HOUSING AND DEVELOPMENT BOARD (Resale levy)

Mr Steve Chia Kiah Hong asked the Minister for National Development (a) how much has been collected from the Housing and Development Board (HDB) resale levy over the past 10 years; (b) what happens to the money collected; (c) whether the HDB resale levy is considered high compared to the subsidy given per flat in today's market; and (d) what plans are there to do a review of this levy.

The Minister of State for National Development (Dr Vivian Balakrishnan) (for the Minister for National Development): Mr Speaker, the objective of the resale levy is to reduce the housing subsidy enjoyed by those buying their second subsidised flat from the HDB. When second-timers sold their first subsidised flat, they would have cashed in the subsidy that they enjoyed on their first flat. The resale levy therefore helps to discourage over-consumption of public housing subsidies by these second-timer families. This ensures that housing subsidies are fairly allocated between them and first-timer families, who have more pressing housing needs. I must emphasise that flat owners are not required to pay the resale levy if they do not purchase a second subsidised flat from the HDB.

The resale levy collected by the HDB is used to partially offset its expenditure on home ownership subsidies. The amount collected during the period FY 1992 to FY 2001 can be found in HDB's annual reports. The average amount collected per year is about $170 million. This is a small sum when we compare it to the net amount of $750 million per year that the HDB incurred over the same period to subsidise its home ownership activities.

The resale levy is graded so that lessees of smaller flats, whom we recognise may have a greater need to upgrade, pay a lower levy rate. The subsidy enjoyed by these families is still attractive compared to the resale levy that they have to pay. And, in fact, this is why second-timer families return to the HDB for a second subsidised flat.

Home ownership has always been an important facet of our public housing policy. It has helped us to achieve greater social stability and engendered a sense of community and belonging to Singapore. There is a need for us to balance the allocation of our home ownership subsidies carefully, to ensure that they go to those who need it most. The resale levy policy is an important tool through which we achieve this. It is still relevant in today's context, and therefore we have no plans to review or remove it.

Mr Steve Chia Kiah Hong (Nominated Member): Mr Speaker, Sir, four supplementary questions.

First, in view of new flats being sold for almost $1/2 million in the market, what is the Government's subsidy per unit for a flat costing almost $1/2 million?

Second, where the subsidy is through a Government grant of up to $50,000 for staying near the parents, the resale levy imposed can be seen to be more than two times the grant given for bigger units. The question is: is HDB aiming to profit from this grant if the levy is more than $50,000? Can the homeowner have the option of returning the grant instead of paying the levy?

Third, for owners who are not sure whether they want to get a second bite of the subsidised cherry flat, but they are not making a profit from the subsidised flat, can this resale flat levy policy be waived for them?

Dr Vivian Balakrishnan: I thought he said he had four supplementary questions. I counted three.

First, the subsidy which HDB provides is in the form of a market subsidy, and that is clear to anyone buying an HDB flat, because they know that when they subsequently sell it after the minimum occupation period, they sell it at a price which is higher than what they originally purchased from HDB. It is a matter of timing and definition as to exactly how much that sum is.

The point is that the resale levy is not a capital gains tax. It is not related to the notional or actual profit that you would have made from cashing in your subsidy.. This is a policy tool to ensure that people do not unnecessarily come back for a second bite of the subsidy cherry. At the end of the day, remember that there is a finite amount which Government can direct towards housing subsidies. The more we allocate to people taking a second bite, the less we have for people who are taking a first bite.

I think Mr Steve Chia's supplementary questions are missing this point. It is not a matter of how much the homeowner actually made when he sold his flat, nor is it a matter of whether it was a profit or a loss. It is a matter of directing people so that they do not unnecessarily consume housing subsidies.

Dr Teo Ho Pin (Holland-Bukit Panjang): Sir, may I ask the Minister of State whether the HDB will consider reducing the resale levy for 3-room flats so as to encourage growing families staying in 3-room flats to upgrade to a 4-room flat?

Dr Vivian Balakrishnan: Mr Speaker, Sir, since May 1977, the resale levy for a 3-room flat is 20%. For people who do their sums, it is still financially viable for them to sell their 3-room flat and subsequently come back for a second bite of a subsidised HDB 4-, 5-room or Executive flat, and they will still be ahead financially. So, the levy, in that sense, is not an impediment or an obstacle to them upgrading. Obviously, because the levy is graduated, for those who are already in 4- or 5-room flats, depending on the exact circumstances of the case and on the timing of the sale and purchase, it may not be sensible for them to come back for a second bite of the cherry.

Mr Steve Chia Kiah Hong: Sir, the Minister of State has not answered my question on the unit subsidy per flat for those flats that are sold for almost $1/2 million. The Minister for National Development had been quoted in the papers as saying that a $150,000 new flat is very affordable in the market. So, what is the subsidy that the Government is giving for this flat?

The other question that the Minister of State has not answered me is: will the Ministry consider waiving the resale levy when the houseowner actually makes a loss when selling his subsidised flat?

Dr Vivian Balakrishnan: Mr Speaker, Sir, I am unable to give him the exact number for the subsidy of a notional flat which is sold for $1/2 million, because it depends on where the flat is and when it was bought. I cannot give him a specific number to that question.

His second question is on whether the levy can be waived.

Mr Steve Chia Kiah Hong: Whether the houseowner has the option to return the $50,000 grant if the grant is actually lower than the resale levy that he has to pay.

Dr Vivian Balakrishnan: He cannot subsequently decide that he does not want the housing grant in the first place and therefore is not affected by the resale levy policy. We do not allow people to play the rules retrospectively.

Mr Steve Chia Kiah Hong: Can the Minister of State explain why it is not allowed?

Dr Vivian Balakrishnan: If we allow people to play these games retrospectively, we are going to create much more complexity and probably much more unfairness in a system which is no longer transparent and clear. We have a clear set of policies. Remember that no one is compelled to buy a flat from the HDB. Even if a person wants to buy an HDB flat, he is not compelled to come and buy a subsidised flat from the HDB.

The more important point, in fact, about the resale levy is that if a homeowner does not come back for a second subsidised flat, he cashes out the housing grant and he does not have to pay any levy. That is the important point. It is entirely up to them to do their sums and decide what is sensible and what is not. We are not here to create a system in which people can play games with the rules, change the rules retrospectively and decide which ones apply to them and which do not apply to them.

Mr Steve Chia Kiah Hong: Sir, owners are not sure whether they want to buy a second subsidised flat but it is very certain that their first subsidised flat that they bought from the HDB was at a higher price when the market was very high. Subsequently, five years later, when they sell the flat, it is actually below their purchase price, effectively, making a loss. If they are not very sure whether they want to buy a second subsidised flat, then they would need to pay the levy upfront. For such a case, will the Minister of State consider waiving the levy? Because, effectively, they made a loss from buying and selling a subsidised flat.

Dr Vivian Balakrishnan: Sir, it is the same issue again. I keep emphasising that this is not a tax on profit. Whether a houseowner has made a profit or loss is irrelevant. Let me state it explicitly. The levy is to discourage people from coming back unnecessarily for a second bite of the subsidy cherry.

Mr Speaker: Mr Chia, can you ask the next Question, please?

Mr Steve Chia Kiah Hong: Question 2, Sir.