Role of HDB

1. Even as we strive to reach the top of the Premier League of global cities, I am proud to say that as far as our public housing is concerned, we are up there with the best in the world. We have possibly the highest home ownership rate in the world. It is even more remarkable considering that less than 50 years ago most Singaporeans were living in overcrowded squatter colonies and city slums.

2. So when Members raise concerns about whether social stability will be affected by a larger population and more immigration, I can say with great confidence that it will not. One of the reasons for my confidence is our public housing programme. This has not only given Singaporeans a roof over their heads, but has also provided Singaporeans with an asset and a physical stake in the nation. Successive generations of Singaporeans are able to own a piece of Singapore and call it their home.

3. Indeed, the common experience of HDB living has played a key role in the development of the collective Singapore identity. Each HDB estate is a mini-Singapore, where residents of different races, language and religion live and interact as neighbours. We learn to understand and relate to one another through this common experience. This identity is important to us in the face of globalisation and as we welcome more immigrants to Singapore. Some of them will live with us in HDB estates. They will be introduced to local food, local customs and habits, good and bad, the local lingo. Their children will go to local schools, and mix with Singaporeans of all races. Over time, some of them will become citizens, do National Service, and raise Singapore families. And so the cycle goes on. Just as many of us were born and bred here, when our forefathers came to this land as fresh immigrants from China, India and other parts of Asia and beyond.

Public Housing Framework

4. Many Members have expressed concern about how we are going to keep public housing affordable, especially with a larger population competing for limited housing resources. Let me just categorically state upfront that going forward, public housing remains a key policy instrument to meet two major objectives. The first objective is to meet the housing needs of the majority of the population. The second objective is to provide a social safety net for lower income Singaporeans. Together with the CPF scheme, healthcare support and now Workfare, public housing is one of the key pillars of our social security framework.

5. Let me turn to the specific HDB policies, ranging from concessionary loans to housing grants, from the resale levy to rental flats, from singles to elderly. Let me try and put all these individual policies into context, so that it makes some sense.

6. Public housing programme serves to cater to the different housing needs of different groups of Singaporeans over the course of their lifetime. First, we meet the needs of the young couple who want a roof over their heads. Their first flat must be affordable, and preferably near their parents. Next, as their income level rises and the number of family members increases, they may want to upgrade to a larger home. Finally, as they grow old and their children start their own families, they need cash for their retirement needs. Let me elaborate.

7. First, home ownership for first-timer families. To help young couples set up their first home, the Government provides subsidies, in two ways, depending on the type of flat they buy. If they buy a new flat, the subsidy is built into the price of the flat. In other words, the flat is priced below its market price. Those who prefer to buy a resale flat, because of location, or size or type of flat, can obtain a CPF housing grant of $30,000 to $40,000. In addition, the Government provides an Additional CPF Housing Grant (AHG) of between $5,000 and $20,000 for lower-income households, defined as those earning up to $3,000 per month. As at end January 2007, more than 2,000 households have benefited from the AHG.

8. Over and above these subsidies, the Government also helps first-time flat buyers by providing them with subsidised mortgage financing in the form of the HDB concessionary loan. Taking the housing subsidy and concessionary loan together, first-time flat buyers who purchased flats from HDB last year used on average around 20% of their monthly household income to service their housing loans, and more than 70% flat buyers could service their housing loans entirely from their CPF contributions, without touching their take-home pay.

9. A Member asked whether with a population of 6.5 million the affordability of HDB flats would be affected. Our planners have concluded that we will have enough land for housing this number of people if we need to. At the same time, we will continue to calibrate our housing subsidies to ensure that up to 90% of Singaporeans can continue to afford a basic HDB flat. In other words, there is no change to our HDB home ownership policy.

10. In addition, HDB will not compromise on the quality of living in our HDB heartlands. This is where most of our people live and we will ensure that they will continue to live in an environment of the highest quality. My Minister of State, Grace Fu, will elaborate on our new urban regeneration plan to raise the quality of HDB living in her speech later on.

11. Second, social mobility for upgraders. We recognize that the housing needs of families may change over time. As the children grow older, there would be increasing demand for space within the home. To help families upgrade to a larger flat, HDB provides eligible families with another housing subsidy in the form of a second concessionary loan.

12. Flat buyers can also enjoy a second housing subsidy if they choose to buy a second subsidised flat from HDB. However, this second bite for an upgrader will be a smaller bite, as they will be subject to the payment of a resale levy. This is to ensure that the Government’s housing budget is skewed towards more help for first-time buyers, who are seeking to set up their first homes.

13. The first two objectives - home ownership and social mobility – collectively help the household to accumulate housing equity over their lifetime, which sets the stage for the third objective – monetization in old age. This third objective has become increasingly important, in the light of an ageing society.

14. Home ownership has provided Singaporeans with a valuable asset in the form of their HDB flats. According to a Department of Statistics study in 2005, HDB households each held an average of $154,000 in net equity (i.e. value of assets net of outstanding loans) in their HDB flat.

15. We have put in place several policies to help HDB residents unlock the value stored in their HDB flats. For instance, elderly residents can now choose to cash out by moving to a smaller HDB flat or Studio Apartment. They can also sublet a room in their flat to supplement their retirement income.

16. We have also progressively reduced the minimum occupation period to make it easier for flat owners to sublet their entire flats. HDB will be further reducing the minimum occupation period for subletting. Currently, households have to stay in their flats for a minimum of 5 or 10 years before they can sublet their flat, depending on whether or not they have an existing HDB loan.

17. Effective immediately, HDB will reduce the minimum occupation period for subletting to 5 years for a subsidised flat, and 3 years if the flat was purchased without a housing subsidy.

18. While we have put in place a comprehensive public housing framework to cater to the changing needs of Singaporeans over their lifetime, how it benefits each household depends on their own individual decisions and choices.

19. I have seen cases where families end up homeless after buying and selling a series of HDB flats. Some of these households buy and sell a few HDB flats in the span of a few years. They may start off making a profit from selling their flats, and then go on a spending spree. The family then takes on a larger mortgage on the subsequent flat as they expect to cash out with similar returns in a few years’ time. However, with the downturn in the property market, many soon find themselves unable to service their mortgage loans and unable to sell as their flats are in negative equity, and they will incur big losses if they do.

20. The point is that we have to keep on advising flat buyers to decide carefully before buying an HDB flat as it is a long-term financial commitment. It is important that flat buyers exercise financial prudence, and buy a flat within their means. To encourage this, HDB has been offering financial counselling to flat buyers since 2002, and has applied credit assessment on HDB loans since 1997. From January this year, flat buyers need to produce either a Home Loan Eligibility letter from HDB or a similar Letter of Offer from the banks, before they are allowed to proceed with their flat purchase. Before they sign on the dotted line, they have to know how much they can borrow and what their repayments are like. This helps to ensure that flat buyers do not over commit to buying flats that they are unable to afford.

Allocation of Housing Subsidies

21. Even as we review to see how we can help more segments of the population, we need to be conscious that the public housing budget is limited. We need to make difficult decisions in the allocation of housing subsidies so as not to undermine the larger public housing objectives that I have explained earlier.

22. So what is the general philosophy for subsidies? To encourage family formation and personal responsibility, we provide more housing support for first time flat buyers who have not enjoyed any housing subsidies. We have been flexible in implementing the CPF Housing Grant, for example, first timers who marry second timers can also qualify for the scheme. However, since one party has already enjoyed a housing subsidy, the newly constituted household will get only half the grant.

23. Member suggested relaxing rules on sale of new flats for singles. Our public housing policies are designed to be pro-family in orientation. As families have more pressing housing needs, we give higher priority to families. We have over the years relaxed the housing policy on singles. Singles aged 35 and above are currently allowed to buy resale HDB flats. Those who earn up to $3,000 a month are eligible for a Singles Grant of $11,000.

24. Why is it that they cannot buy new flats? For the same reason that they get a singles grant and not a family grant, i.e. because the level of subsidy for new flats is much higher, and it is for a family unit. In cases where HDB is able to un-bundle the housing subsidies from the new flats, it has made them available to singles. For example, HDB recently released a second batch of 250 unsold flats for sale as resale flats on the open market. First-timer singles who buy these flats may apply for the Singles Grant. Therefore, while we can allow singles to buy new flats where possible, we cannot have differential pricing for the general stock of new flats at this moment.

25. Member asked if we could consider giving down-graders a concessionary loan. Second-timer households that are moving laterally or downgrading can generally use the proceeds from the sale of their existing flats to finance the purchase of their next flat. Alternatively, they can take up a mortgage loan from one of the banks. For down-graders who are facing financial difficulty, HDB will grant concessionary loans to those with deserving circumstances, on a case-by-case basis, upon appeal. But if we were to change our policy, most of the households that are downgrading will be entitled to subsequent concessionary loans even if they are not financially in need.

26. Similarly, those who have tried but are unable to secure a bank loan for various reasons may also appeal for a concessionary loan from HDB. We are aware that some banks may not be willing to grant mortgage loans below a certain quantum. Based on checks with the various banks and finance houses, it is possible for flat buyers to secure mortgage loans as low as $40,000. This would differ based on individual circumstances depending on the bank’s policy.

27. The primary idea is that first-time buyers and second-time buyers who are upgrading will continue to enjoy concessionary loans. This will not be changed. Those who require bank loan are those who would have been entitled to HDB market interest loans in the past. This group would include those who own private property, high-income earners etc. We will not change our policy of providing concessionary loans for eligible Singaporeans.

Supply and Demand for Public Housing

28. Next, I will touch on Members’ questions about HDB’s building programme and the supply and demand for public housing. HDB has made good progress in clearing its stock of unsold flats over the years. There are currently about 4,000 to 5,000 unsold flats available for sale. This is a comfortable level of unsold supply to maintain going forward.

29. Member asked about HDB’s progress in building smaller flats. HDB has started building smaller flats under its Build-to-Order (BTO) programme in recent years. Since we started building 3-room flats again in 2004, HDB has offered about 1,000 of such flats for sale. HDB resumed building 2-room flats in 2006, and to date it has launched for sale about 270 2-room flats. Separately, HDB has also launched about 1,400 Studio Apartments for elderly citizens since 1997.

30. We will continue to pay attention to the needs of the lower income and elderly by building more of the smaller flat types. HDB plans to launch about 4,000 new HDB flats under BTO in 2007. About half of the 4,000 flats will comprise smaller flats such as Studio Apartments, 2-room and 3-room flats.

31. From time to time, I receive letters and emails from young couples complaining about the lack of new HDB flats in the estates of their choice. I understand that they want to enjoy the advantage of a new HDB flat whilst living in an estate close to their families.

32. However, it is neither prudent nor possible for us to meet housing demand by new flats alone. This is especially in mature HDB estates, where there is limited space to launch new public housing projects. From time to time, there will be some new flats in mature estates, arising from Selective En-bloc Redevelopment Scheme (SERS). The demand for these flats is invariably overwhelming, and many applicants who are unsuccessful in the balloting exercise end up disappointed.

33. That is why we have positioned the HDB resale market over the years to supplement the housing supply. I would like to encourage flat buyers to seriously consider resale flats as an option, especially if they would like a flat quickly and in their location of choice. They can still enjoy a housing subsidy when they buy resale flats with the CPF Housing Grants and concessionary loans.

34. One final announcement I am going to make is with regard to the Design, Build and Sell Scheme (DBSS). HDB is planning to launch more DBSS sites in 2007. The next DBSS site is scheduled to be in Kallang/Whampoa.

Conclusion

35. I would like to reiterate that we are well on track in terms of public housing to prepare Singapore for the future. We remain committed to provide flat buyers with a range of housing options to choose from, so that they decide on the flat that best meets their needs and budget. We will continue to work with Singaporeans to make this small island nation of ours, their best home.

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