Oral answer by Minister of National Development on value of land for HDB BTO flats compared to that for private housing

Jan 10, 2023

Question No: 4017
Question by: Mr Gerald Giam Yean Song

To ask the Minister for National Development in determining the value of land that will be used to build HDB BTO flats
(a) what is the differential that the Chief Valuer applies to land used for public housing compared to that for private housing; and
(b) whether the private housing land use comparables used to value land for HDB BTO flats are based on the records of the last transacted private residential land sold by the Government and private parties.

1. Mr Speaker, the Member asked what differential is applied by the Chief Valuer to land use for HDB, compared to private housing. He goes on to ask whether the private housing land use comparables that are used to value land for HDB BTO flats are based on records of the last transacted private residential land sold by the Government, and the private parties.

2. Let me explain. The land sold to the private sector for private housing development is typically done by open tender through the Government Land Sales (or GLS) programme. So the value of the land is determined through price discovery, as developers bid for the land.

3. On the other hand, sale of State Land to HDB for public housing developments does not fall under GLS. Instead, the fair market value that HDB must pay for the purchase of State Land for public housing is independently determined by the Chief Valuer, using well-accepted and established valuation principles.

4. Transactions pertaining to land sold for private housing developments are not used to value the land sold to HDB for public housing developments. Instead, the Chief Valuer considers relevant public housing transactions and the specific parameters of the site.

5. On the differential, which is also the Member's question, HDB has publicly stated that the land premium it pays for public housing land parcels is lower than the premiums for equivalent land use for private housing, as observed from the returns of successful tender bids by private developers through GLS. This is in part because of the greater restrictions that apply to public housing, such as buyers' citizenship status, Minimum Occupation Period, income ceiling, non-ownership of private properties, and so on.

6. I must caveat that I am saying this broadly at the expense of technical accuracy and details of the work actually done by the Chief Valuer, which is an independent office. But suffice to say, he adopts the same valuation principles used by professional valuers in the private sector, not just to value private properties, but these principles are also consistent with the principles that other valuers use to value public housing or HDB flats. So when your residents apply for loan, they get a valuation. That's what the valuer does - determine the value of HDB flats. There is such a thing as the value of public housing and public housing land, and it can be ascertained.

7. Relevant to this topic raised by Mr Giam are the recent comments made by Mr Leong Mun Wai in the public domain, where he said that State Land sold to HDB should instead be valued at the historical cost of acquisition, rather than professional valuation principles which I have just articulated. He argues that by doing so, HDB flats can be made even cheaper than they are. I will leave the point about HDB home pricing and affordability for the debate that we will be having soon. But we will deal with the point about valuation of land on public housing today.

8. Let me take a bit of time to explain to fellow Singaporeans and Members of this House, why Mr Leong's proposal to value State Land meant for HDB at historical cost cannot work.

9. First, land has value. Professional valuers in the private sector will tell us that. And actually, all of us intrinsically understand this. So when Mr Leong calls for land to be sold at historical cost, he is overturning this fundamental point that land has value. Given that most Singaporeans own their homes, he is essentially saying that by a stroke of his pen, a significant portion of the asset value should be ignored.

10. In fact, this was a discussion that Mr Chiam See Tong had with then-Prime Minister Lee Kuan Yew back on 21 March 1985 in Parliament, where Mr Chiam was arguing about what the real value of HDB land is, and whether it can really be discovered. And after some to-ing and fro-ing, if you check, Hansard, then-Prime Minister Lee Kuan Yew stood up and asked the Member squarely, allow me to quote, Mr Lee asked, "May I ask whether the Member concedes that there is such a concept called "value of land"; and that there is such a profession known in Singapore as a land valuer; that the Government has a Chief Valuer; that there are, in the private sector, experts who regularly go to court and give evidence as to what the value of land is? And that the Ministry of National Development, by transferring it from the HDB to the Government, is in fact making the books widely known that the value of each plot of land will be determined and is determinable because the land can be used for defence, can be used for schools, can be used for condominiums, it can be used for HDB, it can be used for URA, who is prepared to pay what price or what use; Is there no such concept as value of land?" That, in a way, is a rhetorical question he asked at the end.

11. And after some further exchanges, Mr Chiam accepts that, if that is what the PM says, that is what [he] says. Perhaps grudgingly, but I think that make the point clear. So that's the first point.

12. Second, when you buy and sell land or property in Singapore, and I will say in many parts of the world, you may often call for a valuation report. And the valuer will usually apply established and accepted valuation principles, accepted by the profession, by the public, to determine current market value. For example, he looks at the relevant recent transactions, makes adjustments for attributes and so on, and produces the valuation report detailing his grounds. I don't think you or your professional valuer will base your transaction on how much the property changed hands back in history.

13. Third, the idea of valuing land at historical cost sounds attractive, but it is really problematic. If the land was acquired by the Government in the 1960s, HDB pays for the land at 1960s' pricing? If the land was, say recently acquired, maybe 2015, then HDB pays the 2015 price, [which is] far higher than before. And what if the land had all along been State Land and was never acquired by anyone or from anyone? Is the value of the State Land at historical cost then zero? HDB pays zero? Or do we go back to 1819, or further back in time to try to find some historical transactional record that was made and say - that is the price?

14. I think most people will understand why this is wrong. If you want to sell your property today, whether it is HDB flat, condo, terrace house, shophouse or office, you will look at what it is worth in the market today and use that as some basis for you to transact, bargain and negotiate. Imagine if someone comes up to you and says point blank: "Hey, he should really be paying you the historical cost instead of market price, how much you or your forefathers had paid for it way back in the past. Let's use that as the basis, really what it cost you or your lineage."

15. Imagine one of our Pioneer Generation Singaporeans, one of our seniors, maybe in the past earning $500 a month, maybe more, maybe less, who may have paid, say, $50,000 for his flat back in the early days. Today, because Singapore has done well, thanks to his generation's hard work and contribution, it is certainly worth a lot more. When you go and do house visits, many seniors tell you proudly that they are still living in the flat, but it is worth a lot more.

16. But if we adopt Mr Leong's new approach, would this senior be required to sell at just above $50,000 - or even with cash-over-historical-value? Would his children and descendants inherit a flat valued as it was back then in the 60s, worth very little compared to today's prices? We know that Mr Leong makes a superficially attractive proposition. But we know that the proposal is unfair, is not logical, and simply cannot fly, in the face of long-established well-accepted valuation principles.

17. Fourth, Mr Leong's valuation approach is actually dangerous for Singapore because it is really not about valuation principles at all. It sounds like it is, but it is not. He is in fact seeking to raid our National Reserves, in promising you that he can make HDB flats dirt cheap, but better, without having to tax Singaporeans more or to find ways to pay for it through revenue sources.

18. As my colleague Minister Indranee Rajah had explained late last year, State Land is part of our National Reserves - quite different from other countries, or the provinces, or the cities or the districts in other countries, which use the sale of State Land as a way to fund their recurrent expenditure. State Land in our reserves has value. And its value grows if Singapore is well-managed and does well. If our Reserves are well-husbanded and grow, they give greater assurance that our future generation of Singaporeans will have resources to deal with crisis, catastrophe and calamity, like pandemics, like war, like economic crisis, like climate emergencies. If they grow, they not just benefit the security of our future generations, but they also benefit us today.

19. While the Government cannot touch the proceeds from land sales, which go to the Reserves and are then reinvested, part of the growth in value of our Reserves - the NIRC - is used to fund today's needs such as healthcare, housing, subsidies, security and so on.

20. So, when State Land is sold to HDB, HDB must put back into the Reserves the fair market value of the land, turn the land that is in our Reserves into its equivalent value of money at this point in time so that the Reserves are not worse off, they are not diminished. And that fair market value is determined by professional valuation principles.

21. Mr Leong's proposal for HDB to pay historical price to the Reserves means putting back into the reserves far less than what the State Land is really worth today. This is a raid on the Reserves, plain and simple, and will diminish the resources available for your children and their children.

22. When Mr Leong advances his argument, it is about affordable housing, cheap housing, it is about valuation approach. So it is complicated, lots of charts, but the end product is housing will be a lot more cheaper, but hey presto, don't need to pay more today. He says everything else, but through sleight of hand, he hides from you the plain fact that he is really wanting to raid our Reserves.

23. Finally, while I said I will leave the debate on HDB affordability to another time, and as PSP has said they will also debate in Parliament on this point, I will just make this final related point for Members to consider. We spend considerable amounts of national resources to keep our BTO flats affordable at the house price-to-income ratios comparable to other countries. You see the stark difference, at the Mortgage Servicing Ratios as they are.

24. Mr Leong says he can make them even cheaper. But to do this, there is one way - cut back on other Government expenditure, whether it is healthcare, security, education. What do you want to trim back so that you spend more on this? Or by raising revenues through taxation or through other means, so that he can deliver on even cheaper BTOs? But this is not going to be popular or wearable. So instead, the approach is the populist one: raid our reserves, but don't say it. And he says the Government sell land to HDB at distant historical costs, ignore market valuation principles so that Singaporeans today get dirt cheap housing without having to pay more taxes or experience cutbacks elsewhere to pay for this. Get the benefit of the cake and eat it.

25. As DPM Lawrence Wong had said previously in the debate on the GST, and on many other occasions, if you want to tap more on the Reserves, diminish it, use more of it for today and leave less for tomorrow, let us just say it cleanly, let Singaporeans see it as it is, and we can have a debate. Come the next round, we talk about housing, about Reserves, about expenditure, about sustainability. Then, we can have a sound, fair basis for discussion. But the point that he has made, the argument he is proposing, the proposition he is making, I think most people recognise that this deal sounds too good to be true.