AFFORDABILITY OF HDB FLATS

Ms Irene Ng Phek Hoong asked the Minister for National Development whether, in the light of the ongoing wage reform and wage cuts, HDB flats will continue to be affordable, especially to the younger generation of Singaporeans whose starting salaries will be lower.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, the Government remains committed to providing affordable public housing to Singapore citizens, especially to first-timers. HDB flats are priced below their respective market values, to enable 90% of Singaporeans to afford at least a 3-room flat and 70% of Singaporeans to afford at least a 4-room flat. Those with higher income can consider buying the larger HDB flats. Within each flat type, there is also a range of sale prices, depending on the location, design, size, etc, that will enable applicants with different household incomes to choose a flat that is within their financial means.

HDB monitors wage trends closely to ensure that its flat prices remain affordable to Singaporeans, even in the current economic downturn. Last year, those who bought 3- to 5-room flats from HDB typically needed to use only about 20% of their monthly incomes to service their mortgage loans. This is well within the 40% guideline which most financial institutions use as a basis for credit assessment.

As for the downpayment portion, younger flat buyers would generally have sufficient CPF savings to afford the 20% downpayment after working a few years. In addition, to enable young first-timer couples to purchase a home earlier, since October 2000, HDB has allowed those who book a 4-room flat that is under construction to pay only half of the 20% downpayment at the point of signing the Sales Agreement. The remaining half is payable about two years later, at the time of taking possession of the new flat. This measure has since been extended, till 31st December 2003, to all first-timer couples for the purchase of all flat types, in view of the economic downturn.

Mr Steve Chia Kiah Hong (Non-Constituency Member): Sir, in view of the expected wage cuts and wage reductions and lower CPF contributions that are coming up, will HDB consider restarting the building of 3-room flats or smaller flats for couples who are having lower salaries?

Mr Mah Bow Tan: As far as different types of flats are concerned, there is a range of flats currently available, from the 3-room flats all the way to the 5-room flats. By 3-room flats, I am talking about the 3-room buyback flats which HDB buys back from the market and then resells to those who need a smaller flat. Having said that, of course, HDB is always monitoring the buying patterns and trends. Currently, HDB notes that there is a very strong demand for 4-room flats, and this is the reason why it is releasing the 4-room flats that are currently in stock, as well as building new 4-room flats under the Build-to-Order (BTO) scheme.

As to the Member's question about whether we will build 3-room flats, HDB will continuously monitor the situation and make a correct decision at the appropriate time.

Ms Irene Ng Phek Hoong: Sir, in view of the restructuring in the economy, we see an increasing number of residents asking, because the situation is so uncertain, for deferment of collection of keys. Does the Minister see this as an indication that they feel that flats are beginning to be priced beyond their reach because of the uncertain situation?

Mr Mah Bow Tan: The experience of HDB is that those who ask for deferment of collection of keys are usually those who are buying the bigger flat types. So, it would suggest that these lessees would have difficulty in servicing their loans for the bigger flat types.

As I indicated in my answer, so long as buyers buy within their means, in other words, take into consideration their own incomes as well as the flat types and do not buy a flat which is bigger than what they can afford, then there is no problem. So, the commitment of the Government to provide basic housing - which is either a 3-room or a 4-room flat - for the majority of Singaporeans is still very much in place. But as to specific cases of individual lessees wanting to defer, HDB always takes a very sympathetic view. So long as the difficulties are genuine, HDB would usually allow lessees to defer the collection of keys by a few months.

Mr S. Iswaran (West Coast): Sir, there are examples of individuals who, because of changes in their employment situation, may subsequently want to either withdraw their application for a flat or to change it to a smaller flat type. Can this be done? Would HDB allow this without any penalty being imposed on the individuals?

Mr Mah Bow Tan: Usually, when a person purchases or books a flat, he or she is advised to consider very carefully before he or she makes that purchase. Buying a flat is not like buying a TV set or even buying a car. It is a very major commitment. I would urge people who make a commitment or wish to buy a flat to consider carefully. First of all, consider the affordability - whether they can afford the flat. Secondly, consider the timing, location, etc. I think it is not a frivolous commitment. It is a commitment that has to be taken seriously. If we allow people to book a flat and suddenly opt out of the system at no cost, it is going to incur a very heavy penalty and inconvenience for many other buyers. This is the experience we had when we had the queue. When we had the queue, people could just drop out of the queue without any penalty and we ended up with a huge backlog of flats.

I think there must be responsibility on the part of every buyer, that when he buys a flat, that is, when he makes a downpayment, he makes a commitment, a commitment which allows HDB to plan the building programme accordingly. He also helps to defray some of the costs incurred by HDB in preparing the flat for sale. HDB would not normally waive the cancellation cost associated with somebody who is cancelling the purchase of a flat. But as always with HDB - and I have said this many times before - anybody who has a genuine and strong case can always put it up to HDB. They would always look at it as sympathetically as possible although the answer is not always "yes".

Mr Steve Chia Kiah Hong: Sir, would the Minister give us a breakdown of the number of 3-room flats that are available, in terms of the demand and supply numbers, and whether there is a greater demand for the 3-room flats as it is now?

Mr Mah Bow Tan: I do not have the figure for the demand, but I know that there are roughly about 200,000-250,000 3-room flats available in the market. HDB would buy back the 3-room flats from the market as and when the demand builds up. At the moment, there is no shortage of 3-room flats available for those who wish to buy 3-room flats.

Ms Irene Ng Phek Hoong: Sir, there has also been an increasing number of residents coming forward to ask about downgrading. They want to downgrade to a smaller flat but when they go to the banks for loans, they find that they cannot get a bank loan. So they ask whether HDB can consider giving HDB loans, even though it is for a resale flat, on a case-by-case basis.

Mr Mah Bow Tan: Yes, HDB does consider such applications on a case-by-case basis, particularly when there are demonstrable cases of difficulty or hardship, such as a person or a family member has lost his job or suffered a salary cut or because of illness or heavy financial commitments elsewhere, etc. So there are circumstances whereby HDB would be sympathetic to granting HDB loans even for downgraders, although the general principle is that it would not do so. I know that HDB has favourably considered such applications before.

Dr Wang Kai Yuen (Bukit Timah): I would like to ask the Minister whether HDB would consider lowering the price of new flats if the affordability of Singaporeans has indeed become lower and also if the costs of the construction have indeed become lower, such as construction cost and land cost.

Mr Mah Bow Tan: Sir, on the first part of the question, first of all, the commitment to make either a 3- or 4-room flat affordable to Singaporeans must be premised on, firstly, what is the wage level and, secondly, how much of that wage level should be used to buy a flat. As a rule of thumb, based on the guidelines which banks use for credit assessments, banks would say that ideally, you should not be using more than 40% of your monthly income for mortgage payments towards a flat. Using that criterion, ideally, the HDB flat would be considered affordable if the mortgage payments do not exceed 40% of the person's income. Based on that criterion and based on the figures that we have for the last few years, I would say that HDB flats are more than affordable. For example, a family earning $2,000 could comfortably afford a 3-room flat because the repayments for a 3-room flat would constitute maybe something like 20% of his monthly income. Of course, if, for example, wage levels deteriorate drastically to the extent that for that same flat, he would now have to pay more than 40%, then obviously, we would have to adjust HDB flat prices. That is what I meant when I say we would make sure that HDB flats are affordable.

As to whether HDB flats can be re-priced because land costs or construction costs have gone down, I have always explained in this House that the pricing of HDB flats is based on the criterion of affordability which implies that a certain element of subsidy is built into HDB pricing. Every new HDB flat sold in Singapore carries a subsidy and the extent of that subsidy varies from time to time, depending on the market. But the bottomline is that that flat is affordable to that particular segment of Singaporeans. So 90% of Singaporeans would be able to afford a 3-room flat comfortably.

Mdm Cynthia Phua (Aljunied): Sir, there is really a demand for 3-room flats on the ground. As an indication of the size of the demand for downgrading, how many lessees of 4-room and bigger flats are owing HDB loan instalments now?

Mr Mah Bow Tan: I am sorry I do not have the answer right now. Generally, the arrears rate for HDB flats in total is less than 5%. I do not have the breakdown but that is a good indication that, by and large, most of our HDB flat lessees are able to cope with the instalment payments.

Dr Wang Kai Yuen: Sir, I would like to confirm with the Minister that, based on his statement, if a mortgage payment ranges from 20-40% of his income, he would consider it as affordable. Secondly, since we are currently paying 20%, if the mortgage loan increases, let us say, to 40%, is it still considered affordable for a Singaporean to own a HDB flat?

Mr Mah Bow Tan: Yes, that is correct. The reason why we use 40% is because this is the standard industry practice, that is, one would be considered credit-worthy for a loan if he does not have to pay more than 40% of his household income.

Mr Steve Chia Kiah Hong: Sir, in view of the uncertain economic climate and the increase in retrenchments, would the demand for rental flats be increasing, and is there an increasing supply from the Ministry to look into for people who want to rent a flat instead of purchasing? Another question relates to an article that appeared recently about a woman whose application for a rental flat was rejected because her child was born out of wedlock. Why was her case for rental of a flat not approved?

Mr Mah Bow Tan: The first question was concerning the supply of rental flats. The rental flat scheme run by the HDB is not contingent upon how many people want to rent the flats. There are certain very strict eligibility criteria for those who wish to rent from HDB. There are two reasons. One is that it is a very heavily subsidised scheme and therefore we have to make sure that eligibility for such flats is tightly controlled. Secondly, the Government has always said that we want to encourage home ownership. We want to encourage home ownership because it gives Singaporeans a stake. We also want to encourage home ownership because, as opposed to rental, people do take better care of their flats and they have better commitment to the flats.

For these reasons, the eligibility criteria under the rental scheme, or what we call the Public Scheme, are kept very tight. When people want to rent a flat - if they are retrenched, etc - and they approach HDB, they would be asked several questions. One, what is their income ceiling; two, whether they have a family unit; and three, whether they have actually enjoyed HDB subsidies before. For example, if they have just sold a flat, they have to wait for 30 months before they are allowed to rent. So there are several criteria before they can be eligible to rent a flat. It is not a matter of demand for rental flats and HDB striving to satisfy that demand. It is not on that basis.

The second question is regarding this specific case. I do not have the details of the case but I can answer generally by saying that one of the criteria, which I mentioned earlier for renting of a HDB flat under the Public Scheme, is that the applicant must form a family nucleus. A family nucleus is defined as either one parent and one child (at least two persons), husband and wife, parent and child, etc. For the case that the Member mentioned, which is regarding a parent and a child who is born out of wedlock, HDB does not recognise that as a family unit.