Dato’ Seri Matthew Yeoh discusses the impact of political ideology of a country in relation to its real estate market
Dictators and authoritarianism are by definition the exercise of powers of state without or devoid of democratic processes. It is the antithesis of democracy or rule by the masses. It is not to be confused with the rule of law. Dictatorships can be subject to the rule of law too, and a justice system. The difference is who makes the laws; in dictatorships, the making of laws and the administration of justice are usually at the hands of one person or a small group of individuals.
In ancient times before the advent of democracy by Greek philosophers, practically all states and nations are dictatorships, ruled by kings, sultans, caliphs, pharaohs, etc, and in a feudal mindset they set themselves up as demigods whose decisions were not to be questioned. Through it all, the interplay of land ownership and property rights between individuals and states existed, and this article proposes to discuss this.
As we have seen above, in ancient times the ruler had absolute power over everything on earth. He was the divine representative on earth, the son of god or heaven ruling by ‘divine mandate’. The ordinary person were serfs (that is how we get the present day word for servants), there to do the bidding of this one man, and they owed their very existence to him and their lives could be taken by him at his own pleasure. In return for the king’s ‘graciousness’, the masses had to give up a portion of their produce, pay taxes and support him when he calls on them during times of war and national crises. That was feudalism at its very basic concept.
In England, all lands belonged to the king. He had the power to grant leases and tenancies to his nobilities who could then grant sub-tenancies to the peasants. He was the fountain of justice. This concept of absolute ownership by the Crown exists up to this day. There is no ownership in perpetuity in England, and any freehold is automatically converted to 999-year leases, and throughout the Commonwealth and indeed most of the Western-influenced world today, we still need to pay quit rent, property taxes, etc to the government, the concept being that after all, the very absolute ownership of land belongs to the state. Needless to say, countries with a one-party rule system are even more restrictive in granting land rights to individuals, rarely granting licenses for more than 100 years.
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We begin to see the curtailment of authoritarianism with the signing of Magna Carta 800 years ago, and since then there was a gradual shift towards more egalitarianism and civil liberties. In the sphere of real estate, this is significant as then prices would begin to be subject to open market forces. Whereas in a dictatorship, demand, supply and other components of pricing would be under the control of the dictator who could say who gets what, at whatever price, market forces in an open system would take that out of a central power. For example, during the time of Julius Caesar, he had the power to raise taxes, impose housing subsidies, implement building projects to serve his own aims whatever the cost was and so on, a democratic government would be unable to do that.
‘Black market’
In this modern era, we still have dictatorships, military juntas, single-party governments and other forms of authoritarianism in various parts of the world. In some regimes such as North Korea, private ownership of real estate is strictly forbidden, and therefore there is no official price index. However, there exists a thriving black market for real estate, and this is common in most regimes that curtail the free movement of market forces in real estate prices. The prices of real estate, although modest in comparison to other countries, are very expensive for those in sought-after locations which would be near to the Chinese border as then Chinese infrastructure such as communication signals and goods are more easily available. Thus we can see that even in the most extreme forms of dictatorship, it is almost impossible to eradicate market forces in this day and age.
Other countries with non-democratic governments have to a greater or lesser extent some forms of price correlation to their real estate, although it may be heavily skewed or disproportionate because a centralized control may ignore supply and demand in preference for some other needs. In Myanmar during the military rule, resources were channeled into other areas of the economy and real estate took a back seat, leading to very high demand and therefore high prices for certain top-grade business addresses and even business class hotel rooms.
Freedom unlimited
On the other hand, in a very highly unregulated free market, lack of government interference may not be a good thing either. In Hong Kong, in the last decade, the real estate market has seen unprecedented leaps in prices fueled by growing wealth in China and the freer flow of wealth in a borderless world. The local populace has had to bear the brunt of this distortion in affordability to the extent that many cannot afford to own their own homes and have to live in cramped rented accommodation while couples cannot afford to have a family.
Singapore, although not a dictatorship per se, has been governed by one party since independence with hardly any opposition and this does make it effectively an authoritarian state. However, one cannot presume that a dictatorial government will impoverish a country, as Singapore has one of the highest per capita income in the world and is regarded as one of the wealthiest countries in Asia.
It has been half a century since Singapore achieved full independence. In that time, a strong model of economic development has transformed the fortunes of the republic and its people. It is an example of a country that has combined authoritarian rule with the free market – a term called ‘authoritarian capitalism’. The economy is laissez-faire but the political ideology is dictatorial. At a time when countries were afraid of excessive foreign investments as a form of neo-colonisation, Singapore saw things differently and embraced investors from every corner of the world be it East or West, and modified its banking system, judicial structure and education system to make it totally conducive for businesses to create wealth and economic opportunities for its people.
Also, being a small country with no natural resources, it implemented a policy of attracting wealthy and productive foreigners to relocate there. It sees the whole concept of wealth creation in a holistic manner; to sustain its economic growth, it needs the right type of people to live there, and sets about improving healthcare, schooling, transportation, lifestyle and public security. This comes with a price as dissent is stifled and opposition is blanked out.
The result is high demand for real estate and property prices skyrocketed. The local currency grew stronger, and it became an expensive place to live. It became the ‘Monaco of the East’.
In summary, neither a free market nor a dictatorship has a direct correlation to the movement of property prices. What determines prices is the perception and expectations of investors. When sentiments are bullish about the local real estate market, prices will rise. Likewise, a country with a so-called best democracy in the world will not command desirability of its real estate if it is perceived to be plagued by incompetence, corruption or lack of transparency in its state institutions.
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Matthew Yeoh is a partner of Yeoh Mazlina & Partners, a member of ASEAN Legal Alliance, a group of legal firms across ASEAN