HOUSING AND DEVELOPMENT BOARD (Assistance for upgraders in selling their existing flats)

Dr Wang Kai Yuen asked the Minister for National Development in what ways the Housing and Development Board can help those upgraders who have encountered great difficulties in selling their existing flats as a result of the recent policy change.

The Parliamentary Secretary to the Minister for National Development (Mr Koo Tsai Kee) (for the Minister for National Development): Mr Speaker, Sir, the revised policies announced in April and May this year are not intended to decrease the liquidity of HDB flats and stifle the HDB resale market. HDB's records show that the number of resale transactions since the announcements in April and May has not dropped significantly. There are about 3,200 and 3,000 flats registered for resale in the months of June and July respectively. These figures are close to the monthly average of 3,300 applications received last year. Therefore, the revised policies have led to a consolidation of the HDB resale market, without significantly affecting the demand for these flats.

HDB resale flat prices have been experiencing a sharp upward turn in the past few years, with annual increases of about 35% in the last two years. We cannot expect such increases to continue year after year. A consolidation of prices would place the HDB resale market on a firmer footing.

In general, price movements of HDB resale flats will be determined by the market forces of demand and supply, as well as the prevailing market sentiments. Therefore, HDB flat owners should still be able to find buyers for their flats, provided their asking prices reflect these market considerations.

Dr Wang Kai Yuen (Bukit Timah): Sir, can I ask the Parliamentary Secretary whether he is aware that the market prices of HDB resale flats since the announcement of the revised policies have dropped significantly and, in some cases, up to 20%? Would he consider this drop as a consolidation of prices?

Mr Koo Tsai Kee: Sir, since 1992, prices of HDB flats have risen quite high. In fact, I recall, sitting on the other side of the Bench for the last five years, that Members have been screaming that HDB flat prices have shot through the roof. I just said that in the last two years, HDB resale flat prices went up by 35% alone. This adjustment downwards from a very high benchmark is a consolidation. It is not excessive. It is not significant.

Dr Wang Kai Yuen: Can I ask the Parliamentary Secretary whether he would still consider it as consolidation if the prices of HDB resale flats drop to valuation or below valuation?

Mr Koo Tsai Kee: Sir, I think it is still consolidation. I will give him some numbers. In July 1997, ie, 2-3 months after the two announcements made in April and May, the number of resale transactions registered with valuation, that means resale transactions with valuation reports, totalled 1,855. 1.7% or 32 out of the 1,855 resale applications registered with valuations were sold at prices below valuation. In other words, only 1.7% of the 1,855 resale flats with valuation reports were sold below valuation. The majority of them, 98.3%, were sold at or above valuation prices.

Of these few cases which were sold below valuation, the difference between the valuation price and the asking price was only about 5%. So the figure is not alarming. In any case, the valuations are only a guideline. They are not numbers tabulated in stone that cannot be changed. In fact, valuation reports are very much like topographic maps. Very often, when a map is published it is out of date. In the case of a valuation report, in many cases, when it is published it may also be out of date.

Mr Chiam See Tong (Potong Pasir): Sir, can the Parliamentary Secretary confirm that, in fact, valuation reports are made for the purposes of getting loans and the reports do not reflect the open market value? The valuation report is about 20% less than the market value. If the sale is below the valuation report, then it will be greater than 20%.

Mr Koo Tsai Kee: The buyer has the option of selecting a professional valuer from the HDB's list. So these valuation figures are not provided by HDB. They are provided by professional valuers unless he is questioning the judgment of these professional valuers. The market prices change from time to time. Over the last few months, prices of HDB resale flats have fallen slightly but not significantly. In the case of a falling market, the valuation prices will always lead the asking price. Just like in a rising market, valuation prices will usually lag the asking prices.

Mr Chiam See Tong: Sir, I have done many cases concerning valuation of HDB flats and all these valuations are for purposes of raising mortgage loans. Therefore, they do not reflect the open market price of the flat. It is only about 80%, because HDB only gives a loan of about 80% of the open market price. So the valuation report as it is does not reflect the open market price of the flat. It is about 20% less. Even if you sell at valuation, it is already 20% less than the open market value.

Mr Koo Tsai Kee: Sir, that is not the case. Valuation prices are valuation reports.

Dr Wang Kai Yuen: Sir, can I ask the Parliamentary Secretary whether such a drop in prices in such a short time had been anticipated by the Ministry when implementing the new policies? Because such a drop in prices has affected a large number of Singaporeans selling their flats at that particular point of time and a lot of them were actually caught. The Parliamentary Secretary may not be aware but there are many persons selling their flats during this period of time and conducting open houses who did not get any call at all.

Mr Koo Tsai Kee: Sir, during the Budget debate, the Minister for National Development has given a very clear and concise assessment of the property market since the announcement of the two policies in April and May. In the case of Dr Wang, I understand that some of his residents have difficulty selling their HDB flats at or above the valuation prices. In fact, HDB allows a six-month period for the person who has taken possession of the new flat to sell his existing flat. So his resident has six months to sell the flat. If at the end of six months, he still cannot sell the flat HDB, on a case by case basis, does allow another six months for him to sell the flat provided attempts have been made by the seller to sell on the market seriously. In other words, such evidence could be newspaper advertisements or reports from housing agents. In all, it could be a one-year period. So within that year, a serious seller asking for a reasonable price should be able to sell his flat.

Mr Low Thia Khiang (Hougang): Sir, I would like to ask the Parliamentary Secretary for his opinion. In view of the drop in the selling prices of HDB flats after the election, does the situation now tie in well with the PAP's asset enhancement scheme, as proposed at the last election?

Mr Koo Tsai Kee: The answer is yes. The Government has increased the assets of the overwhelming majority of Singaporeans. I will give an example. The selling price of a 3-room flat, which formed the bulk of the flats sold in the early years, was between $8,000 and $15,000. My parents' flat, for example, was sold, if I remember correctly, at about $10,000. Today, those 3-room flats are now sold on the open market at about $200,000. If you do not call that an asset enhancement, what is that? Even if they drop a little bit, 5%, 7%, or 10% from $200,000, it is a significant increase from $10,000. Does he not agree? Does he not call that asset enhancement?

Mr Low Thia Khiang: In other words, the Parliamentary Secretary's view is that even if the selling price of a HDB flat were to drop by another 30%, he will still consider it an asset enhancement.

Mr Koo Tsai Kee: Mr Speaker, Sir, it is a hypothetical question. I will not dignify that with a reply. HDB flats have not fallen by 30%. It has consolidated itself and I think the volume of resale transactions proves that the market is adjusting quite nicely.

Dr Wang Kai Yuen: Sir, I would like to ask the Parliamentary Secretary whether his Ministry is considering any measure to help people sell their flats at higher prices and whether the Government's planned land sales have any impact on these HDB flats.

Mr Koo Tsai Kee: The HDB's building programme has been announced and the information is there. The people who buy and sell HDB resale flats based on this information should understand that prices can go up and they can also come down. And over the last 30 years, prices have on the whole gone up quite significantly. Right now, it is consolidating itself. It has still gone up by quite a lot if you look at the base figures from 1992-1996 and even the first quarter of 1997.

Mr Low Thia Khiang: Sir, those who bought HDB flats from the resale open market before the general election actually paid higher prices than what the flat is worth now. I do not know whether the Parliamentary Secretary is of the view that it is still an asset enhancement.

Mr Koo Tsai Kee: Property prices go up and down. The economy is on the way to recovery. I think in the long term property in Singapore will only go up. But in the short term, there could be fluctuations. But we should look at the long term. Property is something that is not movable and is held for posterity.

Mr Chiam See Tong: Sir, HDB flats are public housing. The Parliamentary Secretary says that prices move up and down. So there is a speculative element in it. Does the Government allow this speculative element to continue in public housing?

Mr Koo Tsai Kee: You cannot say that there is a speculative element. Resale prices of HDB flats go up and down according to demand and supply and the state of the economy. And HDB has never said that prices can only go up.

Dr Wang Kai Yuen: The Parliamentary Secretary did not answer my question on whether the land sales programme affects HDB prices.

Mr Koo Tsai Kee: I want to repeat that the Ministry of National Development publishes its land sales programme and the number of units HDB will build, and based on these figures, the market will react to it. It is not for HDB or the Government to influence prices. We cannot do it. It is beyond our control. He is asking whether HDB will help the sellers fetch a higher resale price. You tell me how?