Just like how Elon Musk and doge are shaking up government agencies in the U.S. in a bid to cut federal spending, sometimes you do need to make some big radical moves to get things going in the right direction and to get everyone excited, notwithstanding all the controversies.

With Singapore government’s push to revive our local stock exchange, allow me to chip in with  of my own provocative ideas, a wish list if you like, in hope that more can be done.  First, you may wonder what has my mortgage background got to do with investing in stocks and shares on SGX.  It doesn’t, directly.  But there are more ways where the two are closely-linked than you think.

First, we all know how real estate investment trusts (REITs) and the three local banks make up close to 40-50% of the daily trading volume on SGX on most trading days.  Mortgages easily form 30% of the banks’ loan books contributing a substantial portion to their interest income.  All these sectors are related to Singapore properties of course, which are the perennial favourite investment asset class for most Singaporeans and which also constitute a substantial portion of their personal wealth.

If these two interest-rate sensitive sectors, banks and REITs, form almost 50% of our trading volume, needless to say, to revive the bourse we ought to play to our strength first before looking at the rest of the sectors.  So, my first seven proposals will look at ways to generate even greater interest in these two sectors which are closely-related to my business.

Without mincing words, it’s an open secret that if you want fast capital gains, go for technology counters in the U.S.; but if you want to invest in SGX, stick to banks and REITs for the solid dividend payouts.  So, in a nutshell, these seven ideas seek to further entrench ourselves as the number one dividend-play exchange for the world!  They are radical ideas, so sit tight.

1. Government to step in with sovereign guarantee that selected basket of REITs’ prices will never go below their asset value.

Let me start with the most contentious proposal.

REITs are in essence property-holding companies but on a much bigger scale governed by a trust deed.  Now, we know that property valuations do not fall off a cliff unlike stocks, especially when you consider the very resilient nature of Singapore properties be it commercial or residential.  The problem is REITs don’t appear like property investments to most due to their price volatility when listed on an exchange!

However, if the Singapore government could step in to guarantee, for a select group of REITs with lion’s share (for example 80%) of their assets located in Singapore, that their prices will never go below their last assessed NAV (net asset value) per unit performed every quarterly or semi-annually, this would theoretically form the floor for REIT prices.

With almost no downside in event of mismanagement or such blue-chip REITs going belly up, but all the upside in terms of capturing organic land costs inflation over time just like real properties, this sovereign guarantee will allow REITs to trade like your condo & HDB prices – resilient.  After all, REITs’ value are backed by their assets and the government owns and has absolute control on the value of the land where these assets sit on, and thus could provide this guarantee through the ages.

This sovereign guarantee will also encourage REITs to acquire and build up more Singapore assets and may even cause REITs like Mapletree Pan Asia Commercial Trust (MPACT) to rethink their consolidation strategy and reverse course (merger in 2022) and move back to having a Mapletree Commercial Trust (MCT) dedicated to Singapore assets, and another new REIT to focus on growth in Asia ex-Singapore. Revival of MCT will do justice to the price of the Singapore-focused REIT, whilst allowing another North Asia focused REIT to expand aggressively which comes with higher risk but higher reward for investors.

Of course, I am not the expert to tell you how to make such a mechanism work almost like treasury bonds where there’s a guaranteed buy-back price (which rises over time in theory, just like prices of real properties) at some future date for an unlikely event.  This means there’s no real cost to the government either, so long the authorities ensures strict regulatory compliance and prudent management of REITs’ assets.

2. Allow banks to offer “mortgage loans” for REITs

With this sovereign guarantee, things start to get exciting.  First, commercial banks will be more willing to look at offering financing for REITs accorded with this special status, as such loans take on more of a mortgage nature rather than margin loan.  This is because collateral value will no longer need to be marked-to-market daily, just like physical properties.  Hence, there will be no “margin calls”.

With leverage readily available to the market which ought to be considering REITs are essentially property investments, there are many other benefits just to name a few:

• It opens up a whole new business for banks to drive their earnings further which will lead to even greater interest in bank stocks,
• Leverage at affordable interest will provide another avenue for retirees to monetise their assets
• It will take the froth away from Singaporeans piling on more and more properties at higher and higher entry prices which might all unravel should the day of reckoning arrives one day. This might be the mother of all cooling measures.

With almost no downside in event of mismanagement or such blue-chip REITs going belly up, but all the upside in terms of capturing organic land costs inflation over time just like real properties, this sovereign guarantee will allow REITs to trade like your condo & HDB prices – resilient.  

3. A new SRS II scheme to help aging Singaporeans create a cash-generating asset, instead of giving away CDC voucher every year.

Instead of giving $500 CDC vouchers every year which is expense in nature, the government could convert it to an asset gift of $500 per citizen per year spread over 10 years, along with an expedited path for those who chip in their money where it matches 1-for-1 funding into a new SRS II (Singapore REIT Scheme) account. All the details can be worked out easily.

Over time, this combined $10,000 asset in REITs will yield distribution payout of average $500 (5%) per annum which not only grows over time, but lasts for life where the payouts can be withdrawn fully.

This SRS II scheme will inject massive liquidity into the market which not only provide REITs with capital for more asset acquisitions, but builds a new social compact where Singaporeans share in the economic prosperity of the country in an extension to the HDB vision in the 1970s.

4. Have a mall at every alternate MRT station

This brings us to the next conundrum – how can these REITs continue to expand with new assets acquisition whilst still keeping their special status as Singapore-focused REITs?

Open up a pipeline of land quickly for building of malls / integrated developments along our expanded MRT station network!  Have a mall built at every alternate MRT station, big or small, catering to various needs.  Let the private market come alive with new concepts and ideas.

The expanded presence of malls don’t just add vibrancy to their respective catchment areas, they help address several other concerns of citizens and businesses alike in one fell swoop:

• Huge increase in supply of retail spaces will help alleviate local retailers, SMEs & F&B operators from hefty rent increases, especially when they are squeezed out by deep-pocketed Chinese F&B brands in recent years.
• Rising rents are a major contributor to rising prices which affect everyone
• Big air-conditioned spaces will bring relief as we battle rising temperatures due to climate change in the coming decades

5. Allow HDB homeowners access to home equity loans

How else can we inject more liquidity into SGX?

It’s high time to accord HDB homeowners the same rights as private property owners who could apply for a home equity loan later in life as plans and needs change.

Nobody likes to sell their house for cash and be forced to make lifestyle compromises when we retire, be it a smaller house or to uproot ourselves and live across the causeway!  We are an asset rich but cash poor nation.  This need not be so if REIT prices can be guaranteed with our huge sovereign reserves and retirees can tap into a cheap source of funds to grow their SRS II account beyond just that initial $10,000.

6. Issuance of more full banking licences

When it comes to family planning, our parents’ generation were told two is enough in the 70s, in fact, the third attracts a fine.  Fast forward today and the third gets a “Large Family LifeSG Credits” every year up to 6 years old!  Times have changed.

There’s no sacred cow as market evolves. Is it also time to revisit the notion that “Singapore’s market can only accommodate two to three retail banks”?  Those of us old enough to remember banking with OUE Bank and Keppel TatLee Bank will reminiscent the good old days where we have more than just three local banks to choose from.  What if the playground for banks is no longer just Singapore but a whole ASEAN region of 600 million population with a rising middle class in the decades ahead!  In fact, some “local banks” have flexed their muscles across the region all the way up to Guangdong-HK-Macao Greater Bay Area.

MAS ought review “policy” set some 30 years ago and consider issuing a further two to three more full banking licences to new aspiring entrants.  Not only will they offer more options as listed bank stocks paying solid dividends to the investing public, we are rooting for them to do well and provide many well-paying managerial jobs and positions for Singaporeans both in their HQ here as well as into the region.

It’s high time to accord HDB homeowners the same rights as private property owners who could apply for a home equity loan later in life as plans and needs change.

7. Nudge new digital banks to go into mortgages and more, and get listed

So far from what I can see, digital banks remain shadows of what they could potentially be, which I speculate is by design for they are merely the digital arms of their much bigger owners who are themselves banks, financial institutions and some technology companies.

I am not sure what’s the vision or final landscape the authorities have in mind when they issue digital banking licences.  But I have hoped for fintechs to totally disrupt traditional banking models to truly bring excitement, innovation and free market pricing to the general public.

To do that, digital banks need to flex their muscles beyond just card payment solutions, deposits and basic insurance products.  They ought to go into the full suite of banking services including mortgages, SME financing, investment advisory, etc. Take for example in the U.S., the biggest mortgage loan originator is no longer a bank since 2018 (a position last held by Wells Fargo), but Rocket Mortgage.

Bottomline is: To bring more excitement to SGX investors hungry for more banking counters in the bourse for South Asia’s financial centre, three is no longer enough I would argue.  We need new full-licensed banks with some branch presence as well as more digital banking licenses to be issued, and at a much faster pace please, if we are really serious about making a bold statement.

I am no politician, economist or think tank.  Outside of my expertise in properties and mortgages, the last three proposals are my faint attempt to look at juicing the other 50% of the market outside of REITs and banks based on some very simple logic.

Investors will take notice only when there are companies with explosive growth or some novel product innovation which again goes back to the first point on explosive growth.  If we can’t compete on attracting technology and innovative companies with bourses elsewhere, we have to dance to a different tune.  Creating wealth is not just about capital gains.  There’s another school on income investing, largely ignored, which is exactly what we are good at.

Just like how by default U.S. is the world’s oyster when it comes to investing for capital gains even with passive investing like S&P 500 indices, we need to become the globally recognised bourse for income investing, not just in REITs and banks, but a whole plethora of high-dividend paying companies.  You’ve got to make some bold statement for the world to sit up and take notice.

8. Declare that all foreigners who invest in any of SGX counters will enjoy zero withholding tax

Not only that, brokerage fees must come down in an industry that has enjoyed too fat a margin for too long with too little disruptions.  Banks must also fall in line to make banking account opening hassle-free for non-resident foreigners, subject to close scrutiny and compliance with all anti-money laundering measures, the last of which should not hold us back unnecessarily.

I can’t say the same waiver will apply to institutions but just allowing that for retail investors globally who invest in their own individual names is enough to set tongues wagging.

9. Mandate that listed companies have a very clear articulation of their dividends policy for the next 10 years

I don’t mean that on all listed companies, but if we want SGX to be the top choice for income investing for global investors, then we’ve got to make a concerted effort and find a way to institutionalise this.

There are growth companies and there are value companies.  Traditionally, energy companies, consumer staples and utilities are top plays in the value space.  I will even suggest nurturing our very own F&B or food companies in Singapore to expand into all major cities in South Asia and become strong dividend plays for investors.

Food businesses not only play to Asian’s penchant for variety and authenticity in taste, they are recession-proof and generate lots of cash flow when well-run.  But in Singapore, they do need some help when it comes to rent costs which is what some some of the earlier proposals seek to do.

10. Allow renting of Govtech’s resource & expertise to power local enterprises in Singapore

How else can F&B and food companies, and for that matter all small businesses in Singapore aspiring to be listed in SGX, further generate cash flow?

The extent to which how productivity gains has held up the U.S. economy and driven its stock markets to new highs in the midst of a restrictive monetary regime has been baffling many economists and analysts alike in the last two years.

In Singapore, we know how strong our Govtech is and what better way to help our SMEs grow by “deploying” that top-class IT resource and expertise through paying for “IT as a service”, rather than merely dishing out cash grants, tax incentives & financing support?

Speaking as a small business owner, the biggest hurdle to innovation and upscaling is not just capital expenditure but system support and continuity, an area where IT can be both a boon and a bane.  You can’t change a system overnight if you get it wrong from the start!

With A.I. and technology lifecycles at such rapid pace, it is often beyond a small company’s reach to assemble a full IT division in-house which could handle everything from front-end POS systems, web and phone apps, middleware, back-end databases, database security, CRM and ERP solutions, let alone deploying generative A.I. across the whole stack.

Just like how by default U.S. is the world’s oyster when it comes to investing for capital gains even with passive investing like S&P 500 indices, we need to become the globally recognised bourse for income investing, not just in REITs and banks, but a whole plethora of high-dividend paying companies.

On the whole, I think if we just play to our strength in REITs and banks, we would already score a fair degree of success in re-positioning SGX as the world’s go-to bourse for dividend plays, as opposed to capital gain, in the midst of a silver tsunami hitting most developed economies in the next few decades.

(Disclosure: The writer holds many of the blue-chip S-REITs listed on SGX)

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