HOUSING GRANT

HOUSING GRANT:

(Review of eligibility criteria): 2.

Ms Jessica Tan Soon Neo asked the Minister for National Development (a) what are the criteria used for setting the eligibility of the housing grant at the income ceiling of gross household monthly income of $8,000; and (b) when the housing grant income ceiling was last reviewed.

Mr Mah Bow Tan: Mr Speaker, Sir, the Government provides generous housing subsidies to Singaporeans. However, our resources are finite. So, there must be a limit to the number of Singaporeans who can qualify for such housing subsidies. The HDB income ceiling to buy new HDB flats or to be eligible for a grant to buy resale flats has been set such that the majority of Singaporeans can enjoy subsidised public housing. The current income ceiling of $8,000 per month allows about eight out of 10 Singaporean households to qualify. It is generous by any measure.

The $8,000 income ceiling was last revised in 1994. We have reviewed it many times over the years but decided to keep it unchanged for several reasons. First, the coverage of housing subsidies remains high – as I said, about eight out of 10 households – so, we feel that there is no need to change based on this coverage.

Secondly, our subsidy framework in recent years is to target more help for the lower income households. Specifically, in 2006, we introduced the Additional CPF Housing Grant (AHG) to help lower- and middle-income families own their first homes. This is in addition to the CPF Housing Grant – the $30,000 or $40,000 – which is currently given to those with incomes below $8,000. So, in addition to that, we have introduced the AHG.

The monthly income ceiling for AHG then, ie, in 2006, was $3,000. So if you had a monthly income of below $3,000, you were eligible for an additional housing grant. This income ceiling has been revised upwards twice from $3,000 to $4,000 in 2007, and then increased again to $5,000 in 2009. The highest AHG quantum has also been increased to $40,000, to give more to the lower-income.

Furthermore, income ceilings were set for new 2-room and 3-room flats at $2,000 and $3,000 respectively. So, if your income is above $3,000, you cannot apply for a 3-room flat. Why? Because we want to ensure that the higher-income households do not compete with the lower-income households for the smaller flat types, so that we can enhance the affordability of the smaller flat type.

Families whose household income exceed the ceiling can buy HDB flats from the resale market, where there is a wide range to choose from. Those with household incomes that exceed $8,000 – for example, between $8,000 and $10,000 – can buy Executive Condominiums (ECs). Just to remind Members, ECs are a good option for those who aspire to own a private property. First-time buyers can still get a $30,000 subsidy for their purchase of ECs. ECs can be resold to citizens and PRs after five years. And after 10 years, all the remaining restrictions are lifted and ECs, for for all intents and purposes, become private housing. I am pleased to inform Members that HDB will put up EC sites for sale in the confirmed list next year, to offer more housing choices for this target high income group.

My Ministry will continue to monitor our subsidy policies to ensure that the majority of citizen families can afford public housing.

Ms Jessica Tan Soon Neo (East Coast): Sir, I thank the Minister for the comprehensive answer. I have two supplementary questions.

First, the concern is about affordability. HDB has always said that flats are very affordable. But we now see that resale flat prices are rising. How can HDB help ensure that flats continue to stay affordable, especially for young couples who are looking to own their first flats?

Second, would MND consider reviewing the income ceiling criteria for 4-room and bigger flats? Because I meet a lot of young people with aspirations not to own private property but public housing in that range, and they usually fall a little out of that income ceiling.

Mr Mah Bow Tan: Sir, the Member asked about affordability. I think we need to be on the same page when we talk about affordability. What does "affordability" mean? To my mind, affordability is a function of both price of the flat as well as income of the families concerned. And what flat a person can afford to buy, obviously, depends on his ability to service the loan, because most people, if not all, would take a loan to buy a flat. Specifically, what we look at when we talk about affordability is what percentage of a person's household income should be set aside for his monthly mortgage payment after he has taken into account his children's education, his own monthly expenses, his medical bills, his savings, etc. As a rule of thumb, this amount of money that he sets aside for his mortgage payments should not be more than 35%-40% of his income. This is a general rule of thumb. It is an international norm. It is also a norm that, I understand, our banks use.

But in the case of HDB, it has taken a much more conservative guideline. We have said, let us look at 30% of household income. In other words, if a person uses not more than 30% of his household income to service a loan to buy a flat, then I would consider that flat to be affordable. So let us start off on this premise. There are other criteria for affordability. But the ones that we are using are the ones that are most commonly used and accepted.

So, if we take this criterion, then let us look at what is affordable based on this 30% limit. The current ceiling, as I said in my reply to the Member just now, allows for eight out of 10 Singaporeans to qualify – from somebody earning $1,500 or less to somebody earning as much as $8,000; and $8,000 corresponds to about the 80th percentile of Singapore households. Because of that, HDB builds many different types of flats to suit different budgets, to suit different needs, to suit different tastes. In other words, HDB has a flat of every budget, from a 2-room flat all the way to DBSS flat.

Sir, I have prepared some tables which I like the Clerk to distribute to Members to illustrate this point a bit more clearly. [ Tables distributed to hon. Members* .]

I want to spend a bit of time on this because I think this is an issue of some concern on the ground – all of us face it. I want to explain what is affordable in the market. For a person in different income categories, what is it that he can buy – both resale as well as new flats? What are the flats available in the market today which are "affordable" to him?

Sir, the selling price today of a new 3-room flat is about $150,000 – this is a new flat in a non-mature estate. We are currently building new flats in the non-mature estates in Punggol and Sengkang. A median household income of an applicant for a 3-room flat is about $2,000. At $2,000, that family is eligible for the AHG of $35,000 – remember, I was talking about the AHG earlier. So, at the $2,000 household income, an applicant gets an AHG of $35,000 to buy a 3-room flat of $150,000 in a non-mature estate. His monthly instalment is $460, which works out to 23% of his household income, well within the 30% that I talked about earlier.

More significantly is that this $460 monthly instalment can be fully paid up with money in the CPF account. What that means is that a 3-room flat can be purchased by a family with $2,000 household income without any cash outlay.

I have worked out similar examples for 4-room and 5-room flats. For a 5-roomer, the average flat price is $330,000. The median household income is $4,800. If Members cast their eyes to the last column, his cash outlay is $85, and that is what is happening today. Is that affordable? I think most people would agree that it is so.

But then Members would say, that is for a new flat in a non-mature estate. What about a resale flat in a mature estate? Here, I bring Members to Table 2. At Table 2, there are several examples. Let us take the second example – a household earning $4,000 – this is about the median income. A household earns $4,000, if we take his CPF Housing Grant of $40,000, which he will be eligible for, and we take a $15,000 AHG, we work out what he can afford in terms of a new flat and what he can afford in terms of a resale flat. We look at the last column – for a new flat, he can afford a 4-room premium flat in Punggol, he can afford a 5-room standard flat in Woodlands or he can afford a 5-room standard flat in Punggol. These are actual prices. These are not estimates. These are actual selling prices.

If he does not want a new flat or he does not wish to wait for a new flat, he can buy a resale flat. And what can he buy with his household income of $4,000? A 5-room flat at Woodlands, 4-room flat in Ang Mo Kio or Tampines or if he wishes to live in the mature estates in the downtown area – Toa Payoh, Bukit Merah, Bishan – he can buy a 3-room flat. So, basically, what I am trying to illustrate here is that at every income level, there are flats available and there is a choice, whether it is new or resale, whether it is in a mature estate or in a non-mature estate. But there must be trade-offs, and the trade-off is that if a person wants to be in a mature estate, he has to look for a smaller flat. If he wants a bigger flat, then he has to go to a non-mature estate.

Therefore, when we say that HDB flats are affordable, we are not talking in the abstract. We are talking in real terms. So when HDB makes a commitment that every new young family can afford a home, this is what it means.

I think the Member had another question about income ceiling for 4-room and bigger flats – why we do not raise it. The first reason really is simply a question of limiting the subsidies. If we raise it, we have to provide more subsidies for people earning $8,000 and above. We are prepared to do that, but we are restricting families earning $8,000-$10,000 to only buying the ECs. They still enjoy the $30,000 grant.

*Cols. 1437-1444.

In the same way, if we were to open up the existing HDB market to the $8,000-$10,000 income households, the demand will be there and there will be some repercussions on affordability of HDB prices. So the same way that we have put the income ceiling of $2,000 for 2-room flats, $3,000 for 3-room flats, we are maintaining the income ceiling of $8,000 for all the rest of the HDB flats.

Mr Speaker: Dr Lim.

Dr Lim Wee Kiak (Sembawang): Does the Minister agree that the Cash-Over-Valuation system now represents a significant barrier for people buying HDB flats, especially for resale flats? If it is thus, the question is: Is the Cash-Over-Valuation system still the best system that we have or can we think of alternatives? Many people are CPF-rich but cash-poor when they want to buy a flat. And the problem now is, of course, the open market asking prices. Could there be a separate mechanism for HDB or even the private sector to provide a bridging loan for this Cash-Over-Valuation, so as to help young couples to overcome that barrier. I realised that the chart given by the Minister did not include Cash-Over-Valuation.

Mr Mah Bow Tan: The Member is very observant. But the prices that are cited in the Table do include the cash portion. Those are actual transacted prices. So they have included Cash-Over-Valuation (COV).

But let me clarify that Cash-Over-Valuation is not something that is unique to HDB flats. It is part and parcel of any property transactions today, whether it is private or public. Basically it is the additional amount that the buyer is prepared to pay over and above the valuation. And that amount has to be paid in cash because the banks and HDB do not lend anything above the valuation. In fact, the guideline is that they must lend up to a certain percentage, up to 90% of the valuation. So whatever remains, must be paid in cash. I think that is the first point – it is not an HDB invention, it is not something imposed by the Government. So buyers can choose not to pay a Cash-Over-Valuation. And in fact, the latest data shows that almost one-third of transactions today, are transacted at or below the valuation. So COV is not a foregone conclusion. It is not evident for all transactions. One third of transactions today are done at zero COV. Obviously, there are no negative COVs because you do not expect the seller to actually pay the buyer.

I would urge flat buyers to not get caught up in this and to just simply cough up the COV when asked by the buyers or agents. Be aware. Realise that there are flats available in the market – and there is a whole host of them – which are transacted below COV. Be prepared to shop around, do your homework and remember also that not all COVs that buyers ask for are realistic. In the free market, there must be this interplay between the buyer and the seller. To have the Government to ban COVs or to come in and impose itself on these transactions, I think is not the right thing to do. And indeed, you may remember that positive COV is not something that is there all the time. It was not too long ago that there were negative COVs. Flats were being transacted below their valuation prices. So under those circumstances, should we have gone in to insist that the buyer pay the valuation price? Surely not.

Let us let the market decide what is the price. Let the buyers and sellers negotiate the price. And if a buyer shops around, I think there will be opportunities for him to have a flat within his budget, either at zero COV or even low COV, if he has some cash.

The Member was asking, "why do we not provide a loan for it?" I think that would be an even more wrong thing to do because the moment we provide a loan for the COV, we are actually going to cause prices to go up further. I do not think that is going to help matters at all. That is the reason why it is not correct to do so and indeed it is not the prudent thing to do as well. If flat prices fall, then I think buyers will get seriously hurt.

Mr Liang Eng Hwa (Holland-Bukit Timah): Sir, I would like to move away from prices to quantity. I like to ask the Minister whether are there enough new flats to meet the demand as well as the preference of first-time flat buyers. And in HDB or MND's view, whether the current waiting time is acceptable and can it be further shortened. Secondly, will HDB build new flats in mature or more popular estates so that new flat buyers can stay near their parents? And also, are there ready-made flats that HDB can sell to these soon-to-be-married couples?

Mr Mah Bow Tan: First of all, the issue of "enough flats". What is "enough"? Let me explain how HDB tries to meet the demand for housing, not just for first-timers but also for second-timers. First of all, we build new flats. Secondly, we assume that some buyers will be buying resale flats. It is very important that we do so because, if we were to meet the demand just by building and selling new flats, who is going to buy the resale flats, later on, when you want to sell it? So some of the demand is met by new flats, some of the demand is met by resale flats. In this way we do not over-build and we maintain a certain price stability in the market. If we over-build, the consequences will be quite severe. The value of flats will go down over time. And of course, the building programme takes into account household formation – how many people get married a year, immigration rates, population growth, etc. These are the demographic parameters taken into account.

Next, waiting time. Most new flats are now built on the BTO system, which is more responsive to the market – we will build when people want to buy, commit to buy. When people commit to buy and when HDB builds, the flats will be ready in about three years. I often advise young couples who come and see me who say, "no, I cannot wait three years", consider HDB’s Fiance/Fiancee Scheme. What they should do is plan ahead, book a flat under this scheme – and they are only required to register and to give HDB the marriage certificate, say, three months after the flat is ready. If they do it this way, sometimes it is even possible that they actually have a flat ready for them, when they get married.

There are ways and means of shortening this process. And HDB is quite accommodating in this way. It even has a staggered downpayment scheme. So if you are young couple and you cannot afford the 10% cash, you can pay 5% cash now and another 5% cash can be paid at TOP. So I want to assure young couples who are about to get married or who have already got married, "if you cannot wait, then try to short-cut the process or short circuit the process this way". But they should not expect HDB to give them a readily-available flat in a mature estate at a price that they are comfortable with for everybody who wants a flat. I think that is simply not possible. Why? Because we just do not have the land available in the mature estates to be building the number of flats that people want. And that is the reason why we are now building new flats in Punggol, in Sengkang, Sembawang, Jurong West and so on.

Mr Low Thia Khiang (Hougang): Sir, supplementary questions. From the Minister's answer, it seems to me that HDB is under-building to meet the demand of the new flat buyers. By doing so, is not the HDB, inevitably, pushing up the resale market prices of HDB flats? In terms of new flat prices, how does the HDB set the price of a new flat? Is it according to the property market or resale market's price? If so, then the price will keep on rising. Would it continue to be affordable, in the future, for Singaporeans?

Mr Mah Bow Tan: I am not sure, on what basis, Mr Low says that HDB is under-building. We have been building based on demand. As I said, the Build-To-Order system is a system that is responsive to demand. So if there is increased demand, as we are seeing now, HDB will up the building programme. In 2007, we built about 2,400 flats. Why? Because there were still flats available from our balance stock. So the demand for new flats was low and we built fewer flats. In 2008, we built 8,000 flats. Why? Because the demand increased. So from 2,400, we ramped it up to 8,000. That is an increase of about three times. Similarly for 2009, we will be building about 8,000 flats as well. Again, due to the increased demand.

So the Build-To-Order system is a very responsive system. It does not over-build. I have explained earlier the dangers of over-building. If we over-build, we are going to cause resale flat prices to drop in value. But neither should we under-build. The BTO system allows us to match this supply of new flats with the demand. So I think there is no basis for Mr Low to suggest that we are under-building. If there is increased demand, we will step up the building programme. But this will require flat buyers to commit to this. In other words, they have to put down a deposit. They have to make that commitment. As opposed to a system in the past which we used, where people said, "okay, I will queue up to buy", but the moment the flat is ready in five or six years, the market changes and they tell us, "oh, I do not want to buy anymore". We ended up with unsold stock.

I would like to assure Members that under the new system, we will be responsive to demand and we will ramp up the supply as and when necessary.

New flat prices – how are they priced? We have to make the new flats affordable. When we price the new flats, we base it on two criteria: one, what is the market price of comparable flats in the region, in terms of size, in terms of facing, in terms of the kinds of flat – is it a premium flat? Is it a standard flat? Next, we apply a discount to that market price such that the nett price is affordable to that target group. If it is a 3-room flat, we make sure that, that 3-room flat is affordable. And I go back to what affordable means. It is that the repayment of the loan is below 30% of household income. If it is a 4-room flat, we make it affordable to the $4,000 income household and so on. So whatever the price we set, it must be affordable to that target group.

Mr Low was asking just now: Will flats be affordable to Singaporeans in future? The answer is "yes".

Mr Speaker: Mr Lim Biow Chuan. Last question.

Mr Lim Biow Chuan (Marine Parade): Thank you, Sir. Let me go back to the issue of affordability. I am sure that the Minister will agree that the prices of HDB flats today are much more expensive, compared to previous generations. My parents bought their 4-room flat in 1978 for less than $20,000 –

Mr Speaker: No long story, Mr Lim. Just ask your question.

Mr Lim Biow Chuan: Given that flat prices have increased so much, as compared to increases in income, may I ask the Minister how would today's generation be able to afford their dream home?

Mr Mah Bow Tan: First of all, I have explained and shown that new flat prices are affordable. So I think there is really no issue that the new flat prices are not affordable. And I hope the Member accepts that particular point.

But, yes, I grant that HDB flat prices have been going up very fast, much faster than incomes over the years. Indeed, they are much higher than those a generation ago. Is that not something positive? Is that not a reflection of the growth of Singapore? Is that not a reflection of how far we have come?

Singapore today is very different from the Singapore of a generation ago when Mr Lim's parents bought their flat. The flats today and the flats in those days were also different. Some of the first generation HDB flats are still around. They are totally different from what you see today in Punggol, Sengkang, Bishan, even in Ang Mo Kio. For the flats in those days, we had to build them quick, fast and cheap. So we had no lifts on every floor, and that is the reason why we have the LUP programme today. And that is the reason Members are always chasing me for the LUP to be implemented quickly. No facilities, no transport, no MRT. So I think it is not unreasonable to expect that as the economy develops, as the country grows, that property prices in general and HDB flat prices, in particular, have gone up over time. This, I believe, is really a validation of our home ownership programme.

Today, we have 80% of Singaporeans owning their own homes and these homes have appreciated in value over the years. I submit that that is something which we should be proud of. And this is something that is a result of good governance, good policies, and the efforts of everybody working together to make Singapore what it is today. As a result of that, we have asset appreciation. We have an asset which was bought at a subsidised rate, which has appreciated in value over the years in tandem with the growth of Singapore and its developments. It has allowed 80% of Singaporeans to share in that growth. I think that is truly a validation of our home ownership programme. As we continue to do well, we continue to prosper, then the people who buy the flats in this generation will also enjoy the fruits of their labour and the fruits of Singapore's success in the years to come.