2-ROOM AND 3-ROOM HDB FLATS

Column: 916

2-ROOM AND 3-ROOM HDB FLATS:

(Reasons for high cash-over-valuation): 7.

Mdm Ho Geok Choo asked the Minister for National Development (a) if he will explain why cash-over-valuation of 2-room and 3-room HDB flats are so high; (b) how will this situation develop in the short term and long term; and (c) what measures are taken to address this issue.

The Senior Minister of State for National Development (Ms Grace Fu Hai Yien) (for the Minister for National Development): Mr Speaker, Sir, resale HDB transactions take place on a "willing buyer, willing seller" basis. Resale prices, including cash-over-valuation (COV), are influenced by factors such as location and attributes of the flat as well as the circumstances of the buyers and sellers.

Based on third quarter 2008 figures, 25% of the 2-room and 3-room resale transactions involved COV of $10,000 or less. The median COV amounts for 2-room and 3-room resale flats are $16,000 and $19,000 respectively. They have stabilised in recent quarters and are comparable to other flat types. However, there is a wide range of COV for each flat type across different towns, including transactions at or below valuation. For transactions in third quarter 2008 with positive COV, the median COV ranged from $4,100 in Ang Mo Kio, for example, to $23,000 in Bukit Merah for 2-room flats. For 3-room flats, the median COV ranged from $12,000 in Pasir Ris to $38,600 in Bukit Timah.

HDB has provided resale information to help flat buyers make informed decisions. Every quarter, HDB publishes the median resale prices as well as the

Column: 917

median COV, by town and by flat type, to aid flat buyers in finding a resale flat that meets their housing needs and affordability.

The existing stock of 2-room and 3-room flats is mainly in the matured estates, where demand is strong. HDB is building more 2-room and 3-room flats in tandem with the rising demand. This will further increase our stock and geographical spread of smaller flats in the resale market over time.

I should point out that the COV can be positive or negative depending on market conditions. As buying a flat is a long-term commitment, flat buyers should exercise prudence and buy a flat within their means.

Mdm Ho Geok Choo (West Coast): Thank you, Senior Minister of State, for the comprehensive response. I have three supplementary questions.

In this economic downturn, I really like to know how will downgraders to 2-room and 3-room flats be impacted, and whether there is a record in the HDB as to the number of downgraders who have been affected by this situation.

The next point really is whether there is sufficient counselling on affordability that is conducted by HDB for potential downgraders or purchasers of flat, because I think it is important that we should inculcate in our Singaporeans this attitude of responsibility when they want to make a purchase.

And the last question really is with regard to what Mdm Cynthia Phua, my parliamentary colleague, has raised. There is concern that perhaps for residents – and even for the benefit of the advisers and the MPs – whether there should be some more briefings carried out by HDB with the MPs on what is really

Column: 918

being done to address those cases encountered.

Ms Grace Fu Hai Yien: Let me start with the third question with regard to residents who have encountered problem with their financial mortgages. I assume that is what the Member was asking.

I think my colleague, the Parliamentary Secretary, has provided very comprehensive answers to the earlier questions and so I do not intend to go through that question again.

How would the downturn affect downgraders to 2-room and 3-room? We expect more of them would have to take very realistic assessment of their economic position and financial position.

We are building more 2-room and 3-room flats. As the Minister has said in his reply to the earlier question, we have started building 3-room flats in 2004, and 2-room flats in 2006 again. So there is a good pipeline of the smaller room types coming on stream. In fact, for BTO this year, out of the 8,000 flats that we are building, there will be 1,000 of the smaller flat types. Next year and the year after, we are budgeting, at this point in time, about 2,000 units each for the following two years. So there will be a steady pipeline of small flat types coming on stream and really that is to provide a wide range of HDB flats to meet the needs of a wide range of residents with their respective economic position and affordability.

Whether there will be sufficient counselling for downgraders, actually we totally agree with the Member's concern that residents should really buy within their means. And that is the reason why we have implemented a credit evaluation process, and all HDB buyers would have to obtain a housing loan eligibility letter before they could assess the loan capacity and the type of flats that they can buy.

Column: 919

And for the really low income, meaning those that are probably earning from $0 to $2,000, we would actually like to see them keeping their monthly loan repayments to about 20% of their monthly pay, so that actually a large proportion of it can be taken care of by their CPF instalments and they do not have to dig into their cash salary to make the repayments. And it is absolutely important that we buy within our means so that we do not over-stretch ourselves and will not get into a situation where we have problem meeting our mortgage payments.

Mr Lim Biow Chuan (Marine Parade): May I ask the Senior Minister of State whether she will agree that the valuation of a property should be what a willing buyer and a willing seller would agree to pay for a flat. Therefore, would she agree to review the way the valuers value the value of a property? Because in the private market, the valuers value a property as the purchase price of the property rather than have this anomaly of cash-over-valuation.

Ms Grace Fu Hai Yien: We totally agree that the valuation should reflect market valuation. In fact, that is the basis of valuation being done.

Unfortunately, in a situation where there has been a high rate of increase in the transacted price, it takes some time for the valuation to be updated to reflect the latest transaction price. Actually HDB reviews that valuation every few months. But as I have mentioned earlier on, in a situation where there is a high rate of increase, you do have situation where buyers are prepared to pay cash-above-valuation.

For that reason, COV is not necessary in a positive territory. In fact, we have seen as recent as two years ago, COV

Column: 920

being a negative territory. A majority, I would say 90%, of the transactions was done at zero COV because the valuation reflected what the market was paying at that point in time. So the situation in an upmarket, you sometimes see a positive COV. It is for the same reason in a downmarket, you may expect to see negative COV.

But the valuation is done professionally, giving the market an indication of what the transaction price has been. In fact, this would be a very good basis for buyers and sellers to determine what the transaction has been. And they should be really careful if they were to pay above that value, because I think none of us want our precious CPF savings to be overly extended into property, and the valuation is something that we should take guidance on.