HDB RESALE FLATS (Reasons for devaluation)

Dr Wang Kai Yuen asked the Minister for National Development (a) what are the reasons that caused the significant devaluation of the Housing and Development Board (HDB) resale flats in recent years; (b) what measures his Ministry could have taken to prevent this collapse; and (c) what measures will the Government take to ameliorate the negative equity suffered by these HDB flat owners.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, Singapore's economy has been going through a difficult period following the Asian financial crisis in 1997. This has affected almost all sectors of our economy and the property market, which includes both private residential properties and HDB flats, has not been spared.

Although the prices of HDB resale flats have fallen by about 29% from their peak in 1996, the decline is not as much as that for private property prices, which have fallen 37% from their peak. There are several reasons for this.

Firstly, HDB calibrates its building programme to match the overall demand for HDB flats. When the take-up of new flats under the Registration for Flat System (RFS) was affected by the economic slowdown in the last few years, HDB cut back sharply on the construction of new HDB flats from 1998 onwards. This helped to minimise the build-up of unsold stocks, although it was still substantial due to the time lag between tender and completion of building contracts. To reduce the unsold stock, HDB has focused on selling flats through several Walk-in Selection exercises. HDB's efforts have been quite successful, and we expect to be able to substantially clear the surplus stock within the next two years.

Secondly, HDB is mindful of the impact that new flat prices may have on the resale market. In pricing new flats, affordability is the primary consideration. But, HDB also takes into consideration the prices of comparable resale flats, and the adjustments to the prices of new flats are done more gradually, so as to minimise price fluctuations and any knock-on effect on the resale market.

HDB has in place several financial assistance schemes to assist existing mortgagors who encounter financial difficulties in servicing their mortgage instalments. Through these measures, HDB homeowners with negative equity at the moment are under less pressure to sell their flats. In 2002, less than 100 HDB resale flat lessees sold their flat at a price lower than their outstanding mortgage loan. This is only a small fraction compared to the 39,000 resale transactions that were processed in the year.

Property prices go through cycles. After two years of decline in 2000 and 2001, HDB resale prices remained relatively stable last year. As the economy recovers, property prices will also recover and the problem of negative equity will be minimised, if not fully resolved.

Dr Wang Kai Yuen (Bukit Timah): May I ask the Minister whether he agrees that the HDB resale market is basically a very restricted market in the sense that the number of buyers who can buy is actually restricted? Does his Ministry forecast the number of buyers that can buy in the resale flat market when it builds the new flats?

Mr Mah Bow Tan: On the contrary, HDB resale flats are actually open to a very wide variety of people. Let me go through the various people who are eligible for resale flats.

First of all, of course, would be the first-timers, who can actually buy a resale flat with a housing grant. The second-timers obviously are able to buy resale flats. Permanent residents and private property owners can buy resale flats. Singles can buy resale flats. So, the market for resale flats is actually very wide, and the number of resale flats that have been transacted, particularly during the height of the boom, indicates that, in fact, there is no shortage of people who are able to buy resale flats, if the conditions are right, ie, they feel that prices are favourable or they feel that there is good value to buy a HDB resale flat. So I would not agree that the number of resale flat buyers is actually restricted, or that the market for resale flats is restricted. It is actually a very large market.