HDB FLAT OWNERS UPGRADING TO BIGGER FLATS (Levy on resale of flats)

Mr S. Vasoo asked the Minister for National Development (a) how many existing 3-, 4- and 5-room Housing and Development Board flat owners have applied to upgrade to bigger flats; and (b) what is the rationale for not reducing the respective levy on resale of flats by owners upgrading to bigger HDB flats.

The Minister for National Development (Mr Teh Cheang Wan): Mr Deputy Speaker, Sir, as at 31 March 1985, 17,573 existing 3-, 4- and 5-room HDB flat owners have applied to upgrade to bigger flats.

To answer question (b), Mr Deputy Speaker, Sir, let me first remind the House of the objective of the Government's public housing programme. It is to provide decent homes for Singaporeans. The Government never intended HDB flats to be bought and sold purely for business gains. Thus, when resale of flats was first permitted, those who upgraded to bigger flats had to sell their first flats back to the HDB at the original selling prices. Nobody was allowed to profit from the resale of HDB flats. This policy was in force for 15 years from 1964 to 1979.

When the policy was relaxed in August 1979 to allow HDB owners to re-sell their flats to buyers of their own choice, a cream-off rate of 5% was levied to prevent excessive profits. This rate, however, proved to be inadequate, resulting in excessive profiteering in some cases. A graded levy based on flat type was consequently imposed from September 1982. While the graded levy has been successful in curbing excessive profits, it has had the undesirable side-effect of preventing owners of bigger flats from upgrading to Executive and HUDC flats or moving into private housing. To correct this anomaly, the resale policy was recently revised by the HDB.

The revised policy is fair to all HDB and HUDC lessees. Owners of bigger flats will benefit from the revision as they can now pay 10% more for their second flats instead of paying a 20-30% levy on the resale price of their first flat. At the same time, owners of smaller flats who could previously pay a small levy of 10-15% of the resale price can continue to pay the same levy when they upgrade to bigger flats. This benefit is not taken away from them. In absolute terms, owners of smaller flats pay a smaller sum when upgrading to bigger flats as compared with owners of bigger flats. For example, a 3-room flat owner pays a levy of $3,000-$4,000 as against the $12,000-$15,000 premium a 5-room flat owner has to pay when both are upgrading to Executive flats. Owners of smaller flats therefore have not lost out after the revision.

In all policy revisions since 1979, there has been one underlying principle, that is, people are allowed to enjoy the full subsidy only once. This explains why flat owners who move into private housing are permitted to retain their profits, while those who buy a subsequent flat must pay either a levy on the first flat or a premium for the subsequent flat.

In reviewing the resale policy, the HDB had considered the possibility of reducing the rates of levy as suggested by the Member for Bo Wen. However, the revised policy just implemented was found to be the better one, in that lessees are allowed to choose the option that is more advantageous to them. Had the HDB decided to reduce rates, it is likely that only the rates for bigger flats would be decreased. No adjustment would have been made to the rates for smaller flats since the present levy for these flats is already small.

Dr Augustine H.H. Tan (Whampoa): Mr Deputy Speaker, Sir, would the Hon. Minister inform this House whether there have been cases of evasion of the levy by under-declaring the actual transaction price?

Mr Teh Cheang Wan: Sir, I think the possibility is there but the HDB would not know.

Dr Augustine Tan: Sir, would the Hon. Minister agree with me that this resale levy is really a capital gains tax? And since we have no capital gains tax in any other sector in the economy, this is an anomaly.

Mr Teh Cheang Wan: Sir, I do not think so. This resale levy is not a capital gains tax. In fact, I have stated in my answer quite clearly that anybody who moves into private housing is allowed to retain all the profits. So there is no tax imposed on him. It is only when a flat owner asks for a second flat, which means that he is asking the Government to provide a second subsidy, then a levy or a premium is imposed.

Dr Augustine Tan: Sir, would the Hon. Minister agree with me that when the resale levy was first imposed, it was really a response to what may be described as the "politics of envy"?

Mr Teh Cheang Wan: Sir, not exactly because, as I have stated earlier, anybody who is not asking the HDB to provide a second flat will be allowed to retain all the profits.