Promoting Homeownership

1. Our public housing programme is one of the success stories of independent Singapore. Today, 84% of Singaporeans live in HDB flats, with more than 95% owning their homes. No other country in the world has done as much for its citizens in this area. Owning a home has given Singaporeans an asset and a physical stake in the nation. It has strengthened our social cohesion and our sense of belonging to this country.

2. We will continue to assist Singaporeans to own their homes. We will do so in 3 ways. Firstly, HDB will continue to price its flats affordably so that most Singaporeans (up to 90%) can at least own a basic flat.

How do we measure affordability?

One measure is to relate to household income, i.e. what percentage of income is used for housing. The accepted norm by banks and housing authorities is that it is considered affordable if less than 40% of the household income is used on housing. Last year, those who bought their flats from HDB used, on average, around 20% of their monthly household income to service their housing loans. More encouraging is that this means that most flat buyers could service their housing loans entirely from their CPF contributions, without touching their take-home pay.

3. Secondly, 1^st-timer citizen households will continue to enjoy generous housing subsidies. Singaporeans may not appreciate how much they enjoy in housing subsidies, which are in various forms. Let me elaborate. Those who purchase a resale flat can obtain a CPF housing grant of $30,000/$40,000. Those who buy a new flat will enjoy an even higher subsidy. As announced by PM in the Budget Statement, we will also provide an additional CPF housing grant of between $5,000 and $20,000 to 1^st-timer households earning below $3,000 per month. These are explicit and substantial subsidies. They can amount to $60,000, which is as high as 40% of the price of a 3R flat in a non-mature estate. In addition to the upfront subsidy, 1^st-timer households also enjoy an additional subsidy by way of the HDB concessionary loan which they can apply for to finance their flat purchase. For a $100,000 30-year loan, a 1% interest subsidy would mean a subsidy of more than $10,000.

4. To encourage social mobility, citizen families can get a second but smaller housing subsidy. If they are upgrading to a larger flat, they can get a second concessionary loan. A recent Department of Statistics (DOS) study on the housing mobility of Singapore resident households between 1995 and 2005 showed that of the estimated 354,000 households who changed residence during this period, more than 60% upgraded to a larger house type. This trend was particularly evident among 1- to 3-room households. Over 80% of them had upgraded to larger house types 10 years later. This is a testimony to the success of our home ownership programme in promoting social mobility among Singaporeans and helping them to own the home of their dreams.

5. Thirdly, HDB will continue to provide a range of housing options so that Singaporeans can purchase a flat that they can afford, from Studio Apartments to 2R, 3R, 4R, 5R and Executive Apartments. I will elaborate on the building of new 2-room flats later. In recent years, HDB has also significantly liberalised its subletting restrictions. This not only allows existing flat lessees to monetise their flats, but also provides more housing choices to those who are not prepared to commit to a home purchase.

Additional CPF Housing Grant

6. Let me now touch on the additional CPF housing grant. The purpose of the grant (AHG) is to help lower-income households build up their assets, and give them a stake in Singapore. To qualify for the grant, 1^st-timer citizen households must first satisfy the usual eligibility criteria for the purchase of a subsidised HDB flat, including citizenship, family nucleus and non-ownership of private property. They will qualify for the additional grant whether they purchase a new flat from HDB or a resale flat with the existing CPF housing grant ($30,000/$40,000). Lower-income households earning below $1,500 per month will receive the maximum grant of $20,000, as they need the greatest help.

7. The grant will be in addition to existing housing subsidies. It will be paid into the CPF Ordinary Accounts of eligible 1^st-timer households. Similar to the existing CPF housing grant, flat buyers can use the additional grant to pay for their flat, including the downpayment. This will make it easier for eligible 1^st-timers to purchase a flat.

8. We want to help low-income families get on the ladder of homeownership. But we must also make sure that they are aware of the responsibilities of homeownership, and that they are ready for the long-term financial commitment that comes with home ownership. Hence, I would like to repeat the message that I have constantly sent to all flat-buyers, that is, to remind them to exercise financial prudence and purchase a flat that they can afford. They should take into account factors such as the stability of their household income and the projected financial needs of their household, which may affect their future ability to service the mortgage. To drive home this message, HDB will provide all mortgage loan applicants with credit assessment and financial counselling.

9. For the purpose of credit assessment, HDB will assess household income based on the average income over the two-year period preceding the flat purchase. In addition, we will require at least one of the flat buyers to be in continuous employment for at least two years prior to the flat purchase. This is to ensure that the flat buyer has a steady income to service the mortgage loan.

10. I expect 6,000 households, or roughly 40% of the first-timers applying to buy HDB flats (new and resale), each year to qualify for the grant. This will go a long way towards helping them achieve their dream of owning their first home, and a stake in Singapore.

Building 2-room Flats

11. PM announced in the Budget Statement that HDB would resume building 2-room flats to make it more affordable for low-income households to own a flat.

12. HDB stopped building 2-room flats for sale in the early 1980s, as flat-buyers opted for larger flats and demand for smaller flats fell. Today, there are about 6,300 2-room sold flats in the market. In recent years, demand for 2-room resale flats has increased sharply, mainly from singles and 2^nd-timers. As a result, resale prices of 2-room flats have increased by 36% since 2002, compared to a 7% increase in the overall resale price index for all flat types. The DOS study I mentioned earlier also showed that among those who shifted to smaller house type between 1995 and 2005, a higher proportion of those in their fifties and sixties moved to 1- and 2-room flats compared to the younger age groups. As our population ages, we are likely to see increased demand for smaller flats. It is therefore timely for HDB to start building 2-room flats again. This will help 1^st-timer low-income households who may not otherwise be able to afford an existing flat to purchase their own home. It will also benefit 2^nd-timer households who wish to move to a smaller flat, for financial or family life-cycle reasons.

13. The new 2-room flats will be priced such that they are affordable to 1^st-timer households at the 10^th income percentile, which will qualify them for the additional CPF housing grant. To keep prices low, the flats will be built in non-mature estates for a start. Like other new HDB flats, the new 2R flats will come with 99-year leases, so that they can be a store of value, which the owners can convert to cash in their old age.

14. To ensure that these flats cater to the target group, we will set a monthly household income ceiling of $2,000 for their purchase. This corresponds roughly to the 25^th percentile household income. It is between the $1,500 income ceiling for subsidised HDB rental flats and the $3,000 income ceiling for the purchase of new 3-room flats.

15. HDB intends to launch the sale of the first batch of 2-room flats in Sengkang, comprising about 90 units, under the Build-to-Order system by the middle of this year. The flats will be about 45 sq m large and will be integrated with 3- and 4-room flats. We will finalise the flat pricing nearer the launch, but we will ensure that they are affordable to our target group.

16. HDB will implement a pilot project to convert some of its unsold 5-room and Executive flats in Jurong West into 2-room flats, so that it can meet the demand for these flats quickly. We expect to have the first batch of 100 converted 2-room flats available for occupation before the end of this year.

Design, Build and Sell Scheme

17. Under the Design, Build and Sell Scheme (DBSS), the private sector will undertake the entire development chain, from tendering for the land, to designing, building, pricing and selling the HDB flats. Through greater private sector participation in our public housing programme, I hope to see more innovative flat designs, wider choice of flats, and better value-for-money for flat buyers.

18. The pilot DBSS site in Tampines attracted good response from private developers last year. The successful tenderer is likely to launch the sale of its flats in the 2^nd half of this year. Pricing for these flats will be determined by the developer. They will have to take into account market conditions, the general market as well as the local market. HDB’s involvement will be in disbursing CPF housing grants of $30,000/$40,000 to eligible first-time buyers.We will await the response from flat-buyers to this pilot project before launching more DBSS sites.

Allocating public housing subsidies

19. Let me now set out 3 Rules that guide our approach in allocating public housing subsidies.

Rule 1: Serve the public good. Public housing subsidies serve important social objectives and reflect our societal values. For example, our public housing policies are pro-family and promote the strengthening of family bonds. Through the way we disburse public housing subsidies, we also aim to promote rootedness and social mobility among Singaporeans.

Rule 2: Give more to those who need more. Those who are in greater need of assistance will receive more. For this reason, 1^st-timers who have yet to own their homes are given priority over 2^nd-timers. Similarly, families are given more subsidies than singles. Citizens get subsidies; PRs do not.

Rule 3: Remember, Money is never enough. There is a limit to the amount of housing subsidies we can provide. For FY06, if Parliament approves, my Ministry will be given $1.24 billion to fulfil our mission "to create the best physical and living environment for building a vibrant city, a robust economy and cohesive communities." Out of this total, $878 million, or 71%, will be spent on public housing. We will use it to finance the various public housing programmes, including subsidies for sold and rental flats, CPF housing grants, upgrading and estate renewal programmes, and major infrastructure projects. The bottom line is that increased expenditure in any one area means that something has to give in other areas.

Facilitating Downgrading

20. Members know that those who need assistance to tide them through temporary financial difficulties can get various financial assistance measures from HDB. These include allowing the lessees to reduce or defer their loan instalments, extending the loan repayment period and allowing the payment of mortgage arrears by instalments.

21. I recognise that in some cases where the flat owners are in severe financial hardship, for example, they have been retrenched or suffer a substantial pay cut, it may be better for them to move to a smaller flat to reduce their financial burden. There have been various suggestions: build more smaller flats, review the HDB resale levy, and provide additional HDB concessionary loans and more subsidised HDB rental flats. I have already dealt with the building of 2R flats earlier in my speech. I will now address the other suggestions.

(a) Resale Levy
22. Let me re-cap the rationale of the resale levy policy. Our housing subsidies do not stop at one. To encourage mobility, we provide a second subsidy (Rule 1). But to maintain a fair allocation of public housing subsidies (Rule 2), we have to reduce the second subsidy. This enables HDB to give priority to 1^st-timers who have more urgent housing needs.

23. The levy is currently computed as a percentage of the selling price of the first subsidised flat. It ranges from 15% for a 2-room flat and 20% for a 3-room flat, to 25% for 5-room and larger flats. This graded resale levy means that lessees in smaller flats still find it worthwhile to upgrade to larger flats. Those who do not buy a second subsidised flat from HDB need not pay any resale levy.

24. Many MPs have given feedback on the resale levy policy over the years. One of the criticisms is that, given its objective of reducing the subsidy 2^nd-timers enjoy on their second subsidised flat, why peg the levy to the resale price of the first subsidised flat?

25. We have reviewed the policy, taking into account such feedback. Our conclusion is that the policy remains relevant. However, we will fine-tune the policy by setting the levy payable as a fixed quantum of between $15,000 and $50,000, based on the flat type of the 1^st subsidised flat. Under the new policy, someone whose first subsidised flat is a 2-room flat will pay a resale levy of $15,000. Those whose 1^st subsidised flat is a 3-room, 4-room, 5-room and Executive flat will pay a resale levy of $30,000, $40,000, $45,000 and $50,000 respectively when they purchase a second subsidised flat.

26. Based on HDB’s simulations, in nearly all cases, 2^nd-timers will pay less in resale levy under the new system. To illustrate, a 5-room flat sold at $300,000, would attract a resale levy of $75,000 under the current system. Under the new system, he will pay $45,000, a saving of $30,000. A 4-room flat sold at $230,000 would mean a saving of about $12,000 ($51,750 compared to $40,000), while a 3-room flat sold at $180,000 would mean a saving of $6,000 ($36,000 compared to $30,000). As the quantum of the levy is fixed, it will also give greater certainty to existing flat lessees who are deciding whether or not to purchase a 2^nd subsidised flat.

27. The revised resale levy policy will apply to future cases, i.e. those who have not sold their first flat and bought their second subsidised flat, as at today’s date. As with all Government policy changes, the new resale levy policy will not apply retrospectively, i.e. to those who have sold their first subsidised flat but have not yet purchased their second subsidised flat. This is because they have signed an undertaking to pay a levy under the old policy when they sold their first subsidised flat. Nevertheless, I will ask HDB to exercise due flexibility and consider applying the new policy on a case-by-case basis to those in financial hardship.

(b) HDB concessionary loans
28. As a policy, we will provide every household with at least one HDB concessionary loan. For those who subsequently purchase a larger flat, we will facilitate their upgrading by providing them with a 2^nd concessionary loan. Flat owners moving to smaller flats can generally use the proceeds from the sale of their flats to finance the purchase of the smaller flat. So as a policy, we will require those who need a loan to purchase a smaller flat to obtain a bank loan. Such an approach will allow us to focus our resources on those who need more assistance, i.e. 1^st-timer households and upgraders. I must emphasise that most households do not have any difficulty obtaining one from the banks. Nevertheless, I wish to assure Members that MND and HDB will examine every appeal on its own merits and be as flexible as possible in cases of genuine hardship.

(c) Market rate loans
29. In 2003, HDB underwent a restructuring exercise. The idea was to focus its attention and resources on the fundamentals of public housing policy and administration. We hived off the building function to form HDB Corp, now called Surbana. We also decided to let banks take over the market rate loans to concentrate on concessionary loans. It did not make sense for HDB to offer loans at market rates to PRs, private property owners, high-income households and those who had already enjoyed their fair share of subsidised loans. This is something the banks were well-placed and keen to do.

30. With this move, HDB buyers who were not eligible for concessionary loans could now choose from the competitive loan packages offered by the various banks. In fact, some HDB owners refinanced their loans with the banks to enjoy the competitive rates. HDB will continue to focus on its target customers and provide subsidised loans to first-time buyers and second-time upgraders, which contribute the bulk of its buyers.

31. Since January 2003, there have been about 70,000 bank loan cases for HDB flats, mostly for the purchase of resale flats. As at 31 Jan 06, the mortgagee sale of 190 flats by banks have been completed or are pending completion. This is less than 0.3% of the total bank loan cases. While this number is not significant, we will continue to closely monitor the situation.

32. What can we do to assist those whose flats have been repossessed or are facing repossession by banks? Banks and financial institutions have their own financial assistance measures to help mortgagors who have difficulties servicing their bank loans. HDB flat-owners who are facing difficulties keeping up with their loan payments should approach their banks for help. HDB cannot intervene in such matters, as this is a private matter between the borrowers and the banks.

33. For those whose flats have been repossessed by their banks, the HDB Branch Office will provide advice and assistance if necessary. These ex-lessees may reside with their families, relatives or rent a flat from the open market if they are not financially ready to purchase another flat. HDB may consider their request for HDB rental flats, if there are extenuating circumstances, based on the merits of each case.

34. I wish to reiterate that a HDB flat is a long-term financial commitment. All flat-buyers need to exercise financial prudence in their flat purchase. They should consider buying a flat only if it is within their means, after taking into account possible changes in their household income and the mortgage loan interest rate.

(d) HDB Rental Flats
35. Our public housing policy is based on encouraging home ownership. That is why we price our flats such that the majority, about 90% of Singaporeans, own their flats. However, not all can do so. Hence, to complement the Home Ownership Scheme, we have a Public Rental Scheme. We provide 1- and 2-room rental flats to meet the housing needs of low-income Singaporean households who cannot afford home ownership flats. The rentals under the Public Rental Scheme are heavily subsidised. For example, a subsidised 2-room flat is rented to low-income families for about $60. HDB rental flats are another form of public housing subsidy. They have to be funded from the same public housing budget that we use to provide subsidies for sold flats, upgrading and estate renewal programmes etc. For this reason, we have strict eligibility criteria on citizenship, income, family nucleus and property ownership to ensure that rental subsidies are given to those who really need them, and who have not enjoyed their fair share of housing subsidies.

36. HDB has enough rental flats to meet the housing needs of low-income households who cannot afford to own a flat. But this is provided we maintain our current strict eligibility criteria and guard against the entrenchment of those who can afford other housing options in HDB rental flats. But for those who are in genuine financial hardship, MND and HDB will look at every case carefully and exercise maximum flexibility.

37. Let me emphasise that even as we provide rental flats to low-income households, we will continue to assist and encourage them to buy their own flats when they are financially ready. This will enable these households to feel that they too have a stake in this country and have not been left behind by our economic progress. The introduction of the additional CPF housing grant and the building of 2-room flats should go some way towards helping these households to also become proud homeowners.

Reverse Mortgage

38. Over the years, we have put in place a wide range of options to help the elderly monetize their flats. For example, elderly HDB lessees can sell their flats on the resale market, buy a Studio Apartment (SA) from HDB, and use the balance sales proceeds to purchase an annuity plan or other financial products. We have significantly liberalised the conditions for the purchase of SAs last year. SA buyers no longer need to top up their Medisave accounts. They can use their CPF savings to pay for the SA after setting aside cash for the minimum sum. These moves have significantly enhanced their attractiveness. Elderly HDB lessees can also rent out a room or the entire flat if they are eligible under HDB’s revised subletting policy. More than 500,000 lessees are eligible to sublet their whole flats.

39. MND and HDB have been discussing with industry players on the feasibility of introducing reverse mortgage schemes for HDB flats. I am happy to announce that NTUC Income is ready to offer such a scheme. I will leave it to NTUC Income to release the details of its scheme. I welcome other banks and financial institutions to offer reverse mortgages for HDB flats, to provide more choices to HDB lessees.

40. As these are financial schemes, they should be offered on commercial terms. The Government is unable to provide any financial assistance or guarantees to providers of such schemes. This is in line with the recommendations of both the Ministerial Committee on Low Wage Workers and the Committee on Ageing Issues. However, we will work with industry players to facilitate the provision of such schemes, so that elderly HDB lessees will have more options to monetise their flats to enhance their retirement adequacy. Whether HDB lessees will sign up for reverse mortgages is an individual decision that they will need to make, taking into account the terms that are offered and the alternatives for monetising their flats that they have.

Ethnic Integration Policy

41. Although I have clarified the Government’s position on the EIP recently, it is worthwhile reiterating some of the key points today, given that it is an important policy to maintain our social stability, yet one which the Worker’s Party says should be scrapped, since they feel it is no longer necessary.

42. First, let me state categorically that the EIP is still as relevant and necessary as when it was first introduced in 1989. In fact, I would argue that at a time when our multi-racial harmony and social stability is under constant challenge, the EIP is even more critical. The EIP has been effective in maintaining the ethnic balance in our HDB estates. Over the years, it has helped to lower ethnic concentrations in towns with a high concentration of a particular race, for example, Chinese in Sengkang and Malays in Bedok. Even with the EIP, 41 or 25% of the 162 HDB neighbourhoods have hit the EIP limits. I have no doubt that the ethnic concentrations in the affected neighbourhoods would have been higher if there had been no EIP to place a cap on ethnic proportions. This would seriously threaten the multi-racial flavour of our housing estates, our schools, our shops, with serious implications on our society and our politics.

43. Second, we apply the EIP consistently across all ethnic groups. For example, there are Chinese households in Tampines, where the Malay limit has been reached, who cannot sell their flat to a Malay household. Similarly, there are Chinese households in Whampoa/Kallang who cannot sell their flats to an Indian household, and Malay households in Bishan who cannot sell their flats to a Chinese household, as doing so will exceed the respective EIP ethnic limits. I want to assure Members that we will review the EIP limits from time to time to ensure that they reflect the ethnic distribution of our population.

44. Third, most flat-owners who wish to sell their flats are able to do so without any difficulties, despite the EIP. Less than 1% of the total resale applications received by HDB each year were rejected due to the EIP. With the large number of resale flats transacted annually, sellers who are realistic in their asking price should be able to find buyers from the eligible ethnic groups.

45. Sir, the EIP does impose a constraint on some sellers as well as buyers. As a result, they need a longer time to buy or sell. We will continue to review the policy to try to minimise the impact of the policy. But the EIP must remain. By maintaining a multi-racial environment in our housing estates, schools, shops and playgrounds, we maintain social stability, racial harmony and religious tolerance, and keep Singapore safe, secure and prosperous for all races.

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