Building an Endearing Home for Singaporeans

Speech by Mr Mah Bow Tan, Minister for National Development, at the Committee of Supply Debate on Friday in Parliament.

Meeting diverse housing aspirations
Commitment to young couples, first-timers
Focus on affordability and financial prudence
Focus on owner-occupation

Mr Chairman, Sir, Public housing is a hot topic every year, but it is especially hot this year. That’s not surprising, since it is a subject that concerns every Singaporean. I thank Members for raising the concerns of the people and giving me a chance to respond.

This year, HDB celebrates its 50th birthday. It has been an outstanding half century. Recently, the international news service AFP described HDB as “a powerful agency whose projects have taken Singaporeans out of the slums and ghettos that once blighted the island and into multi-storey apartment buildings surrounded by shops, markets, banks, transport links and other essentials”. The United Nations and the World Bank have also commended our success in achieving quality public housing.

When HDB was formed in 1960, less than 10% of Singaporeans owned their homes. Housing was basic and functional. Today, 80% live in HDB flats that are of high quality and good design, in well maintained estates all over the island. Most importantly, they own their flats, a valuable asset which appreciates in value along with the long term growth of our country. This is a remarkable achievement, unique to Singapore.


Meeting diverse housing aspirations

But with success come new challenges. Having to house over 80% of the population means catering to a broad spectrum of flat applicants, from young couples to the elderly, from the low-income to higher-income households, as well as upgraders, singles, new immigrants, and others. Our housing policies have to adjust to meet the demands of these groups.

That is why we cannot just build the standard flats of the 1960s, there is now a wide variety of housing to meet diverse aspirations – HDB’s Build-To-Order (BTO) flats, Design, Build and Sell Scheme (DBSS) flats, and Executive Condominiums (ECs), with different design features, in various sizes and across many locations.

Through our home ownership policies, growing up in HDB flats is a common Singapore experience for many of us. Let me tell you my story. When I was young, I lived in various places with my mother, who was a domestic servant. I lost my father when I was 3 years old, so we moved around a lot; a kampong in Lorong Ah Soo, which has now become HDB flats in Mdm Cynthia Phua’s constituency, a shophouse in High Street where MTI and MOF are today, a room in Bugis Street, where Bugis Junction is today. There were 10 of us living in that room. We had one bed which slept 5. It was raised so that another 5 could sleep underneath. Then, I moved to Kim Keat Avenue with my aunt and her family – 8 of us in a 3-room flat, sharing one toilet and bathroom, while my mother stayed in a 1-room rental flat in Whampoa Road. Later, we upgraded to a 4-room flat in Toa Payoh. My story is a typical Singapore story for my generation. Start in a modest flat, work hard, accumulate savings, and upgrade over time. If need be, there is also the option of downsizing to a smaller flat.

But times have changed. Our rapid progress has brought a new generation of HDB flat buyers who start from a different baseline. It is no longer a rental flat or a kampong house, but more likely a 3, 4 or 5-room flat, even private property.

The challenges we are tackling in public housing today are no longer just about providing a simple roof over the head, but also about meeting rising expectations. Some Singaporeans are worried that they or their children might not be able to afford a home to call their own. I understand these concerns and I hope to allay some of these concerns. Our mission is clear: HDB is committed to provide an affordable home for first-time Singaporean families. We will provide them with a place to call home, a place that is within their means. But on their part, flat buyers must be prudent and realistic.

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Commitment to young couples, first-timers

Mr Cedric Foo and Madam Cynthia Phua asked about the adequacy of housing supply. Let me give this categorical assurance to all Singaporeans, especially young couples buying their first homes, that the Government is committed to helping you.

Our new flat supply has been more than sufficient to meet demand. Even at the height of the last boom, between 2006 to 2008, HDB offered a total of 36,400 new flats, or an average of about 12,000 flats per year. The actual take-up was lower, at an average of 10,400 new flats per year. Chart 1 shows that 1,000 to 2,000 new flats were left unsold each year.

For 2009, we started conservatively with a smaller planned supply of 6,000 BTO flats, due to the depressed economy then. Global economies were in disarray, and Singapore was not spared, and so we adopted a conservative approach. But when sentiments improved sharply in the second half of last year, we responded swiftly by increasing BTO supply to 9,000 units. Together with DBSS and other sales, 13,500 new flats were offered in 2009.

For 2010, we will provide 12,000 new BTO flats or more if there is demand. This is a substantial number. Currently, there are about 23,000 flats in Clementi and Jurong East respectively . At the rate of 12,000 flats per year, we will offer enough flats to equal Clementi or Jurong East town in 2 years. HDB will launch at least one BTO project each month for next few months. In addition, HDB has launched new EC sites and will be launching new DBSS sites for sale. For the whole of 2010, I expect total flat supply to be in excess of 12,000.

Therefore, flat buyers need not fear that there are not enough flats. Chart 2 shows the various locations of the new BTOs this year – Sembawang, Punggol, Sengkang, Yishun, Woodlands, etc. When Punggol is fully built up, we will consider building in new areas such as Tengah and Simpang.

So why this perception that there are not enough flats? Perhaps it is because of the high application rates for recent BTO launches, at 3, 4, even 6 times of the flat supply. However, these high application rates do not reflect the true demand for flats. First, about 22% of the applications for BTO projects in the last 4 months (Nov 09 to Feb 10) are repeated applications from the same households. In other words, some of these households could have applied every month. Second, not all applicants are in urgent need of a flat. The true test of demand is not when they apply for a flat, but when they actually book a flat.

HDB monitors the drop-out rates for BTO flats. Last year, the overall drop-out rate was close to 50%. In other words, 1 in 2 applicants did not book a flat when invited to do so. Take the most recent BTO project that completed selection – Fernvale Palms. When Fernvale Palms was launched in Oct 2009, the application rate was 4 times the flat supply. However, Chart 3 shows that by the end of the selection exercise just this week (1 March 2010), 44% of first-timers who were invited to select a flat did not do so. Even when all the flats were available on the first day, 34% of applicants gave up their chance to select a flat. The results were similar for the most recent selection exercise which has completed first-day selection for all flat types, at Boon Lay Meadows. Chart 4 shows that about a third of the applicants dropped out on the first day. This is quite consistent in all recent BTO launches.

When asked for their reasons, applicants told us that their choice units were taken, or they were considering other housing options. I can only conclude that these applicants were not in urgent need of a flat and preferred to wait for their choice flat. Unfortunately, they drive up application rates, and create undue anxiety that demand far outstrips supply. So I hope greater clarity of the situation will help allay concerns.

I have also received appeals from MPs and the public who tell me that they cannot get a flat, despite many attempts. I ask HDB to review all these cases carefully to ensure that our commitment to our first-timer Singaporeans is met. In the last 6 months, we received 477 such appeals. I was pleasantly surprised to discover that only 29 cases or 6% of these applicants genuinely did not have a chance to choose a flat in at least two BTO exercises in non-mature estates.

The rest of the appellants were either only interested in flats in mature estates, which were in short supply, or they had given up one or more chances to select a flat. Let me share a recent case with you. Mr C wrote to me complaining about his lack of success in getting a flat, after several tries. HDB checked and found that he had indeed submitted 4 flat applications, but only 1 was for a BTO flat in a non-mature estate. What was more astonishing was that he had actually been offered flats on 3 occasions, but he rejected them all. When HDB pointed this out to him, he replied: “…. you are right, however, those we are asked to select is not of our choice. So how would one want to proceed when choice units we would like to select is taken?”

I was puzzled – what did he mean by choice units? I asked HDB for more details. Chart 5 shows that for his first chance in Feb 09, there were 121 flats in Punggol and Sengkang available for his selection. He turned them all down because he was (I quote), “targeting the unit in Buangkok which is just opposite to where I am putting up”. Shortly thereafter in Apr 09, he was offered BTO flats in Punggol, which he also rejected, despite having 143 units to choose from. His reason was that “the units that are left are those facing the mosque.” But HDB tells me there were actually 118 units remaining not facing the mosque. On his third chance in July 09, there were 14 units available for his selection, across different locations, Serangoon, Yishun, Ang Mo Kio, Tampines and Woodlands. Again he rejected his chance to select, because these were not his “choice” flats. Within a span of 6 months, he rejected 3 chances to select a flat, when there were many flats available for his selection.

I can understand flat buyers wanting to get the best flat available, if they can. After all, buying a flat is a major investment. However, they also have to be realistic. The Government is committed to helping Singaporeans own their first homes. But it is not possible to promise every applicant who buys direct from HDB his “choice” flat, at the floor of his choice; at the place of his choice; at the time of his choice; and at the price he wants. Our land is limited, especially in the mature estates. So is our housing budget, generous as it is. Buyers have to decide on the tradeoffs they want to make – whether they should keep on trying for their “choice” flat, and delay setting up their home, or to settle first for one within their budget and move to a better flat later when they have built up their finances.

Last year, 10,228 Singaporean families bought new flats, of which about 8,200 were first-timers. 3,500 of these first-timers bought their flats under the Fiance/Fiancee scheme. They should be able to move into their new homes soon after they get married.

Mr Cedric Foo asked if the lead time for supply of new flats could be shortened. As I pointed out earlier, it is better for building plans to be based on real demand as shown in the booking of flats. If we built ahead of demand, we could end up with a large stock of unsold flats if that demand disappeared, as in the early 2000s. If we piled in advance, we could end up with idle sites with piles in the ground. Nonetheless, I will still consider the member’s suggestion to explore reducing the wait for BTO flats through the building up some buffer flats, though I would like to clarify that there is actually a buffer in existence today. This is because we do not wait until 100% booking of flats before commencing construction.

Generally, we start building when around 60% to 70% of the flats are booked, so that, in essence, there is the buffer along the lines that the member suggested. And it is because of this buffer that we are able to offer every year, or thereabout, a stock of flats that are either ready for flat buyers to move in or almost ready to move in. But that cannot be our mainstay, because then we are going back to the time when we try to anticipate the demand, and we build a large stock. Obviously, when these flats are put up for sale because they are near completion or because they are in mature estates, their application rates would definitely be much higher. Therefore, we do need both BTO flats and balance flats for sale as part of our sales programme.

The BTO system offers the certainty of a flat in 3 years plus. Is 3 years unreasonable? Well, we can shorten it further by moving the subscription rate down to commence construction, and we will look into that. But 3 years is in fact no different from the waiting time for private developments. It is a reasonable time. For significant decisions in life, such as buying a flat or planning for marriage, most people would plan ahead and save up for this commitment. While we may be able to shorten the wait, I wish to clarify that it is not ideal to have flats left on the shelves waiting for somebody to walk in and book. For those who cannot wait, they can buy from the resale market immediately, but at a premium for speed and choice.

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Focus on affordability and financial prudence

Mdm Ho Geok Choo and Mr Lim Biow Chuan asked how we define affordability and how we will ensure affordability. Mr Ang Mong Seng suggested ways to increase affordability for the lower-income. My assurance to Singaporeans is that we will provide sufficient flats that are priced within your reach.

In terms of affordability, there is a very generous subsidy framework I place, with more help given to the lower-income group. On top of the CPF Housing Grant of $30,000 or $40,000, the Additional Housing Grant (AHG) was introduced in 2006 to give extra help to lower-income families and young couples to own their first homes. Members will recall that we enhanced the AHG for a second time just last year, extending it to those earning up to $5,000, and increased the maximum grant to $40,000. As at 31 Jan 2010, we have disbursed a total of $330m in AHG to more than 20,000 families. Last year, 9,400 families received $176m in AHG. This is double the amount in 2008. This is very significant additional help given to the lower-income to buy their HDB flats.

How do we measure affordability? One way is to compare the median house price to the median annual household income, using the housing price-to-income ratio. In a recent article by NUS professors published in the Straits Times on 27 Feb, it was noted that Singapore had a house price-to-income ratio of 5.8, which was more affordable than Hong Kong’s 19.8, and London’s 7.1. I am not saying this is the idea way, but it is one way. Another well-established and commonly used benchmark of housing affordability is how much of the income is spent to service housing mortgages i.e. the Debt-Service Ratio (DSR), which Mr Cedric Foo asked about. Financial planners generally recommend that households should have a DSR of less than 30-35%. Anything more would be considered unaffordable.

In the case of new HDB flats in non-mature estates, the average mortgage payment for new flats in non-mature estates sold in 2009 was 22% of monthly household income, which translates to a DSR of 22%. This is 1-2% marginally higher than the level seen in the last decade, but well within the affordability benchmark of 30-35%. This also means that about 80% of Singaporean new flat buyers are able to service their housing loans entirely from CPF without any cash payment. In my opinion, this is a significant fact and a very real measure of affordability.

Let me walk the House through an actual example of a couple in Chart 6. Mr and Mrs S with $4,500 monthly income bought a new 4-room flat in Punggol priced at $297,900. They received $10,000 in AHG to offset the price of the flat. They took a loan of $268,100 (90% loan from HDB) at concessionary rate. The couple’s monthly instalment is $1,073 or 24% of their income. They can use $1,035 from CPF to service the instalment and only pay $38 in cash. This leaves the household with the bulk of their take-home pay for other expenses.

I want to stress that housing affordability is also a function of how people make choices. HDB builds a wide variety of flats – of different sizes, in different locations, and with different features – to cater to different aspirations and budgets. I would like to assure Mr Lim that we will continue to build basic flats. In fact, the bulk of our new flat supply is through HDB’s BTO system, with many 2-, 3- and 4-room flats on offer. But those in demand are the larger flats like the 4- and 5-rooms. Why are these flats in demand? Because they offer good value for money. And when you come to a development like The Pinnacle and Dawson, they see huge demand because they represent the greatest value for money. So we have to build basic flats, but we also have to build some of the more premium flats. The DBSS is one of them. It constitutes only 10% of flat supply, to offer choices to those who are willing to spend more for premium flats. Affordability is about buying a flat within your means. There are many choices available – 2, 3 or 4-room flats at various locations. Given these choices, buyers must exercise financial prudence and carefully consider what they can afford, taking into account their income and other commitments.

Take Mr and Mrs S, the couple I mentioned earlier, who bought a flat at Punggol with a monthly income of $4,500. Chart 7 shows that they could also have chosen from many other BTOs, or any of these resale flats: a 3-room flat in Bukit Merah at $300,000, a 4-room flat in Yishun at $294,000 or a 5-room flat in Jurong West at $370,000. Clearly, flat buyers have choices, but there are trade-offs to be made in location and flat size.

Mr Ahmad Mohd Magad and Madam Ho Geok Choo asked what could be done to help families in financial difficulty, because they bought flats that they cannot afford. At my Meet-The-People sessions, I am saddened to see households which have over-stretched themselves, ending up in arrears. HDB has helped many households facing financial difficulties to reduce or defer their loan instalments, and in some cases, even offered them another HDB loan to help them right-size their housing.

Mr Cedric Foo asked if we can provide loans for those who want to downgrade. Some MPs also gave me feedback that by providing the second concessionary loan to households only for upgrading, this may inadvertently drive some to upgrade even though it may be more prudent for them not to do so.

With greater economic volatility, the flexibility to right-size will become more important. Therefore, I have decided to remove the upgrading condition for the second concessionary loan. What this means in future is that both upgraders and those who downsize will be eligible for the second HDB loan, with the focus on helping families to right-size their housing choices.

To further encourage financial prudence, HDB will reduce the second concessionary loan quantum – by the full CPF balance, and half of the cash proceeds from the sale of the first flat. The household will get to retain at least $25,000 in cash proceeds. Let me illustrate what this means. Chart 8 shows that if a couple sell their flat and receive $60,000 in CPF refund and $80,000 in cash proceeds, they will need to use their CPF money ($60,000) and half of their cash proceeds ($40,000) to pay for their next flat. In other words, HDB would then grant them a loan, which is $100,000 less. In this case, the household retains $40,000 in cash proceeds.

The changes to the second concessionary loan will help Singaporeans right-size to a home that they can sustain over the long term. It will help homebuyers manage their finances for their flat purchase upstream, and avoid financial difficulties downstream.

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Focus on owner-occupation

Let me now turn to the members’ concerns about the Mininum Occupation Period of HDB flats. As we strive to provide sufficient flats to meet the housing needs of Singaporeans, I want to emphasize that HDB flats are provided primarily for owner-occupation and not speculative profit or rental return.

Dr Lim Wee Kiak and Madam Ho Geok Choo were concerned about high prices and Cash-Over-Valuation (COV) levels. They asked what could be done to curb speculation. Mr Masagos Zulkifli also asked about the outcome of our review to curb speculation, whether Permanent Residents (PRs) are driving up flat prices, and how we have dealt with illegal subletting.

Firstly, we have to make the decision whether to control resale flat prices. If we control the market, we are essentially going back to the regime where we sell the flat to you at a controlled price, and you sell it back to us at the same price. This way, an HDB flat will not be an asset. Basically, what you are doing is you are collecting rental upfront, and this is akin to a rental scheme. The Home Ownership Programme, where we allow owners to enjoy the increase in value of their flats, is what makes the Singapore public housing programme different from other cities in the world, and I believe this is the best scheme for Singaporeans. And that is why we should not interfere in the resale market. If we interfere, we are essentially moving backwards, and this could be detrimental to the 800,000 homeowners or more. So why was there high COV? Because people are willing and prepared to pay for that particular flat. The COV is the result of negotiation between willing buyers and willing sellers. At the end of the day, buyers can walk away if they do not want to pay the COV.

Mr Hri Kumar also asked about subletting, and whether private property owners (PPOs) should be allowed to own flats. The majority of resale flat buyers are citizens who do not own any private property. Those who are eligible get CPF housing grants to buy resale flats. We should not make a distinction whether the buyer is a Singaporean, PPO or PR if the flats are bought and sold at full market price with no subsidy.

There is no evidence that specific buyer groups, like PRs and PPOs, are driving up prices. The median COV paid by PRs have been the same as the overall median COV paid for resale flats for the last two quarters. Therefore, PRs are not more cash-rich than average Singaporeans. Cases of PRs paying high COV are the exception, not the rule. Of the 37,205 resale transactions in 2009, 58 cases had COV exceeding $70,000. Of this, only 8 cases or 14% involved PRs. The rest of the 50 cases were Singaporeans. Hence, there is no evidence to suggest that PRs are driving up prices.

While PPOs pay higher COVs in general, their numbers are not large enough to drive up prices . If we banned PPOs from buying HDB resale flats, what about HDB owners buying private properties? Should we disallow that too? Surely not. I would urge that we take a longer-term view and not over-react, and do things we regret and have to unwind down the road.

Although flats are mainly for owner-occupation, we do allow flat owners to sublet their flats if they meet the Minimum Occupation Period (MOP). Under the current MOP policy, flat owners are allowed to sublet their entire flat after 3 or 5 years, depending on whether their flat purchase was subsidized. Of the 682,000 flats that have fulfilled the MOP and are eligible for subletting, only 23,200 or 3% are sublet. This suggests that most flat owners are buying their flats for occupation, and not rental. The extent of subletting whole flats is not as prevalent as what people suggested.

Just to make sure, I have asked HDB to step up enforcement against unauthorised subletting of flats. HDB has the power to compulsorily acquire flats or impose a heavy fine on those found subletting without authorisation. The public can help HDB by reporting such cases if they know of them.

Mr Ang Mong Seng has asked us to review the 1-year MOP for resale of flats bought without subsidies. While there has been an increasing trend of flat owners selling their flats shortly after MOP, especially among those who had bought non-subsidised flats with shorter 1- and 2.5-year MOP , the numbers are not large. However, if the trend continues, buyers who genuinely need housing could be crowded out.

To reinforce the principle of owner-occupation and reduce the possibility of speculation, HDB will be raising the MOP for resale of non-subsidised flats from 1 and 2.5 years to 3 years. This will align the MOP for home owners to resell and fully sublet non-subsidised flats.

Sir, the Government has provided high quality public housing for the last 50 years. For the next 50 years, we face new challenges. But I assure Members that we will strive to enable the majority of Singaporeans to meet their housing aspirations, which is to own a home, that is comfortable, of good quality and yet affordable.

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(via TodayOnline)

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One Response to “Building an Endearing Home for Singaporeans”

  1. sharon Says:

    Can HDB shortly the MOP for bank loan housing reduce back to 1 yr or 1 and half year to sell of the flat.Thank you

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