HOUSING AND DEVELOPMENT BOARD (Higher subsidy for rental flats)

Mr Chia Shi Teck asked the Minister for National Development if he will explain the reason for the Housing and Development Board's higher subsidy for rental flats as against purchase flats.

Mr Lim Hng Kiang (for the Minister for National Development): Sir, it is unclear how Mr Chia arrived at the conclusion that the subsidy for HDB rental flats is higher than that for sold flats. The deficit figures for HDB's Sale of Flats and Rental of Flats Activities are not strictly comparable as the loss per unit of flat sold is a one-off subsidy, while the operating deficit for rental flats is incurred annually.

In FY 91/92, HDB incurred a total deficit of $167 million for its Rental of Flats Activity. Of this $167 million, $110 million was due to the write-off of 148 blocks of rental flats demolished that year. HDB's operating deficit for its Rental of Flats Activity was thus $57 million. The average operating deficit HDB incurred for each unit of flat rented out in FY 91/92 was $747.

Public rental rates for 1-room and 2-room flats are highly subsidised to keep housing costs within affordable range for the lower income groups. For this reason, HDB's public rental rates for the lower income groups have remained unchanged since 1979. Rental for a 1-room flat ranges from $22 to $33, while that for a 2-room flat ranges from $44 to $75. Public rental rates for 1-room and 2-room flats thus constitute less than 5% of the household incomes for the majority of existing rental tenants.

Mr Chia Shi Teck: Sir, thus the demolition of rental flats is not to be taken as a deficit or what you call a subsidy to rental apartments. How does the Minister treat the appreciated land value subsequently when the land is used for building new flats in the sales programme?

Mr Lim Hng Kiang: When rental blocks are demolished, the land is then returned to the State.

Mr Chia Shi Teck: The land is returned to the State but the demolition cost is charged to the rental accounts. The land has appreciated in value and subsequently when new buildings are put up on the land, we take the market value and, in turn, we say it is subsidised housing to the new purchasers. It is a question of accounting, I suppose.

Mr Lim Hng Kiang: The reason why the land is returned to the State, and subsequently for the development of sold flats, it is purchased from the State at the then market rates, is to accurately reflect the cost of providing sold flats. The intention in the accounting practice is that we return the land to the State and then the State sells back the land to HDB. HDB, as a developer, is no different from other developers, purchases the land at the then market rates and costs the sold flats accordingly.