Importance of Home Ownership

1. Our home ownership programme has enabled the vast majority of Singaporean families to share in the nation’s economic progress. It is also an anchor of stability and a safety net for HDB flat owners who are largely unaffected by rising rentals in the property market. Indeed, they are able to benefit from being able to sell or sublet their flats at higher prices. HDB flat prices have trended upwards over time in tandem with Singapore’s economic growth, and as a result of the Government’s extensive efforts in upgrading and rejuvenating the older estates.

2. While rising flat prices may be a comfort to the vast majority of flat owners, it is a source of concern for many Singaporeans, especially younger Singaporeans who have yet to join the ranks of homeowners.

3. In 2007, HDB flat prices rose by about 17%. I do not expect HDB resale prices to continue with this heady growth this year. It is neither realistic nor healthy. 2007 was an exceptional year for the Singapore economy which grew by 7.7%. HDB prices were in fact playing “catch-up” with the rest of the market. In the preceding three years, HDB prices hardly moved at all.

4. Looking ahead, economic uncertainty is likely to moderate the growth in property prices, including HDB resale prices. The HDB Resale Price Index grew by only 1% in January, and I expect prices to grow at a more moderate pace in 2008.

Commitment to Affordable Housing

5. I would like to assure all Singaporeans, especially young couples, seeking to buy their first homes, that the Government remains committed to ensuring that HDB flats remain affordable.

6. This is not an empty promise. It is a commitment that has cost the Government on average $1.4 billion a year over the last five years. In the FY 2008 budget, a sum of $1.6 billion has been allocated for the public housing budget.

7. We keep HDB flats affordable by giving first-time buyers a generous housing subsidy. If they choose to buy a new flat from HDB, the flat is sold to them at a subsidised price, and they can sell the flat five years later at a profit. If they choose to buy a resale flat, they can enjoy the CPF Housing Grant of $30,000 or $40,000, and also sell the flat five years later at a profit. If their monthly income is below $4,000, they can get an Additional CPF Housing Grant of up to $30,000 to buy a new or resale flat.

8. Member has asked how new HDB flat prices are determined. The main principle in the pricing of new flats is that it is pegged to the market values of equivalent resale flats, i.e. flats in the same locality, and taking into account design, storey height, remaining lease etc. When HDB prices a new flat in Punggol or Sengkang, it takes into account the prices of the equivalent flats in the area. This is the same methodology adopted by professional valuers, used for the valuation of other properties in the market. HDB then sets the selling price below the equivalent market value, so that the gap between the selling price and the market value is the subsidy that flat buyers enjoy. HDB does not consider outlier transactions that are not representative of the market. The selling prices of DBSS flats are not taken into account, as they are a different type of public housing.

9. In addition, HDB offers subsidised mortgage loans at concessionary interest rates. For a $200,000 loan over 30 years, this amounts to a subsidy of about $20,000 at current market interest rates.

10. Taken together, first-time flat buyers can enjoy up to $88,000 in housing subsidies from the Government, if the Additional CPF Housing Grant is included. As a result of these generous subsidies, first-timers who purchased new flats from HDB last year used, on average, around 20% of their monthly household income to service their housing loans, and most flat buyers (at least 70%) could service their housing loans entirely from their CPF contributions. They need not come up with any cash at all. This is well within the 30% debt service ratio, which is generally accepted as a benchmark for affordability.

11. What about the resale flat market? While prices have been rising, affordability levels are also within acceptable levels. For example, a four-room flat was selling for about $270,000 in the last quarter. I am referring to peak prices here, and not prices from the earlier part of last year. A household earning $4,000 a month can enjoy housing subsidies of up to $45,000 (CPF Housing Grant of $40,000 and Additional Housing Grant of $5,000). To service his HDB concessionary loan, he would need to pay about $800 a month, which is about 20% of his monthly income. And he can do so through his CPF, in other words, zero cash outlay every month.

12. Our public housing subsidies are generous by any standard. A journalist (Christine Li) recently wrote in WoBao about her experience in purchasing a flat. She had interviewed me last year, and fed back the concerns of some of her readers who could not get a new flat of their choice. I had advised her readers to widen their options and look for resale flats instead. Little did I know that she was one of those affected. So I was pleasantly surprised to read that she had indeed followed my advice and had managed to buy herself a flat in Toa Payoh within her budget. Allow me to quote her: “Actually if we compare ourselves with other densely-populated cities like Hong Kong and London, Singaporeans are already very lucky to be able to own their own homes. In many of these places, the people have to rent a place for a few years, and sometimes for more than a decade, before they could save enough money to buy their own place.” Unquote.

Retaining the Income Ceiling

13. Since our housing subsidies are so generous, should we allow more people to benefit from it? Several Members have suggested that HDB raise the income ceiling for housing subsidies to help those earning above $8,000 per month. Mr de Souza, for example, said that buyers who are beyond the $8,000 income ceiling are being denied access to affordable housing.

14. The current income ceiling of $8,000 means that about 8 in 10 Singaporean families are eligible to buy subsidized public housing. In other words, public housing subsidies are benefiting not just the low-income, even the middle-income but have reached the upper-middle income. I hope Members will agree with me that this is more than generous and will not be surprised if I tell them that HDB has no plans to revise the income ceiling. However, as Members are aware, HDB does consider appeals that merit special consideration and will exercise flexibility accordingly.

15. Higher income households exceeding the income ceiling have many other housing options, including the purchase of resale HDB flats. First-timer households with incomes of up to $10,000 can also buy new Executive Condominiums (ECs) with a housing grant of $30,000.

16. I want to clarify that there are many affordable housing options for those who exceed the income ceiling. For example, the monthly repayment for a resale Executive Flat (which costs about $415,000 at current market prices) works out to be about $1,800. This constitutes about 21% of the monthly household income for a household earning $8,500 per month (which can serviced entirely out of the household’s CPF Ordinary Account contributions).

17. Subsidies by definition are to help those in need. And more help should go to those who need it more. That is why the Government has introduced and enhanced the Additional CPF Housing Grant in recent years to help the lower income households to step-up into home ownership. I believe this targeted approach will bring more benefits to more people, and achieve the objectives of our public housing programme.

Public Housing – Providing a Menu for Choice

18. Some Members have expressed concern that public housing may become less affordable in the future with the roll out of the Design, Build and Sell Scheme (DBSS).

19. Public housing caters to a wide range of households. There are rental flats to cater to those earning up to $1500, new two-room flats for those earning up to $2,000, and other bigger flat types for households earning up to $8,000. There are differing aspirations and some households are willing to pay more for their home ownership flat.

20. We introduced DBSS in 2005 as a niche product to cater to flat buyers who are prepared to pay more for public housing units that offer different design and features. However, we made it very clear that DBSS flats will be subject to the same eligibility criteria as new HDB flats such as the $8,000 income ceiling, 5-year Minimum Occupation Period and Ethnic Integration Policy etc., as they are considered part of public housing.

21. In view of the positive public response to DBSS flats, HDB will release three more DBSS sites to build up a reasonable stock of DBSS flats. Altogether, the seven DBSS sites will have an estimated yield of about 4,000 units. To put this in perspective, less than 1% of the over 800,000 home ownership flats are DBSS flats.

22. I would like to assure Members that flats built by HDB would continue to be the mainstay of new flat supply. Similar to Executive Condominiums (ECs), DBSS flats serve a small niche market of buyers that can afford to pay higher prices for public housing with different designs and features.

23. So, there is a range of housing options to cater to HDB flat buyers of differing income levels and aspirations. Besides DBSS flats, flat buyers can also consider other housings options. In addition, HDB has also started building new 2-room and 3-room flats in recent years.

Ensuring a balanced supply to meet housing needs

24. Of late, there has been much concern about whether HDB is building enough new flats to meet rising demand.

25. To put these concerns in context, I would like us to cast our minds back to the situation in the late 1990s. At that time, HDB sold flats through a system called the Registration for Flats System (RFS). Under the RFS, flats were built based on the number of people in the queue for flats. The key assumption then was that the queue represented real demand. Unfortunately, this was not the case. When the property market took a dive in 1997, many of those who were in the queue changed their minds and the queue disappeared overnight. As a result, about 20,000 flats, some newly completed and others under construction, were left without takers. HDB was criticised both in and out of this House for over-estimating the demand, and for wasting public resources. HDB took several years to clear the stock of unsold flats. Even now, we still have some of the stock. Learning from this experience, HDB replaced the RFS with the current Build-To-Order or BTO system in 2001, so that it can better respond to the changing demand patterns for new flats.

26. We are once again witnessing strong housing demand in the midst of another uptrend in the property cycle. It is not clear how long this will last. The Government remains committed to providing affordable quality housing for Singaporeans. But, we must understand that there are different housing needs and try to satisfy them in different ways. Some needs are more urgent than others. Some are more basic than others. We must not repeat the mistake of trying to build a new flat for everyone who comes to HDB for a flat.

27. The perception that there is a housing shortage arises from the large number of applications received for new HDB flats offered in established HDB towns like Bukit Merah. Last month, HDB launched a Bi-monthly exercise for 278 flats in established towns which attracted close to 10,000 applications. The fact of the matter is that HDB is unable to offer many new flats in the established towns, as there is limited land for new public housing developments in these areas. Where possible, HDB will do what it can to rejuvenate old estates, intensify the use of land, and introduce new HDB flats for sale to the public. However, there are limits as to how many units HDB can develop in established towns.

28. The good news is that, while the supply of new flats in established towns is small, there is no shortage of new flats in the newer towns like Punggol and Sengkang. HDB has been stepping up its BTO launches last year and this: 6,000 BTO flats last year, another 4,500 BTO units in the first half of 2008. A few days ago, HDB launched its latest BTO project (494 flats in Punggol).

29. HDB will launch more BTO projects in the newer estates, with the requirement that a good majority of flats are booked before HDB proceeds to build them. HDB is mindful of not over-building new flats over the long term. Otherwise, those who have bought new flats today will find themselves unable to sell their flats on the resale market when they need to upgrade or to monetize.

30. I would like to highlight that for the BTO projects in Punggol and Sengkang launched last year, there are about 700 units still available, as applicants had not booked them. Therefore, let me assure members that there is sufficient new flat supply available in the newer towns like Punggol and Sengkang.

Priority for Young Couples

31. I understand the concerns of young couples in buying their first flat so as to settle down and start a family.

32. Young couples planning to settle down have various housing options to choose from. They can either purchase a subsidised new flat from HDB, or look to the resale market where they can apply for a housing subsidy in the form of the CPF Housing Grant.

33. Should they opt to purchase a new flat under HDB’s BTO or Balloting Exercises, young couples are given priority over other applicants, not in the sense that they are placed in front of the queue, but by having more chances in the ballot. If they are first-timers, they get two tickets; if they apply for flats near their parents, they get another two tickets. It will not guarantee them a flat but it will improve their chances of success. Ninety per cent of new HDB flats for Public Applicants are reserved for first-timers.

34. Members suggested that HDB make public the timing and location of its sales exercises in advance, for buyers to better plan ahead.

35. I would like to explain that HDB has already been making public its sales programme in broad terms. Specifically, HDB has announced plans to offer about 4,500 BTO flats in the first half of this year and that BTO projects will be launched in Sengkang and Punggol to build up critical mass in these two new towns. While HDB is not able to provide the exact location and timing of each BTO launch, flat buyers can expect at least one project per quarter in these two towns in the next few years.

36. To minimise their waiting time upon marriage, couples planning to get married can apply under the Fiance-Fiancee Scheme.

Conclusion

37. In conclusion, I want to stress that public housing remains affordable to the vast majority of Singaporeans. Our focus on home ownership has served us well, and the Government remains committed to keeping HDB flats within the reach of most Singaporeans, whilst providing a variety of options to cater to buyers with different aspirations.

38. However, the Government cannot ensure that flat buyers will get their ideal flat at the specific location and at the time that they prefer; when they get married, they expect to move into a new flat. Flat buyers need to be realistic in their expectations. But wherever they live, they can be assured that they will enjoy access to amenities and facilities that are characteristic of our HDB towns.

39. We are putting in place a public housing system that will cater to the needs of Singaporeans over their lifetime. We will not only help young couples start a family with a roof over their head, we will facilitate their upgrading to a larger flat when they have children. And we will help them to monetize their flat when they age. This will strengthen public housing programme as a key social security pillar for Singapore.

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