Introduction

1     This economic downturn is expected to be one of the worst we have faced since independence. Yet amidst the gloom, there are some things that will allow us to face the future with confidence. One of these is housing. Our high home ownership rate has been a major pillar of the Singapore success story. Today, over 80% of Singaporeans live in public housing and over 95% of them own their homes.

2     This is one of the highest homeownership rates in the world, and we have achieved this without heavy taxes or suffering a sub-prime crisis. Instead, through generous Government subsidies and an emphasis on prudence in home purchases, the vast majority of Singaporeans need not worry about not having a roof over their heads, even in this economic downturn. For those facing difficulties, the Government will help them cope with the economic crisis, including their housing problems. I will elaborate later.

Home Ownership Programme

3     We have adopted a life-cycle approach in our home ownership programme, so that the housing needs of Singaporeans are fully catered for over their lifetime. Young couples starting a family receive generous subsidies to buy their first home. When their family grows and they are financially ready, we facilitate their upgrading to a larger flat with another subsidised loan and this is the reason why we kept 2nd subsidised loans for upgrading. To sustain their value over time, their flats and estates are regularly rejuvenated and upgraded. Finally, in their later years, we help them unlock the value that is stored in their flats to provide for their old age.

4     Mr Charles Chong, Dr Lim Wee Kiak, and Dr Amy Khor asked whether HDB flats are affordable at current levels. The answer is an unequivocal “Yes”. HDB flats are sold at a generous discount, either by pricing new flats below market or giving a grant to buyers of resale flats. There is a CPF Housing Grant of $30,000, or a higher grant of $40,000 if they stay near their parents. There is an Additional Housing Grant or AHG to help lower-income families. This year, we will enhance the AHG further. I will elaborate later.

5     What is affordability? There are generally accepted criteria to monitoring affordability. We monitor affordability by how much a flat buyer has to pay out of his monthly household income to service his mortgage payments. This commonly used indicator is called the debt-service ratio (DSR). A DSR of 30% or below is accepted as an indication that housing is affordable. In 2008, the DSR for purchases of new HDB flats was 21%, well within the affordability benchmark of 30%.

6     Chart 1 shows the average DSRs for different flat types, based on the median income of actual applicants last year. As you can see, the DSR for almost all flat types was lower than 23%. Why 23%? Because 23% is the monthly CPF contribution that can be used to pay for housing mortgages. This means that the loan can be serviced entirely by their monthly CPF contributions. In other words, they need not fork out any cash to own their homes.

Supply of Flats

7     Mr Charles Chong, Dr Lim Wee Kiak, and Ms. Lee Bee Wah asked whether HDB will offer more lower-priced flats in the economic downturn. The answer is “Yes”. For the first half of 2009, HDB plans to launch about 3,000 flats for sale, of which about half or 1,400 will be studio apartments, 2-room and 3-room flats. Over the next 2 years, there will be about 2,000 such smaller flats launched each year. We will increase the supply of smaller and lower-priced flats further if necessary, to meet the demand from the lower-income.

8     Another common question in the House is how many people have complained about not being able to get a flat. HDB sells flats in two ways. One is through balloting exercise and one is through the BTO (Build-to-Order) exercise. In the balloting exercise, the flats on offer are surplus flats after SERS-affected residents have selected their flats. So they are limited in number, are usually in matured estates and are very popular among applicants. So it is not unexpected when applicants turn up in thousands when these flats are only available in hundreds. So as a result, the chance of an applicant getting a flat is very low. And these are the ones who come to us to feedback that they have tried many times, but cannot get a flat.

9     The second way is through the BTO scheme, which is a demand-responsive scheme where you apply for a flat and you indicate that you want to buy this, and then HDB builds. So from the time you buy and the time you get this flat, typically, it is about three years, which is about the time one has to wait for private property. However, we notice that BTO exercises often had more than enough flats. For instance, the two exercises, one at Fernvale Residence and the other at Punggol Breeze have over 200 balance units left for sale in each project after all the applicants were invited to book a flat.

10    Some were offered the chance to select a unit, but they did not do so. We do not know why they did not select a flat. And if these applicants were to come back to you and said they could not get a flat, the first question you should ask is if they were offered but did not select a flat. So the point I am trying to make is, there are flats available. Not all flats will be available in mature estates because we do not have the land for this. Not all flats will be available for immediate occupation. They may not be in the estates or floors of their choice, but there will be flats.

AHG Enhancements

11    Let me now turn to the Additional Housing Grant or AHG. The Government recognises that young couples and lower-income families buying their first homes will need more help, especially in these difficult times.

12    The AHG was introduced in 2006 to give extra help for the lower-income to become homeowners. It was enhanced in 2007, and this year we will be doing even more.

13    The maximum AHG amount for those earning less than $1,500 monthly will be increased by $10,000 to $40,000. In addition, to help not only the low-income, but also middle-income families, we will raise the income ceiling for the AHG from $4,000 to $5,000. Chart 2 shows the increase in AHG for the different income groups.

14    The AHG has a 2-year continuous work condition, to ensure that flat buyers have the ability to sustain their mortgage payments. HDB will reduce this condition to 1 year. This will make it easier for applicants to qualify.

15    With these enhancements, we have doubled the amount that the lowest-income families receive, from $20,000 in 2006 to $40,000 today. We have also doubled the number of families benefiting from the AHG from about 4,000 in 2006 to about 8,000 each year.

16    Let me give some examples to show how the AHG works. A young couple earning $1,500 a month will get a $40,000 AHG. If they buy a new 2-room flat priced at about $90,000, they will need to borrow $50,000 which they will repay at $200 per month. This is 13% of their household income, and can be fully paid from monthly CPF contributions. No cash involved.

17    A middle-income family earning $4,000 monthly buys a resale 4-room flat at $315,000 near their parents. They will get $40,000 in CPF Housing Grant and another $15,000 in AHG. The monthly instalments come to $1,041. This is 26% of their household income. 23% will come from their CPF and they only need a cash outlay of $121, or only 4% of monthly take-home pay, on top of their CPF contributions. This is how we incentivise to help families to own homes.

Financial Prudence

18    With the above policy adjustments, families will get significant extra help to buy their first homes. But I also want to remind buyers of the need for financial discipline and prudence. My advice to young families is this - start with the right flat, one that is within your means, and upgrade only if you can afford it and when needed.

19    I agree with Mr Liang Eng Hwa that homeowners should hold on to their flats and not cash out too soon. Often, we see families selling their flats for a tidy profit, use up their cash proceeds, then run into difficulties servicing the mortgage payments for the bigger flat they had purchased.

20    I want to stress that HDB flats are for the long-term, not for speculation or a quick profit. Those who have bought subsidised HDB flats are required to live in their flats for at least 5 years before they can sell in the open market. This helps to guard against speculation. The CPF Housing Grant and AHG must be refunded into buyers’ CPF accounts when the flats are sold, to ensure that flat owners do not cash out their subsidies too soon.

21    HDB has put in place measures to ensure that buyers do not over-stretch themselves when purchasing flats. Credit assessment is done before loans are granted. Buyers are required to obtain a HDB Loan Eligibility (HLE) letter so that they know exactly how much loan they can get, before they commit to a flat purchase. This may seem quite self-evident, but you will be surprised by how many people fail to do so. However, ultimately, flat buyers and flat owners need to exercise financial prudence and live according to their means.

Lease Buyback Scheme

22    Now let me turn to the LBS. By holding on to their flats for the long term, flat owners will be in a position to unlock the value of their flats at old age.

23    Some members Mr Charles Chong, Mr. Masagos, Dr Faishal and Mdm Ho Geok Choo asked about the Lease Buyback Scheme or LBS. I am happy to announce that we have finalized the details and will kick off the LBS on 1 March this year.

24    LBS is one of our key initiatives to facilitate flat monetisation by the elderly. The scheme targets those owning 2-room and 3-room flats who have enjoyed not more than one housing subsidy. It is a subsidised scheme with the Government providing a $10,000 grant.

25    Under LBS, HDB will buy back the remaining flat lease less the first 30 years. In other words, if there are 70 years remaining on the lease, we will buy back 40 years. In return, the lessee gets a $5,000 upfront bonus and a lifetime income stream from a CPFB annuity plan. Take the example of a 62-year-old male lessee of a 3-room flat with a typical resale price of $236,000. Under the LBS, he gets to stay in the same flat albeit with a reduced lease of 30 years. After he receives his first LBS ang-pow of $5,000, he will continue to get monthly payouts of around $530 for life and remain where he is. He can do what he like, for example renting out one-room.

26    Mr Masagos asked what will happen should an LBS applicant pass away before the end of the 30-year lease. If such an unfortunate event happens, his wife or child will be given the option of either staying in the flat for the rest of the 30 years, or getting a refund of the remaining flat lease. Further, they will be given the full refund of the undrawn premium from the annuity plan. For example, if $100,000 from the sale proceeds of the flat’s lease is used to purchase this annuity plan, and the lessee passes away after receiving $10,000, his estate gets the remaining $90,000, so he will not lose any of the annuity that is unused.

27    And if the applicant lives a very long life? Well, the annuity keeps paying for every month of his life, even beyond 30 years. And for those who live beyond the 30 years of the flat lease, we will guarantee them a roof over their head thereafter. We will look at individual cases. If there is a need and it is possible to extend the lease, we will do so. If not, we will find them an alternative accommodation.

28    The LBS will increase the housing and monetisation options available to our elderly lessees. I strongly urge eligible flat lessees to sign on to this scheme. It is a good and generous scheme. And I would like to urge advisers and members of this House to explain this scheme to residents.

29    Many have asked if we can extend this scheme to other lessees of four- or five-room flats. I would say, let’s wait till we roll out the plan for the three-room flats. Gauge the response from the public, then we will decide. But I am open to options of extending the scheme.

30    As Dr Faishal has observed, Studio Apartments are another popular option with close to 100% take-up. We will build more in various parts of Singapore. 1,000 more Studio Apartments are planned for launch over the next 2 years. Mr Baey will be happy to know that they are being built in non-mature towns like Choa Chu Kang and Woodlands to ensure a good social mix. But some of his elderly constituents may also want to age in place in a familiar environment. For them, they can opt for the LBS.

Conclusion

31    Home ownership remains a key pillar of our public housing programme. We will further support home ownership in these difficult times by maintaining our commitment on affordable housing, building more lower-priced flats and enhancing the AHG. We will also introduce the LBS from March to offer more monetisation options for the elderly. These are not short-term reactive measures. These are long-term solutions designed to help Singaporeans in need while strengthening the social security framework so that Singaporeans enjoy a roof over their heads and security in old age.

32    I want to reiterate a word of caution. Flat buyers on their part will need to be prudent in their financial planning. The generous subsidies given by the Government are meant to help our citizens build up a nest egg for their golden years, and should not be treated as a windfall to be spent prematurely.

33    Despite our best efforts however, some Singaporeans will fall into financial difficulties, especially in these tough times. I will elaborate on how we can help this group later.

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