HDB FLATS (Resale levy)

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HDB FLATS:

(Resale levy): 3.

Mr Leong Horn Kee asked the Minister for National Development if he will (a) state the existing policies on resale

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levy for HDB flats; and (b) consider updating and revising these policies to be more equitable, such as to charge the levy based on the net profit of the sale of the flat rather than on the resale price.

The Minister of State for National Development (Mr Cedric Foo Chee Keng) (for the Minister for National Development): Mr Speaker, Sir, the resale levy is paid only by those who buy a second subsidised flat from HDB. As these second-timers would already have enjoyed a subsidy for their first flat, the resale levy is to ensure that they do not consume more than their fair share of public housing subsidies.

In setting the levy rates, we recognise that lessees of smaller flats have a greater need to upgrade. Hence, they pay a lower levy rate as a percentage. The resale levy ranges from 15% for 2-room flats and 20% for 3-room flats, to 25% for 5-room and larger flats. In this way, families who are upgrading from the smaller flats to larger flats still find it worthwhile to do so even after they pay the resale levy.

Owners of larger HDB flats have a lesser need to upgrade to another subsidised HDB flat and can consider other housing options, such as private housing or a resale HDB flat. In such cases, they will not need to pay the resale levy.

Flat owners, who do not buy a second subsidised flat from HDB, can keep the full sales proceeds from their first subsidised flat and need not pay the levy. The resale levy is not intended to be a capital gains tax to cream off the profit made on the first flat.

Home ownership is an important facet of our public housing policies. Our property market conditions may have changed, but the resale levy is still necessary to maintain an equitable distribution of home ownership subsidies

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and ensure that they go to those who have a greater need for them. We will however review the resale levy regularly to ensure that it remains relevant and meets with our overall objectives.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I would like to ask the Minister of State for some clarifications. When the resale levy is imposed at the point of purchase of the second flat, it does mean that there is a levy imposed on the first flat. That is what I understand it to be. Therefore, technically, if the resale levy is based on the price of the sale of the first flat, a person could actually have incurred a loss because his selling price would be lower than his actual cost price plus the renovation that he had spent on the flat. On this basis, this formulation does make it inequitable for those who happen to sell during poor market conditions, maybe forced by financial circumstances and, therefore, incur a loss and have to pay a levy at the same time.

Mr Cedric Foo Chee Keng: Sir, as I have said, the resale levy is to ensure that the second subsidy that a person gets is reduced because he had already enjoyed the first subsidy. Basically, the Government's position is this. We give you one subsidy to buy your first subsidised flat. When you buy it, how large a flat you choose, how long you stay in it, how much first subsidy you receive and whether you make a profit at the point of sale of the first flat are not so relevant to the allocation of the second subsidy. What the resale levy seeks to do is to reduce the second subsidy when you come back to have a second 'bite of the cherry', in other words, to enjoy the market subsidy of the second HDB subsidised flat which you intend to buy. So as a proxy, we have used the resale value of the first flat and take a percentage of it so that this amount would be subtracted from the market subsidy which is implicit in the sale price

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of the second subsidised HDB flat. That is the purpose of the resale levy.

Mr Leong Horn Kee: Sir, my question also links to the fact about cashflow and the availability of funds because the present formula requires the person to pay a levy at the time when he buys a second flat from HDB. Very often, some of them may not have the money to pay for the levy because they do not have the cash to pay for it. They may have sold the first flat sometime ago and could well make a profit, but since then, the money has been spent for other purposes. Many of the residents who came to see me actually cannot afford to pay for the levy because of this formulation. Could we review this formula so that residents who are faced with this problem can have an alternative way to deal with the levy problem?

Mr Cedric Foo Chee Keng: Sir, let me repeat the policy intent of the resale levy. As the Member would agree, there is a limited amount of public housing subsidy that the Government would give out each year. Our first priority is for the first-timers, those who have not enjoyed any subsidy from the Government to start with. Therefore, those who come back for the second bite of the cherry, we must ensure that they are not allocated more than their fair share since they have already enjoyed one subsidy. If we were to entertain the Member's suggestion, ie, if you make a loss, you do not have to pay the second levy, that means you will get another big bite of the market subsidy for the second subsidised flat that you are buying. Using such a basis would really be quite inequitable.

In the extreme, I think those people who are forced to sell are those who have over-leveraged - they have bought homes larger than they could afford. In the event that they make a loss on the first home, if we take the Member's suggestion, they

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will be entitled to another second bite again. I do not think we want a policy that will encourage people to speculate and to over-consume. So I think the most equitable way is to let the flat owners take personal responsibility and make prudent financial planning for their first subsidised flat. And for those who are living in smaller flats who have not enjoyed a big subsidy, to start with, to encourage them with this graded resale levy system for them to upgrade and have a second small bite of the cherry. We should not treat how well they have invested as a condition to allocate the second subsidy. I think that will not be consistent with the policy intent.

Mr Leong Horn Kee: Sir, I am afraid that the Minister of State has not really answered my question, because my question is whether it is equitable to charge on the basis of sale price or on profitability. As he has said, the sale of a flat to a resident is for him to enjoy subsidised housing. But if it happened that he did not manage to enjoy any benefit in the sale of the property, how can we charge him, on top of his loss, another levy charge again? When he buys a second property, he has no cash to pay HDB for the levy - he cannot even afford to have a roof over his head because he cannot afford to buy a second flat.

Mr Cedric Foo Chee Keng: Sir, for people like that, there are many other options available to them. In other words, we should not confuse that with allocating more subsidies specifically for this group of people, who have, in many instances, speculated. For example, they have the option of buying a smaller resale flat where they do not have to pay for the resale levy at all. And in extreme cases, of course, under our universal housing policy, rental housing is also an option for them. I do not think we should confuse how we allocate the second subsidy with how we want to help this particular group

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of people because there are other options open to them.

Dr Amy Khor Lean Suan: Sir, I would like to ask the Minister of State: would not the subsidy for that particular flat have been computed based on the purchase price of the flat at that point in time when it was purchased and the market price then? Therefore, if you were to impose a levy on the subsequent resale of the flat, would it not be more equitable to actually impose the levy based on a percentage of the price then because the subsidy was tagged to the differential between the market price and the flat price at that point in time?

Mr Cedric Foo Chee Keng: The resale levy is not to take back the original subsidy. The original subsidy was given to the flat owner who bought the first subsidised flat. He decides when to buy and what to buy. Whatever profits he makes, he can keep all of them. Actually, the Government has no intent to recoup the first subsidy. What the resale levy does is to reduce the second subsidy for those who come back, after having enjoyed one subsidy, to have another bite of the cherry again. Therefore, the original purchase price is not relevant.

Mr Leong Horn Kee: Following from what the Minister of State has said, would it not be simpler to have a new formulation whereby you do not impose a levy for the first purchase but give a lower subsidy or no subsidy for the second purchase, so that you avoid the whole complication of paying a levy on the first purchase which gives rise to all these issues? Just simply do not impose a levy on the first purchase.

Mr Cedric Foo Chee Keng: Sir, we want to give a subsidy for all first-time

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homeowners, which is one of the key objective of our housing policies. So I would not agree that we will not give a subsidy for the first flat. We will not impose a levy on the first flat either, as I have said before, only unless they come back for a second subsidised flat.

Mr Ang Mong Seng (Hong Kah): Can the Minister of State consider lowering the percentage of the resale levy? I understand that when the property market is good, HDB increases the resale level for 3-room flats from 15% to 20% and for 4- and 5-room flats from 20% to 25%. In view of the poor property market, can we go back to the resale levy of 15% for 3-room and 20% for 4- and 5-room flats?

Mr Cedric Foo Chee Keng: Sir, as I have said in my answer to the Member, we will review the levy rates regularly to ensure that they will not be higher than the market subsidy that we will be giving for the second subsidised flat, particularly for those who are living in smaller flats, which is consistent with our objective that we want to encourage those who live in smaller flats to upgrade. So we will review those rates regularly.