BUILD-TO-ORDER AND NEW HDB FLATS

BUILD-TO-ORDER AND NEW HDB FLATS:

(Supply and demand issues): 5.

Er Lee Bee Wah asked the Minister for National Development (a) how many new Build-To-Order flats are presently available for selection; and (b) how do the supply and demand factors influence the cost of these flats.

6.

Mdm Cynthia Phua asked the Minister for National Development (a) what is the projected supply and demand of HDB flats in the next five years; (b) what are the parameters that are taken into account in the projection of the supply and demand of flats; (c) whether the Ministry has considered an annual buffer number of ready flats and, if so, what is the number and the parameters in arriving at that number; and (d) what measures will the Ministry consider in ensuring that first-timers get a new HDB flat within three years.

7.

Dr Muhammad Faishal Ibrahim asked the Minister for National Development what is the current waiting time and the number/percentage of couples applying for new HDB flats under the Fiance/Fiancee Scheme

8.

Mr Chiam See Tong asked the Minister for National Development (a) what it costs the Government to build a 3-room, 4-room and 5-room HDB flat; (b) what is the profit margin which HDB adds to the cost for each of these categories of flats when it sells them to the public; and (c) whether HDB bases the selling price of flats on the prevailing market price of these flats.

Mr Mah Bow Tan: Mr Speaker, Sir, may I have your permission to take Question Nos. 5, 6, 7 and 8 together as they are related?

Mr Speaker: Yes.

Mr Mah Bow Tan: Members have raised concerns in these four questions about the pricing and the supply of public housing. These are valid concerns, so I thank Members for giving me yet another opportunity to address them.

Mdm Cynthia Phua and Er Lee Bee Wah asked about demand and supply of flats. Let me right at the outset repeat or re-assure Members of this House that there are sufficient flats available for first-time buyers in Singapore. The Government has been and will remain committed to this.

Er Lee Bee Wah asked how many Build-to-Order (BTO) flats are available presently. HDB has increased the BTO supply to 5,000 units in the last quarter of this year. If we include the recent sale of balance flats that was announced in October, HDB will offer over 7,000 flats in three months, and a total of 13,500 flats in 2009. Now, just to put this number into perspective – what this means is, half the number of flats in Bukit Panjang or Pasir Ris town. At this rate, HDB would be offering enough flats to build another Bukit Panjang or another Pasir Ris in just two years.

HDB is able to quickly increase supply when demand is strong. We started the year with a planned flat supply of 6,000, and that was when we were in the midst of a severe recession. The unexpected turnaround in second half of the year caused a strong rebound in demand. HDB was able to swiftly respond with a 50% increase in flat supply. If take-up of BTO flats remains strong, we will continue to push out more flats under BTO next year, at least one every month if necessary.

In response to Mdm Cynthia Phua's question about projecting HDB flat demand, HDB projects a supply of new flats based on various demand factors, in particular, new households formed from marriages and immigration. HDB also takes into account resale flat transactions as they form part of the total housing supply to meet demand. In the next five years, HDB estimates that it would need to offer between 10,000 to 12,000 new flats per year to meet demand. But bear in mind that this is only a projection. What actually happens a few years down the road is not known. Demand is also not constant, it varies from year to year depending on economic and other factors. This medium-term projection serves as a guide for our BTO system, which is flexible, transparent and responsive to actual demand.

Under the BTO system, HDB will start a project immediately when a significant number of applicants confirm that they will buy the flats. It does not build ahead of demand and run the risk of ending up with the large stock of unsold flats which is exactly what happened when the Asian Financial Crisis hit in 1997. The queue was 150,000 and this dissipated overnight, and HDB ended up with 31,000 unsold flats. As a result, there was a lot of concern in this House about the huge number of unsold flats, waste of taxpayers money, flat prices being depressed, and so on. I had to repeatedly assure Members that HDB was taking urgent steps to clear the unsold stock.

Today, the stock of unsold flats is largely being sold. Nevertheless, there is no lack of supply for first-time flat buyers. As I said earlier, HDB has ramped up supply, ramped up the number of BTO projects sharply. For BTO projects, first time buyers get double the chances in the ballot, they get two tickets, compared to second timers. And four tickets, four chances, if they live near their parents or with their parents. I have asked HDB to do even more to help first-time buyers. With effect from the BTO launches in November 2009, HDB has increased the proportion of new flats set aside for first-timers, from 90% to 95%.

Even before this change, first-timers applying for BTO flats in non-mature estates, already had a very good chance of selecting a flat within two tries. In BTO exercises in 2007 to this year, 96% of first-timer applicants were given a chance to choose a flat within two tries. You have to be unlucky not to be successful after three or four tries in the BTO exercise. And if Members have any such applicants among your residents, I am prepared to look into their case and see how HDB can help.

Dr Muhammad Faishal asked about waiting time in the Fiance/Fiancee Scheme. HDB takes about three years to build its flats, no different from any other flat, including private flats. Flat buyers should not expect to walk into HDB and buy a ready-to-move-in flat as soon they get married. However, with some careful planning, they can shorten the waiting time. They can book a new flat ahead of their marriage, under the Fiance/Fiancee Scheme, once they get engaged and move in once they get married. Forty percent of first-time flat buyers make use of this scheme today. For those who do not and want the flat straightaway upon marriage, they can buy a resale with generous Government CPF Housing Grants, but they will be subject to market forces, such as the COV.

Mr Chiam asked about the cost of building HDB flats. The total cost varies depending on when we build, where we build and what we build. It includes the cost of land as well as the cost of construction of the flats and ancillary services. It varies from $230,000 for a 3-room flat in Punggol today, to $530,000 for a 5-room flat in Tiong Bahru. He also asked the profit margin HDB adds on. Let me explain that HDB does not price its flats based on cost plus profit, but on market price less a generous discount. Together with the additional Housing Grant, which various from $5,000 to $40,000, depending on household income, on average, the subsidies amount to about 20% of the market price for a 4-room flat. It will be even more for smaller flats. This is a subsidy given to all first-time buyers to keep HDB flats affordable. Sometimes, HDB's selling price is more than the total development cost to build the flats. Other times, it is less than the cost, especially when construction costs are high, as in the last few years. Overall, HDB incurs a large deficit in building and selling flats every year, and this is reflected in its audited annual accounts. In its latest audited accounts, FY 2008/09, HDB incurred a deficit of $1.5 billion for the home ownership programme alone. What is important to note that we heavily subsidise the home ownership programme, to ensure HDB flats remain within reach of Singaporeans. Eighty percent of new flat buyers today service their mortgage loans entirely with their CPF contributions, without any cash outlay. The proportion of family income used to pay the mortgage is a comfortable 21%, on average, for BTO flats in non-mature estates.

In conclusion, I could like to reiterate the Government's commitment to ensuring sufficient supply of affordable flats. We will help young couples to buy their first flat but they must do their part. They have to be prepared to live in the new estates and plan in advance if they want a new flat faster. After flat buyers join the rank of flat owners, they will enjoy the benefits of owning an asset which is not only a roof over their heads but also a place they call home and a store of value that will grow over time as Singapore grows.

Er Lee Bee Wah (Ang Mo Kio): Thank you, Minister. I have seen young couples – first-time flat purchasers – and they told me that they are not successful after two tries. I would like to ask Minister, can we assure them that the third time should be 100% successful.

The next question is that for those who need a temporary flat while waiting for the BTO flats, do we have sufficient temporary flats for them?

Mr Mah Bow Tan: Well, if 96% of them are given a chance to select the flat after two tries, I think after three tries, it will be pretty close to 100%. If there is anybody who has not been successful after three tries, to be given a chance to select a flat – note that it is a chance to select a flat, not a chance to get a flat of choice, because I have seen many cases of people who have been given chances to select flats, but who reject those chances for whatever reason. So if you are given a chance to select a flat, please think carefully and choose to select that flat. If you have not been given a chance after three or four tries, let me know.

As to whether there are enough interim flats available, the answer is yes. We have an interim rental housing scheme, where if you have already selected the flat and the flat is not built yet, and you are prepared to come in for interim rental, I think we can consider that. But there are also other flats that are available. For example, we have certain SERS blocks which have not yet been redeveloped, that are being made available through a managing agent. These flats have reasonable rentals and they are also available for such couples.

Mdm Cynthia Phua: Thank you, Sir. I have three supplementary questions. In the planning perimeters that Minister has mentioned, he has not included the new residents coming into Singapore to buy flats. We know that they are buying resale flats, as a result, the demand for resale flats is high. Most of the people who want to buy a HDB flat will have to buy from HDB, as a result, there will be a further demand for the HDB flats. Will Minister consider the new residents' demand on the resale market?

Second question – can Minister consider setting up a special committee, to work with real estate developers to sharpen your figures in terms of demand and supply. In the 1997 financial crisis, you have a sharp oversupply. Now there is a lot of demand on the ground. Maybe a special committee, with the rest of the Ministries will be able to sharpen your numbers.

Third question – on the buffer of flats. I know Minister's policy is not to have ready flats. Can Minister consider having a 10% out of your projected 10,000 to 12,000 flats per year, built as ready flats? A lot of families are in urgent need of a home over their heads such as pregnancy before marriage.

Mr Mah Bow Tan: Although I said that we do not plan for a buffer, in actual fact, there is a buffer of flats over and above the BTO, which is available, and has shorter waiting times.

These are the surplus flats from the other programmes, eg, some flats from SERS and buy-back flats scheme. So, for this year, we have had a surplus of about 2,000 flats which we have sold recently under the sale of balance flats programme. There will be always be surplus flats available. Under the BTO, for example, we will build when the take-up rate is about 70%. So, there will be another 30% of flats in surplus and not taken up. Once the project is ready and launched, we will put this 30% onto the market for sale. The policy is not to deliberately have a buffer but in the scheme of things, we will generally have a small buffer. In fact, it is about the 10% that the Member mentioned.

On the planning parameters for new residents, in fact, we do cater for family formation due to new residents coming in. However, not all the new residents actually buy resale flats. The Member knows, of course, that PRs are not eligible to buy new flats. They can only buy in the resale market. Even in the resale market, not all of them actually buy the flats. Quite a lot of them rent. We do have figures on the purchase of resale flats by PRs and they are under-represented as far as purchases are concerned. The answer to the Member's question is, yes, we are aware of the fact that new immigrants (the PRs) do constitute an additional demand, and we have taken that into account in all our projections.

This brings me to the second part of the Member's question, which is whether we could have a special committee to try to project more accurately. I think a projection is as accurate as what we know today. If you ask me to project what happens five years from now, I can only go by what is known today – projected economic demand, projected immigration numbers, and so on. But these things, as Members are well aware, will change over time. And the changes can be quite dramatic. If you look at the change – from September last year to September this year – in the property market, stock market, and people's sentiments, I do not think any committee made up of anybody in Government or the academia could have predicted that change. So, what do we do? I think we can make a projection based on best estimates and then we must have a system that is responsive when conditions change. And this is what we have done under the BTO system. We must also have a system that does not encourage unnecessary demand. Unfortunately, when we had a system where people were queueing up and we built according to that queue, the cost of joining in the queue was virtually nil. Anybody could have joined the queue. We allowed both first-timers and second-timers to join the queue. That is the reason why we had 150,000 people in the queue. Because if you can buy a HDB flat even though you are a second-timer or third-timer, why not?

We have taken steps over the years to try to weed out what is genuine demand from frivolous demand. We have also taken steps to institute a system that is more response to genuine demand. I think, today, we have a more stable system which can be more responsive to demand. But I am open to any idea or suggestion from anybody about how we can more accurately predict demand five years down the road, and I will be happy to take a look at those things.

Mr Viswa Sadasivan (Nominated Member): The Minister has highlighted some very useful examples of how we are responding to the demand on the ground. What I am puzzled by is, despite all these measures, why does the Minister think that there appears to be a groundswell of discontent and feeling that first-time buyers are not able to buy the flats. There seems to be something that is out of sync. Is it because the schemes are too complex for people on the ground to understand and, therefore, take advantage of? Is it because the communication of these schemes is not clear enough? Or is it because the people on the ground have unrealistic expectations?

Mr Mah Bow Tan: I am not able to ascertain from the Member's question where he gets the idea that there is a groundswell of discontent. But I do have feedback from REACH and Members of Parliament that there are some people who would like HDB to provide ready-made flats in good locations faster, better and at cheaper prices. Yes, definitely, there is that sense. And this is the reason why I think we have to better communicate our policies. We also have to make sure that our policies are less complicated. But I dare say that there is also a mismatch of expectations – an element of unrealistic expectations.

Let me illustrate this point. At one point in time, there was a spate of emails and reports in the media about young couples not being able to get HDB flats after repeated ballots. In fact, some of them said that they balloted 18 times; some 12 or 15 times and they never had a chance to get a flat. They never were called to select a flat as the queue numbers were high. And they asked how they were going to get married and raise a family. So, we dutifully checked each and every one of them, and we found to our surprise that all those emails, complaints and letters to the media were not entirely accurate. Some of them were offered chances once or twice; some as many as seven times – seven chances for them to select a flat – and they did not select a flat. So we went back to them and asked: "Hey, you said you balloted 18 times and you did not get a chance, but my record shows that you had three or four chances. What happened?" And they said, "Oh! I was only given a flat on the second floor. How do you expect me to live in it?" And we went back to them and said, "Oh, yes, but there were some third-floor flats as well." And they said, "Oh, yes, second floor and third floor, what is the difference?" So, is it unrealistic expectations? I think there are grounds to believe that there is.

I recently had a conversation with Mr Dhanabalan over dinner and we both talked about our time in Kim Keat Avenue. I was living in a 3-room flat in Kim Keat Avenue – eight of us – with three bedrooms, sharing one toilet and bathroom. It was basic but it was like a palace to us because I just came from a 1-room flat with 10 people in Chinatown. So I think that reflects our expectations at that time and how things were changed. But I do not expect that people want to live in this kind of conditions today. Our standards have gone up. Today, our 3-room flats have got one attached bathroom and an additional bathroom – two bathrooms for even a basic 3-room flat. So our standards have moved. And it is going to move even further. Our new flats are going to be even nicer. We will move over time but we cannot meet certain expectations. I cannot build flats only in the mature estates or city area. I cannot build flats that are only on high floors. I need to have flats on the second floor and third floor as well. And who is going to live on these floors? Our commitment is that we will build and make available flats to young couples at affordable prices in well situated new towns, good transport facilities and good amenities. These flats will increase in value over time. The non-mature estates today will become the mature estates of tomorrow. This is a commitment that we have made and we will continue to make. I urge young Singaporeans to be realistic in their expectations. If they do so, I think they will find that over time, these flats – even those flats on the second floor – will grow in value.

Mr Speaker: Dr Lam, last question.

Dr Lam Pin Min (Ang Mo Kio): I have a supplementary question for the Minister. I have a resident who tried to make good use of the Fiance/Fiancee Scheme but, unfortunately, his marriage plans were three times unlucky. As a result, he suffered significant loss in the deposits. I believe there must be many such cases encountered by HDB. Will the Ministry actively consider refunding the deposits to such cases, at least for those who are assessed to be genuine?

Mr Mah Bow Tan: How would the Member define "genuine"? But, seriously, we will look into it, as we have always done.