Speech by 2M Indranee at Affordable and Accessible Public Housing Motion at Parliament
Feb 7, 2023
Delivered Speech by Minister Indranee on Affordable and Accessible Public Housing Motion
A. Opening
1. Mr Speaker, Sir, we have before the House 2 Motions which at first glance may look similar, but which are fundamentally very different, both in underlying values and approach, and ultimately in terms of impact on Singaporeans.
2. The Motion standing in the name of the Minister for National Development affirms the PAP Government’s commitment to keep public housing affordable and accessible for Singaporeans, while safeguarding the interests of current and future generations. In his opening speech yesterday, Minister Desmond Lee explained how we have done this and how we intend to continue doing so.
3. The PSP Motion on the other hand implies that our system does not deliver affordable or accessible housing and that it is somehow fundamentally flawed, despite the fact that 90% of Singaporeans living in HDB flats own their own homes. Their motion rests upon – and its merits must therefore be judged by – their alternative policy proposal which in essence is to change the HDB’s existing Homeownership Programme into a national prepaid rental scheme with an Option to Buy. More importantly, the PSP proposal most certainly does not safeguard the interests of current or future generations. Instead, it will erode our shared reserves.
B. Mr Leong Mun Wai's/PSP's proposal
4. The PSP’s proposal – or as Mr Leong calls it, the Affordable Homes Scheme – is in substance a prepaid rental scheme, where the User pays rental upfront, and has the option to own the flat by paying a deferred land cost.
5. It works like this:
a. Allow an individual to buy a new flat at a “user price”, that is set based on “construction cost and a notional location premium”. Now, what is this “notional location premium”? We have no idea because Mr Leong did not tell us how this notional location premium will be calculated.
b. If the individual stays in the same flat for his entire life, he only needs to pay this “user price”.
c. However, if the individual were to sell his flat in the resale market after the Minimum Occupation Period (MOP) he would have to pay the land cost that HDB had recorded at the point of purchase along with some accrued interest.
d. Essentially, it is a prepaid rental scheme with an option to buy. And that’s why Mr Leong uses the phrase “user price”, not purchase price. Because he knows it is not ownership, it’s prepaid rental.
6. The PSP portrays it as cheap housing with no downsides. This sounds too good to be true. And if something sounds too good to be true, it probably is – that is to say: there is a catch you haven’t been told about.
7. And that is the case here.
8. No matter which way you look at it, PSP’s proposal involves selling State Land cheaply. Under their scheme:
a. When the flats are disposed by HDB to the User in the first instance, no one pays for land cost.
b. So the User gets to stay in a nice BTO, in a nice location, with nice amenities, at a low price without paying for any land cost.
c. If he chooses to sell, then - and only then - he has to pay for the land cost with some accrued interest. The land cost is the cost recorded with HDB at the time he gets the flat. Not the current value of the land at the point when he sells.
9. We all know that land has value. If you give it away cheaply or at zero cost, someone still has to bear the cost of that land. Under Mr Leong’s proposal, the BTO User doesn’t have to pay for land value or bear any cost of the land until he chooses to sell it.
10. So, who is paying for the land for the duration that the User stays there?
11. What Mr Leong has not told you is – you all are paying for it. The cost is borne by all other Singaporeans – each of us in this generation, as well as our children and grandchildren.
12. And what is the price that you will pay?
13. You, your children and grandchildren will pay for it in 3 ways:
a. First, financially through the erosion of our shared reserves.
b. Second, in inequity where some benefit at the expense of others.
c. Third, in poor policy with implications for the broader housing market.
14. Let me explain.
C. Our Reserves
15. State Land forms part of our reserves. Everyone knows that. Everyone accepts that. This land belongs to all of us, Singaporeans. As a Government, our approach, in line with our values as a people and as a nation, is that we must be good stewards of this land for all Singaporeans.
a. Think of a family that has several parcels of land inherited from their grandparents. One of the family members – the steward – is put in charge to manage the land on behalf of the family.
b. Would you expect the steward to give away any one of those parcels to a developer for free, and to recover only part of the land costs later?
c. No, you would not. Because that land has value. If he gives it away for free or sells it at a partial recovery price, then he is short-changing the rest of the family. They would be deprived of the value of the land.
d. However, if the Steward sells the land for Fair Market Value, and invests the sale proceeds, the family will have the benefit of the original sale proceeds as well as the income from those proceeds.
e. This income can then be used partially for expenditure and partially re-invested to help sustain both present and future members of the family for years to come.
How we deal with State Land
16. Everyone understands this in the context of family. But this is exactly how we do it as the Singapore family.
a. State Land and our reserves belong to all Singaporeans, present and future. It is a precious shared resource we must protect.
b. The government is the steward of State Land for the whole Singapore family.
c. The government cannot give away State Land for free or sell it at an undervalue. If we do, we would be short-changing Singaporeans.
d. If the land remains in government hands, the government has use of it for the public good and we do not have to charge land cost.
e. However when we sell the land, we charge for it because the government loses the use of it.
i. On this point, I would like to provide a clarification to what Mr Sitoh Yih Pin said in his speech yesterday. The principle Mr Sitoh articulated is correct – we have to account for the value of land when the State disposes of it.
ii. However, if the land is used for public infrastructure like hospitals and public schools, it remains in the possession of the State and no payment arises. That’s because it remains in the possession of the State. And that is the case for Gardens by the Bay. The land was not sold for a nominal fee.
f. Hence when we sell land, we do so at fair market value.
g. When that happens, the physical asset (land) is converted into sale proceeds (financial asset).
h. To preserve the value of the reserves, the land sales proceeds go back to our shared reserves, and are reinvested by our investment entities to benefit both current and future generations.
i. 50% of the investment returns supplement our national budget annually, through the Net Investment Return Contribution (or NIRC), and the other 50% is reinvested for the benefit of ourselves and future generations in a virtuous cycle. Today, the NIRC contributes 20 cents for every dollar of expenditure.
What happens if we sell State Land cheap or give it free
17. If we do not account for the fair value of land, or give it away free or at an undervalue, our reserves will shrink each time land is used for public housing.
a. This means that:
i. Over time, we will have less funds available for crises;
ii. Over time, the NIRC will get smaller;
iii. And over time, in order to make up for the smaller NIRC, we will need to raise more taxes more quickly to get more revenue.
D. Implications of PSP's proposals
Eroding Shared Reserves
18. Despite Mr Leong’s claims that he is not raiding the reserves, his proposal does exactly that.
a. First, land has value. Mr Leong’s proposal implicitly acknowledges this because he concedes that you must pay for the land when you sell it, and it must go back to the Past Reserves.
b. Under his scheme, the BTO Users get to enjoy the land without paying for it. So long as they are occupying the flat without paying for the land, that is a draw on our reserves.
c. If they choose not to sell, our reserves will be reduced for the entire duration of that occupation (presumably 99 years, although Mr Leong has not said what the tenure will be.)
d. As a result, we would forgo the monies that we would have invested and the investment returns, under our current system. And that means less NIRC for the Budget every year.
e. When Mr Leong says his scheme is better than using government subsidies, he is actually taking from the reserves, and to make up for what the NIRC cannot now fund, we would have to either raise taxes or cut spending.
Inequitable Proposal
19. Second, is the PSP’s proposal fair to Singaporeans?
20. It is not.
21. Under the PSP model, those who choose not to sell their flats will enjoy a large subsidy at everyone else’s expense.
22. Those who choose to sell their flats will have to pay recorded land cost and accrued interest but with no subsidies or grants.
23. Some may have to sell their flats, not for capital gains, but for other reasons – such as to cater to new needs and changes to their lifestyle. If the property market is down, they may have to sell at a price lower than the recorded land cost, and would lose out.
24. For the 1 million existing homeowners, you should consider what PSP’s proposal means for you. If you are a HDB owner today, you should think what the PSP’s proposal means for you. Essentially, there will be a new precinct right next to you with flats of similar attributes, but much cheaper. Please consider what this might mean to your property value. Also consider, is it fair that by policy design somebody else gets the same flat as you but at a much cheaper price?
25. Ultimately, the net effect of PSP’s proposal is that the new Users will benefit from the low-cost flats, but it would lead to the erosion of reserves and the reduction in NIRC contributions to the budget.
26. In short, PSP’s proposal will benefit the User, but everyone else will be paying for it.
Bad Housing Policy
27. Third, is the PSP’s proposal good policy?
28. The PSP’s model of deferring land cost upon resale kicks the can down the road for homebuyers, who may well be worse off under this model.
a. Under PSP’s model, there are no grants and subsidies. When the User sells his flat, he would have to pay for the recorded land cost without the benefit of grants or subsidies. This could affect his net proceeds. And the question is whether these would be sufficient to finance another home.
b. This is unlike the current HDB homeownership model, which enables Singaporeans to own their flat at an affordable price, and benefit from our overall economic growth when they subsequently monetise it.
29. BTO applicants should consider what PSP’s proposal means for them. With much cheaper flats (paid for by everybody else), many people will join the queue.
a. It will drive up demand.
b. Competition for housing will increase.
c. The chances of a successful ballot will be lower.
d. There will be longer waiting times, and greater uncertainty. Some will not be able to get a flat at all.
e. Then what do you do about those who can’t get onto the Affordable Housing Scheme and have to turn to the resale market? Under PSP’s proposal, there will be no government grants. How will they feel paying vastly more? They will definitely ask for much larger grants. And where will that be funded from?
30. There is also a real risk of destabilising the resale and property market.
31. The PSP has also been very unclear as to the legal nature of this scheme.
a. The overall scheme is rental with an option to buy.
b. But he has not clarified what the User gets at the point of disposition.
c. At the point of disposition, meaning when the User gets it from HDB, does the User get legal title or just the right to occupy?
d. If it is just the right to occupy, then the person is not the owner. You only become an owner when you pay for the land and that only happens when you sell the land. In short, you only own when you sell! Whereas under our current scheme, you are an owner from the time that you buy the flat.
e. On the other hand, if the individual gets legal title at the point of disposition, it means that they are enjoying ownership without paying for it – at least until they sell.
32. While on this topic, I also want to highlight one other thing. There is a narrative going about that you do not own your HDB flats, and that you are only a tenant and paying rental. This is a narrative that has been perpetuated by both PSP and WP:
a. Mr Leong asked in a social media post in December 2021, and I quote, “is the land used by HDB truly disposed of by the Government if the HDB flat owners only own the rights to their flat and not the common areas and amenities”, and he also said that “flat owners are arguably paying a fixed monthly rent for 99 years in today’s dollar upfront when they purchase their flat”.
b. In a social media post in July 2020, Mr Louis Chua said that “signing an agreement for lease makes one a lessee, not an owner”.
33. This scheme of PSP shows that it’s not true. It shows that they fully understand that there is a distinction between rental and ownership. Otherwise, why do you have to pay for the land when you sell? Obviously because you are getting something more, and you have the ability, once you get title, to transfer that title, which you don’t if you are a mere tenant.
a. Mr Leong said yesterday, “Singaporeans should be treated like citizens, not consumers.” We believe that Singaporeans should be treated as homeowners, not users.
E. LMW's and PSP's inconsistencies
34. The PSP’s position is riddled with inconsistencies.
35. Mr Leong had said that land cost should be “taken out” of the pricing of HDB flats. Mr Joshua Raj earlier today pointed out that this scheme puts land costs squarely in the midst of the pricing of HDB flats. Of course, Mr Leong did stand up to clarify, that as part of his brilliant military strategy he didn’t say earlier that this was related to owner occupation. But then what about the person who’s buying from the first-time User? Land cost is right smack in the middle of the price that he is paying. And certainly on all the social media posts, the impression that was created, not just to Mr Raj but to all Singaporeans, was that there is this wonderful scheme that will allow you to own without having to pay land cost. Well, Mr Leong has now clarified it, and it is good to tell people what you are really selling them – it is a scheme to rent, and not to own. And they will only own it as soon as they sell it and dispose of it.
36. Secondly, Mr Leong cited rising resale prices as a major flaw in the current housing system.
a. But he reassures us that his proposal will not bring resale prices down.
b. He also said PSP will aim to maintain, I quote, “a buoyant resale market”.
c. PSP criticises the waiting times for BTO flats. Yet their proposal will add to the queues.
d. He said it his proposal will not raid the reserves. But it is clear that it will.
e. He also said yesterday, that under his scheme, Singaporeans can look forward to a future where owner-occupied housing is truly affordable as land cost is waived. The irony is that for so long as you are occupying it, you are not the owner. You only become the owner, just a short while before you sell it.
F. Conclusion
37. Sir, Mr Leong wants to turn our nation of homeowners into a nation of renters. And to become a homeowner, you have to sell your property, with no assurance of being able to afford a new one after that.
38. For these reasons I cannot support the PSP’s motion standing in the name of Mr Leong Mun Wai and Ms Hazel Poa. I do support the Motion standing in the name of the Minister for National Development, for all the reasons that have been outlined by the Minister.