue. Politicians in the meantime are playing ball with the Singapore experiences regarding certain success stories there. 

But none have so far focused on the most important success story of Singapore behind its National Housing Program. In the current context of the shortage of funding requirements and the highly-prioritised concerns about the housing needs of the country, it is a pity that we do not share the Singapore experience. I therefore wish to open a dialogue which in my opinion may be of more fruitful to discuss than some hacked and jargonised topics such as the past corruptions to which our politicians remain confined.

Singapore’s housing success story

When Singapore started as a separate country in 1959, achieving self-governance, the worst problem confronting the nation was the housing issue. The British who ruled the country during the World War II in one of their reports have stated that Singapore was one of the worst affected human colonies in the world and described the existing conditions of the slums there as ‘a disgrace to a civilised community’. People did not see any high rise buildings there then. What they saw was thousands of slums with inhuman conditions and to make matters worse the severely damaged buildings and houses during World War II. The pioneers of the Singapore Government pledged and truly devoted themselves to solve the then existing chronic housing problem.

According to their estimates they started with about 300,000 people living as squatters in settlements outside the city centre and about another 200,000 living in virtual shop-houses in the city area. The new Government elected to power with a firm commitment to address the housing issue, soon passed a new Act called the Housing and Development Act of 1960. They started building low cost housing units as a priority under a five-year plan. Initially the low cost houses were given on a concessional rent and subsequently they introduced a scheme of House Ownership for the People. Within a spell of five years the Housing Development Board was able to build more than 51,000 housing units. 

When we imagine the constraints Singapore had with regard to the land availability, it was a miraculous achievement which succeeded due to their firm stand on the issue. The story behind housing development in Singapore is fascinating. Starting with low cost housing units they built housing estates, town ships, studio apartments, super-luxury units, high rise buildings and in the process also addressed issues such as racial integration and social stratification.

The process passed through stages such as walk in selections, monthly and quarterly held e-sales, build to order and design, build and sell schemes. Upgrading programs were regularly and constantly followed maintaining standards along with improvement programs. To make a long story short let us have a look at the final statistics. In Singapore as from year 2014, homeless persons as a percentage of total population have become 0%! Isn’t it something worth emulating? 

Sri Lanka

Today we account for over 15,000 shanty dwellers in our capital city and most of them are below any respectable standard of human living. There are many who have lost shelter due to natural disasters, while there are several others who carry their little possessions with them and sleep in the streets, in doorways and some such space wherever available. Isn’t this the state of affairs we witness in this country today amidst the skyscrapers and high rise buildings coming up? 

A 30-year internal war has left us with several displaced from their homes and some of their properties are listed among war damages. Is anybody seriously thinking of the slum dwellers, squatters, and those who live far below poverty lines under horrible conditions?

Now let us take a look at our own EPF. There is a huge balance lying to the credit of this fund amounting to about Rs. 2,000 billion with contributions from nearly 2.7 million actively-employed persons. The fund has been steadily growing despite many nefarious attempts in the recent past to swallow it. Fortunately it survived the ruthless intervention of a former Governor of our Central Bank who masterminded a plot to plunder it under official patronage. 

There was a proposal haunting in the air those days to hand over the fund to an investment agency which was vehemently opposed by trade unions and others. It appears that the same issue has come up again after his disappearance establishing the fact that he was only a tool of some perpetrators who have bigger plans to rob the country’s funds. This time it has surfaced as a recommendation by the IMF. Be that as it may, since that has to be dealt with separately, role that the EPF has to play in solving our housing issue is secondary to none, nevertheless.

The EFP fund monies are invested according to an accepted policy guideline set by the Monetary Board which is the trustee of the fund according to the provisions of the Act. During the past the investment portfolio was managed within this framework. The following report in respect of the accounts of the fund indicates this basis generally and quoted below as an example of the application of the investment policy.

“The investment policy of the fund continued to focus on providing a long-term positive real rate of return to the members while ensuring the safety of funds and maintaining a sufficient level of liquidity to meet refund payments and other expenses of the fund. Accordingly, the investment portfolio consisted of 92.5% per cent in Government securities 5.8 per cent in equity and 1.2 per cent in corporate debentures. The remaining 0.5 per cent was invested in high liquid assets such as Reverse – Repos on Government securities to maintain day-to-day liquidity requirement.”

It follows that the equity investments of the fund have been curtailed and limited to about 5% of the fund balance. But this amounts to a significant money value of about Rs.100 Billion. When we examine some annual reports we find that the investments effected in equity shares of private companies has not generated any significant market value appreciations compared to the purchase cost.

E.g. Total purchase cost of stock as at 31 December 2015 is Rs. 1,925,284,649 million. The market value of this stock is reported as Rs. 1,717,657,461 million and the accounts indicate a book value of Rs. 1,717,657,461.

This leads to the need for considering options more advantageous to the economy of the country in deciding the investments in equity. Singapore’s success in the National Housing Program is a result of prudent planning under a stable government with effective governance. They considered housing to be integrated with economic development.

Housing policy needed

We too can use a well-planned housing policy based on social security to achieve the goals of economic development. The Government can promote macro-economic objectives by directly linking housing and social security with the economy. Housing policy has a direct link to economic growth since housing investment constitutes a substantial portion of the GDP through its fixed capital formation. 

Therefore what we need today as a priority is not to go after marketing strategies to enhance investment income of the fund by taking huge risks, but to adopt and develop a sound policy combining the social security aspect and the solving of the housing problem using the EPF monies administered in safe proportions. The return will be much more favourable to the economy of the country in the long run. 

The best that can be done is allocating a small percentage of the EPF funds for the construction of a mix of housing units to meet the needs of all sectors of the society. A very small percentage of the low-cost units will be a little burdensome while that too can be compensated with a build to order or design, build and sell scheme through those who could afford the purchase of such units using their EPF balances or their own resources.

The use of EPF monies to rescue sinking private operations or to prop-up declining stock markets or to open its doors for corrupt activities such as the CBSL bond scam, have shown proven disastrous results which should caution the stakeholders of the fund against any shady operations planned. We have to give a red signal to anyone who dares to disregard such opinions with the warning that the country and the social elements will be ready to expose several not only questionable but even punishable acts perpetrated at the expense of the EPF even during recent times, which remain as skeletons in the cupboards.

It is therefore pertinent to consider the setting up of a Housing Development Board or Authority directly linked to the EPF and bring it under the Megapolis Ministry where a comprehensive housing plan is already in place. Such a step will be safer than inviting sharks in the form of ‘investment managers’ to enrich themselves at our expense.

Megapolis Minister Champika Ranawaka is apparently going solo with a master plan designed by him to address some of these grave issues. He seems to be struck against the wall, the usual harangue, lack of funds! If we look at the Singapore experience, their achievements to solve their burning housing problem, they have utilised the Central Provident Fund monies in a very significant way to solve the issue. As an eye opener we urge the Megapolis Minister not to be subdued by this crap such as the restriction of funds.

Many questionable manipulations declared as unwarranted by the Commission of Inquiry appointed to investigate the bond scam have taken place during last two years. The Central Bank bond scam was virtually centred round the EPF. There are instances where EPF monies have been used to cover up financial misdeeds of both regimes, now and earlier. This fund should not remain exposed to such misdeeds or be subject to any threat of devastation under external asset managers and fund investors.

Instead, the prudent proven system of ensuring a long-term positive rate of return maintaining the safety of funds should be continued while opening up new avenues to facilitate funding through a duly constituted State body to engage in the housing development activities. The negative answer that may come up is regarding provisions in the Act which may not support such a move. But the answer is simple. In a country where the Constitution itself has undergone 19 amendments, should there be any difficulty in amending the EPF Act if it becomes necessary for a matter of national importance? 

But it appears that the Monetary Board is empowered under Section 5 of the Act to have custody of the monies and to invest monies of the fund. So the Monetary Board can decide to provide the funding as required by any Government body authorised to avail such funds as stipulated by an Act, consolidated for such an objective.

(The writer is a Member of the Colombo Municipal Council, former Chairman of Bank of Ceylon and National Gem and Jewellery Authority and former President, Ceylon Bank Employees Union.)