HOUSING AND DEVELOPMENT BOARD (Upgrading programme)

Mrs Yu-Foo Yee Shoon asked the Minister for National Development (a) what is the extent of the upgrading programme undertaken by the Housing and Development Board; (b) how many blocks of flats will be entitled to (i) major upgrading and (ii) interim upgrading; and (c) when will the upgrading programme be completed.

Mr Lim Hng Kiang (for the Minister for National Development): Sir, the Main Upgrading Programme will eventually cover most of the existing stock of old flats. With the successful launch of the demonstration phase and the first batch of the main phase, the programme has been geared up to upgrade 10 precincts next year. If there is sufficient capacity in the construction industry, HDB plans to increase this to 20 precincts each year.

The Main Upgrading Programme is expected to last 10 to 15 years. The older flats will be upgraded first, but we will also ensure a geographical spread of the precincts to be upgraded. All things being equal, priority will also be given where there is strong support for this programme.

The Interim Upgrading Programme (IUP) is intended to complement the Main Upgrading Programme. Without the IUP, some precincts may have to wait for more than eight years before they can be upgraded. With the IUP, improvement works at the precinct and block level can be implemented first, so that more residents can enjoy the benefits of the Upgrading Programme earlier.

The first batch of 26 precincts in the IUP was announced recently. HDB plans to upgrade some 20,000 flats each year under the IUP together with the Town Councils. In this way, the benefits of upgrading will spread to as many Singaporeans as possible.

Mrs Yu-Foo Yee Shoon (Yuhua): Sir, will the Minister consider building new flats in place of old flats instead of upgrading?

Mr Lim Hng Kiang: Mr Speaker, Sir, I think the Member is probably referring to Dr Tan Cheng Bock's suggestion, as reported in the press, that the Government should consider building new flats instead of upgrading. According to the newspaper report, Dr Tan Cheng Bock said that upgrading a flat costs as much as building a new one. I think the report stated that it costs the Government about $67,000 to upgrade a flat whereas it is now possible to buy a new budget 4-room flat, the cheapest of which is $70,000. So the cost seems to be the same.

Whether we upgrade or build depends on the cost effectiveness of both solutions. In this case, I think Dr Tan Cheng Bock is partly right and partly wrong in making his suggestion, although I would say he is more wrong than right. He is right because the Government did explain that upgrading is very costly, especially if you want to add a utility room. When we announced the new cost sharing package of the upgrading programme, we explained that adding a utility room is very costly, because you have to divert services, lay new foundations and it costs three to four times more per square metre than if we were to build new flats. Dr Tan is right in that sense. It is not cost effective to add new utility rooms to old flats. At the same time, he should not compare construction cost of upgrading with the selling price of budget 4-room flats, because the selling price of budget 4-room flats is very heavily subsidised to allow the poorer segments of Singaporeans to own a 4-room flat.

If we were to take a precinct on its own and we have to decide whether we want to upgrade or build, these are the cost considerations. If we upgrade with a utility room, which is not very cost effective, it will cost us about $67,000, of which the resident will have to pay $13,400 and the Government will have to give him a subsidy of $54,000. But if we were to build a brand new flat, a 4-room flat will cost about $90,000. If the Government were to give the same subsidy of $54,000, then the resident has to pay $36,000. So the comparison to the resident is whether he pays $13,000 for upgrading with a utility room or $36,000 if he wants a 4-room flat in the same area. But that means when we rebuild, we are not charging the resident for the land cost, because we are just talking about construction cost. So he has to pay $36,000 extra cost.

The second reason why it is not cost effective is that if we were to build bigger units, we will end up with less units than the present number of units on site. Because the more bigger units we try to pack into the same area, the less units we will get. So it will not be possible to guarantee everybody that he will get a bigger unit in the same area because we will not be able to generate the same number of units when we build bigger flats.

The third reason why it is not such a great idea is that even in our Main Upgrading Programme, more than 50% of the residents did not subscribe to the utility room. For many of these older residents in the old estates, they are quite happy with the standard upgrading where they pay less than $4,000 and they get a very nice environment and an upgraded flat. They are not interested in paying $13,400 for a utility room.

If we were to knock down the flats and ask them to buy a brand new 3-room flat in the same vicinity, it will cost the Government $80,000 to build a 3-room flat. If the Government were to again subsidise $54,000, a resident, who does not really want a bigger flat still ends up with a 3-room flat, will have to pay $26,000 as compared to less than $4,000 under the Main Upgrading Scheme.

We have considered both alternatives of upgrading and rebuilding and it is the Government's contention that upgrading is still a better solution for our older estates for these three reasons:

(1) Many of the older folks do not want a bigger flat and cannot afford a bigger flat.

(2) We may generate less units if we build bigger flats.

(3) Even if we build bigger flats, it is not cost effective to do so.

Dr Tan Cheng Bock (Ayer Rajah): Sir, I accept some of the reasons given by the Minister of State. I would just like to let him know that building new flats in place of old ones is also a form of upgrading. Actually, I am not against upgrading. I just want to make that clear.

Mr Lim Hng Kiang: Mr Speaker, Sir, I agree with Dr Tan Cheng Bock that rebuilding, instead of renovating, is also an upgrading process for the residents. But we must always look at the cost benefit of each exercise. Where it is cost effective for the Government, the state and the residents, indeed we will consider his suggestion. But in the mainstream of the upgrading programme, as I have explained, it is not cost effective and we will continue to pursue the Main Upgrading Programme.

Mr Low Thia Khiang (Hougang): Sir, from what the Minister of State has explained about these subsidies, can I take it that it is possible for the owners of existing 3-room flats to exchange their old flats, with the payment of an additional $36,000, for an economy 4-room flat in the same location?

Mr Lim Hng Kiang: I said that that is possible purely on the construction basis if (1) we can convince the other 50% of the residents who do not want a bigger flat that they are also buying into the programme; (2) we will not be able to generate so many big units to replace one for one in exchange for all the small units.

Mr Chia Shi Teck: Sir, will the Minister of State consider that the new flats with a 99-year tenure are better than old flats with 20 years of the lease having expired?

Mr Lim Hng Kiang: Mr Speaker, Sir, the Member is not comparing like with like. That means when we rebuild, we are giving them 99 years and they are extending the land use. If we want to compare whether it is cost effective to renovate or rebuild, then we should use the same land lease terms.

Mr Low Thia Khiang: Sir, would the Minister of State identify certain precincts within old housing estates where the land is big enough to accommodate the same number of new 4-room flats as the existing 3-room flats? Also, HDB could conduct a survey, or by ballot, to find out whether the residents residing in a precinct would all agree to exchange for a 4-room economy flat. Will the Minister of State for National Development consider rebuilding and selling a 4-room flat at $36,000?

Mr Lim Hng Kiang: Mr Speaker, Sir, I have already explained that in the bulk of the older estates, first, there is very little land for us to carry out a major rebuilding programme in such a way that we can guarantee everybody a one for one exchange. Because when we rebuild the older precincts, we will end up with less units. Second, as we have explained, in the Main Upgrading Programme, we really do not encourage Singaporeans to opt for a utility room. We explained in the press conference that it is not cost effective for us to add a utility room to an old flat. The objective of our Main Upgrading Programme is to upgrade the environment, improve the facilities and improve the environment of the flat. It is not to add space. If a resident really wants space, I think the best alternative for him is to apply for a new flat in the new towns. At the same time, we provide the option of a Standard-plus package in case there are people who feel very strongly that they want a utility room. In that situation, they must pay a higher share of the cost because it is not cost effective to put a utility room.

In short, the answer to Mr Low is that where it is possible for us to rebuild, instead of upgrade, the Government will consider to do so. But in the main, for the reasons I have explained earlier, the upgrading programme is still the better way to proceed.

Mr Chiam See Tong: Sir, the Minister of State has explained very clearly why it is better to upgrade than to build new blocks of flats. If that is so, in the earlier years, why were so many blocks of flats demolished instead of being upgraded?

Mr Lim Hng Kiang: Sir, those blocks which were demolished in the earlier years, and which we continue to demolish today, were the 1- and 2-room rental flats. Singaporeans, in case Mr Chiam does not know, have grown richer. They are not staying in 1- and 2-room rental flats any more. Many of our 1- and 2-room blocks of flats have very high vacancy rates. We do not demolish rental flats haphazardly. We have a rule which says that rental flats in an area will be demolished if the vacancy reaches above a certain percentage. So we are just adjusting to the demand pattern of Singaporeans. As they grow richer, they want to buy bigger flats. The rental flats fall vacant. So we relocate them and we knock down the old rental flats. When we knock down the old rental flats, we create some land available. So we rebuild so that Singaporeans can enjoy some new flats in the older estates. But that is not to say that we can start a programme and guarantee every Singaporean that he can exchange his old flat for a new flat in the estate that he is staying. That is just physically and fiscally not possible.