HOUSING AND DEVELOPMENT BOARD RESALE FLATS (Review of levy)

Dr S. Vasoo asked the Minister for National Development if he will review the levy imposed on various types of Housing and Development Board resale flats in view of the current economic situation.

Mr Koo Tsai Kee (for the Minister for National Development): Mr Speaker, Sir, I would like to clarify that the resale levy is not imposed on HDB resale flats. If a person sells his first direct purchase HDB flat and buys a resale flat in the open market, he does not pay the resale levy. This is an important point. The resale levy is applicable only for lessees who have already enjoyed the first Government subsidy (either through the purchase of new HDB flats or the purchase of resale flats using the CPF housing grant) and intend to purchase another flat directly from HDB. In other words, he intends to take a second bite of the subsidy cherry.

The objective of the resale levy is to ensure that the second housing subsidy is smaller than the first housing subsidy, which is something I am sure all Members will agree. The Government understands the needs of 3-room flat dwellers to upgrade to a bigger flat. Thus, it has structured the resale levy such that a lessee who sells a smaller flat, such as a 2-room or 3-room flat, pays a lower levy. Conversely, the levy imposed on the sale of a larger flat, like a 5-room or Executive flat, is higher than the 3-room or 4-room flat.

The resale levy has effectively helped HDB to manage the demand for new flats from upgraders. As the objective to reduce the amount of subsidy for purchase of second flat from HDB is still valid, my Ministry does not see a need to review the resale levy now.

Dr S. Vasoo (Tanjong Pagar): Is the Parliamentary Secretary not aware that all Government departments are reducing their fees? Can the same principle not be applied to the resale levy?

Mr Koo Tsai Kee: Sir, I think the Member did not hear me correctly. If you sell your first flat which you purchased from the HDB some years ago, at least five years ago, and now you want to buy a resale flat, you do not pay the resale levy. You only pay the resale levy when you queue up and buy the next flat direct from HDB. Resale flats have indeed fallen in prices. So as a percentage of the smaller selling price, the absolute amount of the resale levy is already smaller. Apart from that, people who are eligible to sell today have already occupied their flats for at least five years. For those who are eligible to apply for a second flat, they would have stayed in the flat for 10 years. In other words, they would have bought their flats either in 1988 or 1993.

In 1993, the price of a 3-room flat from HDB was only $44,000. In 1988, the price of a 3-room flat from HDB was only $41,000. Today, the resale price of a 3-room flat is approximately between $150,000 and $180,000. If you do a simple sum, there is a sizable capital gain, ie, $150,000-$180,000 minus the $40,000-odd and multiply that by 20% resale levy, which he need not pay until he gets the new flat. Of course, if he chooses this option he has to pay a 5% interest annually. In other words, my short answer is that no, we are not going to lower the resale levy.

Dr Vasoo: Sir, despite his explanation, I do not understand the logic behind his argument that the prices of new flats have also gone up. Is the Parliamentary Secretary not aware that HDB has also moved towards market pricing? Is that not the direction? If that is the case, what is the basis of still maintaining the levy as imposed?

Mr Koo Tsai Kee: Sir, because the selling prices of new HDB flats are still lower than the resale flats in the market today. Yes, resale prices have fallen by about 25% from the peak in 1996 and we have consequently adjusted the selling prices of new flats. But there is still a big gap between the price of a new flat and the price of an old flat. In view of the substantial market subsidy, the resale levy should stay.

Mr Low Thia Khiang: Sir, in view of the relatively lower resale prices of 3-room flats and the relatively higher prices of 4-room flats, in comparison to the market price now, would the Parliamentary Secretary consider waiving the resale levy for 3-room flats and help those who apply directly to HDB to upgrade to 4-room HDB flats?

Mr Koo Tsai Kee: Sir, the resale levy for a 3-room flat is only 20%.

Mr Low Thia Khiang: It is money.

Mr Koo Tsai Kee: Yes, correct, it is money and money is hard-earned. But maybe the Member for Hougang did not hear me. The resale price for a 3-room flat today is about $150,000-$180,000. The original selling price of a 3-room flat for those who are eligible to sell their flats today was only about $44,000. If you do a simple calculation, the capital gain is huge with over $100,000. Out of the $100,000 capital gain, which is tax free, you just pay 20% to the Government. You need not pay this amount until you get your new flat.

Mr Low Thia Khiang: How about comparing the selling price of a 4-room HDB flat now and $40,000, as mentioned by you, 20 years ago?

Mr Koo Tsai Kee: Sir, I have the figures here too. For 4-room flats, in 1988, HDB sold them at $65,000. In 1993, 4-room flats were sold at $109,000. Today, in spite of the downturn, 4-room flats are still being snapped up - in fact, they are the most popular units in the market - at $250,000.

Mr Low Thia Khiang: Sir, I am talking about those who sold their 3-room flats and bought 4-room flats. I am asking for waiver of the levy for 3-room flats.

Mr Koo Tsai Kee: Sir, I think we are going off tangent here. These are upgraders. Your sympathy should lie with the first-timers, should you not? If we encourage upgraders to upgrade all the time, then the first-timers will be left behind. So we are talking about people who have already taken the first bite of the subsidy cherry. Why are we crying for people who have got a big bite of the cherry already? When a 3-roomer sells his 3-room flat and applies for a 4-room flat, the 4-room is sold at a heavy subsidy too, but the subsidy is now smaller because of the 22.5% resale levy. I think he did not get his perspective right, Mr Speaker.

Dr Vasoo: Despite all that, is the Parliamentary Secretary willing to review the levy charges if the resale prices drop further?

Mr Koo Tsai Kee: Mr Speaker, Sir, Government policies are never static. We always review policies as situations change. I thank the MP for Tanjong Pagar for his advice.

Mr Jeyaretnam: May I ask the Parliamentary Secretary, in view of what he has just said, is it the Government's policy now to discourage people from upgrading, people who want to move from a 3-room flat to a 4-room flat if they think that the 3-room flat is inadequate? Is that the policy now?

Mr Koo Tsai Kee: Sir, the word "discourage" is not quite right. We give preference to first-timers, people who have never had the first bite of the cherry. For people who are living in 3-room flats today and want to upgrade to 4-room flats, we understand their aspirations. That is the reason why 4-room flat prices are benchmarked very affordably.