AFFORDABILITY OF PUBLIC HOUSING AND DESIGN, BUILD AND SELL SCHEME

AFFORDABILITY OF PUBLIC HOUSING AND DESIGN, BUILD AND SELL SCHEME: The following questions stood on the Order Paper -

8.

Dr Muhammad Faishal Ibrahim: To ask the Minister for National Development with the rising prices of new and resale HDB flats, what plans does the Government have to ensure that home ownership continues to be affordable for lower income families.

9.

Dr Ong Seh Hong: To ask the Minister for National Development whether he can provide the rationale for the shift from providing affordable housing to the Design, Build and Sell Scheme flats in Boon Keng, with some costing as much as $700,000, especially with the income ceiling being fixed at $8,000 a month.

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10.

Ms Eunice Elizabeth Olsen: To ask the Minister for National Development whether his Ministry will consider raising the income ceiling of $8,000 for the purchase of HDB flats under the Design, Build and Sell Scheme.

Mr Liang Eng Hwa (Holland-Bukit Timah): Question No. 8, Sir.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, may I have your permission to take Question Nos. 8, 9 and 10 together?

Mr Speaker: Yes, please.

Mr Mah Bow Tan: Thank you very much. Sir, let me begin by stating very clearly, in answer to Dr Ong's question, that there is no shift in HDB's mission of providing affordable public housing. I would like to assure him and all Members of this House that the Government remains committed to providing affordable and quality public housing. That is why we continue to heavily subsidise our HDB flats, to the tune of hundreds of million dollars a year.

Let me now explain why we have introduced a new housing option known as Design, Build and Sell Scheme (DBSS). Our public housing programme is an extremely generous one. It covers about 80% of our population. It caters to a wide spectrum of families, ranging from lower-income families with household incomes of about $1,000 to $2,000 a month, as at one end of the spectrum, to the higher end of the spectrum where households are earning up to $8,000 a month. They are also eligible for public housing. So, there is a need to have a wide range of housing options to meet the varying needs and aspirations of these different households, if our public housing is to remain relevant and attractive.

HDB has in recent years introduced new 2-room and 3-room flats. These are

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targeted at households with income of less than $3,000 a month. It continues to build 4-room and 5-room flats to cater to the middle and higher income households earning up to $8,000 a month. There is also a sizeable stock of Executive flats in the resale market. As Members know, HDB no long builds new Executive flats.

The DBSS flats, which were piloted in 2005, are intended to complement the existing range of flat types that are offered by HDB - the 2-room, 3-room, 4-room, 5-room and Executive flats. They cater to those flat buyers who are looking for something different, in terms of features and design, and yet are still affordable to those within the income ceiling of $8,000.

That is why we have invited private developers to take on DBSS housing projects, with the understanding that these flats can only be sold according to HDB rules, in other words, income ceiling, family nucleus, ethnic quotas, minimum occupation period, and so on.

Private developers have tendered for the land on this understanding. They are free to decide on the level of finishes and frills they provide. They are also free to set the price of the flats, bearing in mind the restrictions on the type of buyers they can sell to.

In summary, I wish to assure Dr Ong that HDB is not shifting its mission. Neither is it abandoning its role of directly providing the standard HDB flats – the 2-, 3-, 4- and 5- room flats. DBSS flats constitute a small part of the total supply of flats catering to HDB buyers, and will remain so. It serves to fulfil the needs of a niche segment of the HDB market – those with higher aspirations and who can afford a higher price. HDB will monitor the market response to this new scheme. We will put up selected plots of land for

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sale for DBSS flats only if there continues to be a demand for such flats.

I turn to Ms Olsen's question. Ms Olsen asked if HDB can consider raising the income ceiling of new DBSS flats beyond the current level of $8,000. Should DBSS flats cater to those who are earning more than $8,000 per month? At this point in time, my answer would be no.

If Ms Olsen's concern is with affordability, raising the income ceiling may, in fact, have the opposite effect. Those earning above $8,000 a month may also join the queue to buy DBSS flats. As a result of the stronger demand, DBSS flats may be priced higher, instead of becoming more affordable.

However, let me assure Ms Olsen that as DBSS is a new scheme - the flats were only sold in 2006, and this is the second project that is being sold - HDB will continue to monitor its implementation closely and we will refine the scheme in future, if necessary.

Let me now turn to Dr Muhammad Faishal's question on the affordability of public housing. As I reiterated at the beginning of my reply, the Government remains committed to providing affordable public housing to Singaporean families. This is achieved through the disbursement of significant public housing subsidies to eligible first-timer households, either directly by way of the CPF Housing Grant for resale flats or indirectly through a market subsidy for new HDB flats.

On top of this, the Government provides more help to the lower income first-timers through the Additional CPF Housing Grant (AHG) scheme. Last year, we raised the income ceiling for the AHG from $3,000 to $4,000, and increased the quantum for the various income tiers by $10,000. So, now, the highest tier is at $30,000. This is over and above the CPF Housing Grant Scheme. Since the

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scheme was introduced in March 2006, more than 4,600 households have benefited from the AHG.

As a result of the housing grants as well as market subsidies, HDB flats have remained affordable. I say this because HDB records show that recent buyers of new HDB flats typically use about 20% of their monthly household income to service their housing loans. This is significantly lower than the 40% debt servicing ratio which is generally used to gauge affordability. Furthermore, by restricting the debt servicing ratio to 20%, what this means is that families can service their housing loan entirely from their CPF Ordinary Account contribution, without any cash outlay.

However, I recognise that there has been much anxiety of late among flat buyers about rising HDB resale flat prices. Let me assure Members that HDB is closely monitoring the situation. Although resale flat prices are rising, they are still generally affordable to buyers in the HDB mass market. Those who find resale flats too expensive or cannot afford to pay the Cash Over Valuation (COV) should seriously consider postponing their purchase or applying for a new HDB flat instead.

I would like to take this opportunity to remind flat buyers to be realistic in their expectation and prudent in their decision to buy a HDB flat. For many Singaporeans, buying a property or, indeed, a HDB flat, is the single most significant investment they make in their lives. It is wise to be careful and patient. The property market in Singapore is currently experiencing an upswing. So, it is inevitable that the prices of HDB flats will similarly go up. However, as we all know, the property market goes through cycles and prices do go up and go down.

As the purchase of a flat is a long-term financial commitment, I would advise

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buyers against overstretching themselves financially - work out your sums carefully and buy a flat within your means, even if it means having to start off with something more modest in size or less than ideal in location.

Ms Eunice Elizabeth Olsen: I would like to thank the Minister, and I have two supplementary questions for him.

Sir, when the income ceiling of $8,000 was carefully thought through and set by HDB, it was based on HDB's built flats in mind and there was no DBSS and there were no DBSS prices. I would like to ask the Minister: should the increase in income ceiling not commensurate with the increase in prices? In the event of a downturn in the economy, these home buyers may not be able to afford their mortgage payments, and this is supposed to be public housing and not private housing where the Government does not insulate them from housing market fluctuations.

My second question is: does this change how we view public housing?

Mr Mah Bow Tan: Sir, on the first question, as I said, the DBSS flats are still targeted at the HDB flat buyers. And that is the reason why we set the income ceiling at $8,000. If we wanted to target a group which is outside the HDB flat buyer group, then, obviously, Ms Olsen's question would be relevant. In other words, let us raise the ceiling. Indeed, this is what we have done. If she recalls, we have a class of housing known as Executive Condominium (EC). The income ceiling for Executive Condominiums is $10,000. So, when we release land for Executive Condominiums, they will be tendered and bid by developers who will buy these lands and build the flats according to the income ceiling of $10,000. In other words, they will take a look at the different target market and

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they will build accordingly. But for DBSS, the reason that we have set the income ceiling of $8,000 is because we want to let the developer know that he is only able to sell to a buyer who satisfies that income criterion. So, he has to bid for the land, bearing that in mind. He has to build, bearing that in mind. And, lastly, he has to set a price, bearing that in mind. This is what we call Design, Build and Sell Scheme (DBSS).

We added an extra "S" to it because, prior to that, HDB itself was developing and building. We had the Design and Build (D&B) Scheme. The D&B Scheme flats were of a slightly higher quality than the normal flat. So you see in Pasir Ris, and in Tampines and in some other newer towns, the Design and Build flats built to a slightly higher standard, but the price is still set by HDB.

Here, we are moving one step beyond the D&B, and we have an additional element which is the sell part. It is an attempt to let the HDB flat buyer have a wider range, more options, and it is also in a way an attempt to get the private sector involved in the HDB market. But the bottomline is that DBSS flats will always remain a small part of the total supply of HDB flats, and that is the best assurance that I would like to give as far as those who do not want the frills are concerned. If they still want a basic three-room, four-room or even a five-room flat, those flats will still be available in the market.