Limiting the Sale of Smaller Flats to Lower Income Households

Mr Zaqy Mohamad asked the Minister for National Development if HDB would consider limiting the sale of 3-room or smaller flats to lower income Singaporeans only so as to make resale flats more affordable to the lower income households.

Mr Khaw Boon Wan: Sir, we currently impose an income ceiling for the sale of new 2- and 3-room flats. However, we do not impose an income ceiling for resale flats. Doing so will deprive flat owners of the full market value of their flats. We think this is not advisable.

Mr Zaqy Mohamad (Chua Chu Kang): Sir, I would like to ask the Minister this: there is a perception among the public that there is a high proportion of Permanent Residents (PRs) who is also eligible for 3-rooms flats, and that creates competition. For many low-income Singaporeans, 3-room flats represent soft entry level for them into the property market. If we looked at the Cash-over-Valuation (COV) for 3-room flats today, we will find that COVs for 3-room flats are much higher than COVs for 4- and 5-room flats. If the COV is taken into account, I think the price of a 3-room flat would be quite similar to the prices for 4- and 5-room flats. This also makes it difficult for many of our residents currently in 4- to 5-room flats who wish to downgrade to a smaller flat, as there is a huge COV barrier for them.

Mr Khaw Boon Wan: Sir, as I had said earlier, our priority is to help Singaporean families own their first flat. For entry-level flats, either 3- or 2-room flats, affordability is not an issue. Here, the Member is obviously talking about a second-timer – someone who had bought a first flat, sold it for whatever reason, and is now trying to come back into the market, but is facing difficulties. The data do not quite suggest so. I have been looking at the median income of the latest batch of BTO flat applicants. For 3-room flat applicants, the median income is about $2,500 per month. For resale flats, the latest data show that the median income is $3,000, which is not significantly different from that of the BTO applicants.

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Our advice to our constituents is: for HDB flats, we will help practically every Singaporean family to own their first flat. We must also tell them, "Buy within your budget and please keep the HDB flat. If you want to upgrade, that is a good development but make sure you do your sums, and then, you should not have a problem upgrading". I think the difficulty for some families is, for whatever reason, they decide to cash out and then, they get into serious trouble. While we are sympathetic, I believe the preventive approach is still important. Let us try to advise our constituents, "Hold on to your flats. If you need to cash out, it is for good reasons, for example, to upgrade. If you have genuine financial difficulty then downgrade and we would try to facilitate and help you as much as we can."

Mr Speaker: Mr Zaqy. Last question.

Mr Zaqy Mohamad: Sir, I wish to thank the Minister for the clarification. I would like to ask the Minister for his comments to my first question: whether PRs have an influence on the price of resale 3-room flats because that is a common perception.

Mr Khaw Boon Wan: Sir, this is one view in the market place. We have to be fair to PRs, too. The fact is that we see value in granting PR status to some foreigners – they come here, they make a contribution to the economy and they need a place to live, too. Offering them the opportunity to buy a resale flat to stay in is a fair proposition, I think.

Do they, in the process, boost COVs or resale prices? I have often looked at the breakdown of prices which buyers pay in the resale market, according to groups such as "PRs" and "private property owners", who sell their private properties and so they need a place to stay and they buy an HDB flat. The data are quite distinct. Typically, the PRs pay the lowest COVs among the groups we track. The highest COVs are often paid by the former private property owners, especially those who sell their private properties in en bloc sales. Probably with a lot of cash and still needing a roof over their heads, they are the ones who bid up the COVs. Let us not unfairly blame a particular group for forcing higher prices in the resale market.

The bottomline is this: we are familiar with the problem. In the last two, three years, the imbalance in supply and demand resulted in higher pricings. All my efforts in the last seven months have been precisely to attack this problem. I think there are some initial results, so please be patient. I am quite sure the market will stabilise in due course.