HDB NEW ACCOUNTING SYSTEM (Statement by the Minister for National Development)

11.24am

Mr Teh Cheang Wan: Mr Speaker, Sir, I wish to make a statement on the new accounting system for the Housing and Development Board. The Housing and Development Board's existing accounting system has been used for over two decades. This system was inherited from the former Singapore Improvement Trust (SIT). The SIT system was a system used by most of the United Kingdom's local authorities. It was adequate in the early years when the HDB's main function was to provide low-cost housing for rental. Over the years, the HDB's major activity has shifted from rental of flats to the sale of flats.

For the past few years, the Auditor-General in auditing the HDB's accounts has stated that the HDB accounting system did not provide for the costing of flats. This means the sale proceeds could not be matched against the cost. As a result, the HDB's accounts do not show adequately the entire operations of the Board. The HDB on its part increasingly feels the need to have a modern integrated computerized accounting system to replace the present manually operated one. The HDB's activities affect almost every family in Singapore. At the end of 1984, almost 81% of the population live in HDB housing. Three-quarters of these HDB dwellers live in purchase flats, while the remaining quarter are tenants of rental flats.

In addition to managing half a million dwelling units, the HDB owns and manages factories, shops, hawker stalls, offices and parking lots. The number of accounts handled by the HDB exceeds one million, comprising 479,000 service and conservancy accounts, 216,000 loan and instalment repayment accounts, 137,000 rental accounts and thousands of hawkers' accounts, parking accounts, etc.

In response to the Auditor-General's comment and to meet its own needs, the HDB embarked on plans to change its accounting system in early 1982. A committee comprising the Auditor-General, the Accountant-General and representatives from the Ministries of Finance and National Development and the HDB was formed to oversee the change of accounting system. In April 1983, the committee selected the international accounting firm of Price Waterhouse as the consultant for the design of fully integrated and computerized accounting system for the HDB.

The new system of accounts has since been designed and tested. The new accounting system has been accepted by the Auditor-General, Accountant-General and the Ministry of Finance. As I have informed the House on 15th March 1984, the new system will be implemented from 1st April this year.

The existing presentation of accounts will be replaced by the new format of balance sheet and income and expenditure presentation. The accounts will be drawn up on the basis of cost centres. It will enable the operating results of specific activities to be reflected separately. Thus, the sale of flats, rental of flats and service and conservancy operations will constitute distinct cost centres besides others like car parking operations, hawker/market operations and so on.

The fundamental shortcoming of the existing system is that the cost of the flat is not reflected in the accounts. Currently, besides annual subsidies provided by Government for HDB operations, the Government has been subsidizing public housing through the provision of cheap State Land. In some cases, land inherited from SIT was at no cost to HDB. In order that the new accounting system will fully reflect the true economic cost of flats, the HDB will return all its undeveloped land stock back to the Government at cost before 1st April, 1985. As and when land is required in future for public housing and related facilities, the HDB will buy the required land from the Government at current market value for similar private residential land. Thus the true current economic cost of flats, both of land and construction cost, will be clearly reflected in the HDB accounts.

The Government will continue to subsidize any deficits incurred by HDB arising from selling public housing below their cost. With Government subsidies, prices of HDB flats under the new accounting system are expected to be similar to those under the old accounting system.

Mr Ng Kah Ting: Mr Speaker, Sir, may I ask of the hon. Minister two questions arising from his Ministerial Statement. First, what was the cost involved in getting the consultant to evolve the new kind of accounting system for the HDB? In other words, the consultation fee and the amount involved in this whole exercise. Secondly, with the prospect of having to buy back land from the Government after lst April this year, may I ask of the Minister whether land will be bought back as encumbered land or land with vacant possession?

Mr Teh Cheang Wan: Mr Speaker, Sir, I am sorry I do not have the details of the fees paid or to be paid to the consultant, plus the HDB's own cost. It is a fully computerized system and as it involves a lot of hardware and software, I would not be able to give the answer now. But I will give the hon. Member the details of the costing in writing.

On the question of the land cost, it does not really make much difference whether HDB buys the land from the Government either as vacant land or encumbered land. If it is vacant land, then the land value will be valued at the vacant land value. If it is encumbered land, then the value will be much lower, because resettlement costs will be involved. Therefore, HDB will be able to buy the land from the Government at a lower price.

Mr J.B. Jeyaretnam (Anson): Mr Speaker, Sir, may I ask the Minister what is the purpose or object behind this exercise of the HDB selling land back to the Government, the land which it already has, and then buying ii back from the Government. Is it to push up the prices of HDB flats or to justify their sale prices?

Mr Teh Cheang Wan: Mr Speaker, Sir, as I have stated in my statement, this is to achieve correct accounting for the pricing of the HDB flats. As I have mentioned earlier, previously HDB flats were built on SIT land. In fact, there was no land cost involved, which means that HDB was getting land free from the Government, at no cost at all, for the building of flats. This is wrong in terms of accounting for the pricing of flats, where you show the construction cost is so much, while the land cost is zero. So the correct way of accounting for the cost of the flat is to show the land cost, plus construction cost, plus other costs, altogether. Then you can get the actual cost of the flats.

Dr Augustine H.H. Tan (Whampoa): May I ask a question of the hon. Minister. Since the Government would be selling the land to HDB at market prices so that we would then know the true cost of the subsidy of an HDB flat, can we have the assurance of the hon. Minister that HDB flats will continue to be heavily subsidized and will continue to be affordable by the people of Singapore?

Mr Teh Cheang Wan: Mr Speaker, Sir, the answer to the question of the hon. Member for Whampoa is Yes, because in the Presidential Address the Government has clearly stated that the policy of the Government is to achieve 100% home-ownership for Singaporeans by 1999, and obviously HDB has to price the flats at a level where every Singaporean can afford to buy, so as to achieve our objective of 100% home-ownership.