HOUSING AND DEVELOPMENT (AMENDMENT) BILL

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HOUSING AND DEVELOPMENT (AMENDMENT) BILL: Order for Second Reading read.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Objective

Sir, the key objective of the Housing and Development (Amendment) Bill is to put in place the legislative framework for the new Design, Build and Sell Scheme (DBSS). Under this scheme, the private sector will step into HDB's shoes to build and sell HDB flats. The Bill will introduce a new Part IVB under the Housing and Development Act to give effect to this.

The Bill also seeks to introduce other amendments to the Housing and Development Act. These include allowing special upgrading works, eg, lift upgrading, to be offered in relation to two or more buildings to link them together, expanding the composition of the HDB Board, and widening certain powers of the HDB to facilitate its operations.

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Let me now explain the various key provisions.

Design, Build and Sell Scheme (DBSS)

Sir, I announced in Parliament earlier this year that MND and HDB will be piloting a new Design, Build and Sell Scheme in the second half of the year. Under this scheme, the private sector will undertake the development of public housing. Upon building completion, the development will be vested in HDB. HDB will remain the lessor of the flats and administer their leases, while the Town Councils will manage and maintain the common areas. Under the DBSS, developers will bid for the land through open tender and the successful tenderer will have the flexibility to decide on the design of the flats, the flat mix and their pricing. This allows greater scope for market forces to work.

So far, our public housing has been developed entirely by HDB. Most of them are designed by HDB's in-house architects. The DBSS represents a major shift in the way our public housing programme is implemented. This new scheme will enable the private sector to play a bigger role in the public housing market. Our public housing programme will be more responsive to the needs and aspirations of Singaporeans. Market competition will also benefit HDB flat buyers by injecting fresh ideas into the design of public housing, giving them a wider choice of flats and, hopefully, better value for money.

As the DBSS is a new scheme and different from how public housing has been implemented in the past, we will move cautiously at first. We will carry out some pilot projects, test the various features of the scheme, and gather feedback from the industry and from buyers to ensure that the objectives of the

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scheme are met. We will study the outcome of the pilot projects and make refinements and modifications to the DBSS scheme, if necessary.

The DBSS is not the only way we will engage the private sector in the provision of public housing. Under the Design and Build (D&B) Scheme, HDB outsources the design and consultancy services of new HDB flats as well as the building works, as one package, to the private sector. This is a tried-and-tested method. HDB will continue to be the developer, and set prices, for the bulk of the new flat supply. HDB-developed flats, together with HDB resale prices, will set benchmark prices for DBSS flats, thus ensuring that they are affordable to flat buyers.

Over the past year, HDB has met up with industry players and associations to get their feedback on the scheme. Based on their inputs, we have refined the details of the scheme and put in place a suitable legal framework for the implementation of the DBSS.

The bulk of the legal provisions related to the DBSS will be introduced as new provisions under the new Part IVB of the Housing and Development Act, which is outlined in clause 11 of the Bill. It allows the Minister to appoint approved developers to implement DBSS projects. It also sets out the functions and duties of an approved developer. These include developing public housing on the land parcels specified by the Minister and selling the flats in accordance with the provisions in the Act.

Under the DBSS, private developers will bid for the site and pay the land premium before commencing development. The approved developer will hold the title to the land. As DBSS projects are public housing, upon their completion, HDB will take over the ownership of the common property and commercial properties, such as the shops or social

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communal facilities, and be the head lessor of the flats. This will, in turn, allow Town Councils to manage and maintain the common areas in the development.

Clause 11 thus provides for the vesting of the land parcel in HDB upon issuance of the temporary occupation permit or the certificate of statutory completion for the development. Specifically, the parts that would be vested are the commercial properties, the common property, as well as the reversionary interest in the flats sold by the developer. HDB will indicate upfront the amount of consideration it will pay the approved developer for the properties to be vested, so that developers can take it into account when they submit their land bids.

Currently, HDB flats are sold under Part IV of the Housing and Development Act and are subject to the terms and restrictions stated therein. These include restrictions pertaining to the purchase and resale of flats, HDB's right to compulsorily acquire flats of lessees who infringe on the terms of the lease, and restrictions on the sale and mortgage of the flats.

Clause 11 allows the various terms and conditions currently stated in Part IV to apply to flats built under the DBSS under Part IVB. This is to give HDB the necessary powers to regulate the sale, purchase and use of these flats and to administer their leases, so as to ensure that the public housing nature of DBSS flats is preserved. For example, HDB will need to be able to enforce the various conditions for resale and sub-letting, since public housing is intended primarily for owner occupation. At the same time, some flexibility may be given to modify the terms and conditions, where appropriate. This is essential as our intention is for HDB to experiment and modify the parameters of the DBSS, if necessary.

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Clause 11 also includes provisions to cater to the scenarios where a buyer dies or ceases to be eligible to purchase the DBSS flat before taking possession of it. These provisions are similar to those stipulated under the Executive Condominium Housing Scheme Act. In addition, just as the use of DBSS flats by lessees will be regulated by HDB, uses of unsold units by the developer will also need to be regulated. There is, therefore, a provision to allow the Minister to prescribe the allowed uses for such unsold units.

As with new and resale HDB flats, buyers of DBSS flats can obtain mortgage financing from HDB, subject to them meeting the prevailing eligibility conditions for an HDB concessionary loan. Clause 4 of the Bill amends the current section 13 of the Housing and Development Act to expand HDB's functions and allow it to grant mortgage loans for the purchase of DBSS flats.

Finally, clause 11 allows the Minister to make rules necessary for the implementation of the DBSS. An example would be to prescribe the format of the sales contract between the approved developer and the buyer. As provided for in the Bill, the approved developer will be exempt from the sale and purchase documents prescribed under the Housing Developers (Control and Licensing) Act, which apply to private properties.

Let me now explain the amendments to other Acts that are necessary for the implementation of the DBSS.

First, clause 13 makes related amendments to the CPF Act to allow buyers to use their CPF savings to finance the purchase of flats built under the DBSS. A charge on the flat will be created to secure repayment to the CPF of the amount used in the purchase of the flat. The Home Protection Insurance Scheme will also be extended to flats built

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and sold under the new Part IVB of the Housing and Development Act.

In addition, clause 14 provides for related amendments to the Residential Property Act, to exempt flats built under the DBSS from the various provisions and restrictions under the Act, as is the case with HDB-developed flats today. This will allow Singapore PRs who are married or engaged to Singapore citizens to purchase these flats.

Mr Speaker, Sir, I have briefed the House on the various legislative amendments required for the implementation of the DBSS. Once they take effect, HDB will be able to proceed to put the land parcel for the first pilot DBSS project up for tender. My Ministry will monitor the outcome of the pilot closely before proceeding further.

_Special upgrading works
_

Let me now turn to the provisions for special upgrading works stipulated under Part IVA of the Act.

Sir, Part IVA lays down the guidelines for the implementation of special upgrading works and polling. Special upgrading works are defined as any works necessary or ancillary to installing lifts in a building, or other items of upgrading works for the convenience of residents which may be prescribed by the Minister.

In the context of lift upgrading, works currently permitted under the Act are confined to the provision of new lifts or lift shafts to individual blocks. Provision of new lifts and lift shafts that are shared between blocks is not permitted, even if it is feasible and more cost-effective, for example, for blocks that are already connected, or can be connected, by link bridges.

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The proposed amendments in clauses 9 and 10 are therefore aimed at giving HDB greater flexibility in implementing the Lift Upgrading Programme, and making it clear that lift upgrading works need not be confined to works in a single building but may include works relating to more than one building.

To facilitate the polling for such works, HDB will be given the flexibility to conduct the poll jointly across buildings and for the 75% majority required for a successful poll to be computed based on the total value in votes of the owners across the buildings. However, I would like to emphasise here that we will pursue such options only if it is more cost effective to do so. The cost cap of $30,000 per benefiting-unit will continue to apply to such blocks.

_Amendments to other sections
_

Sir, I shall now move on to the other proposed amendments in the Bill.

Section 6 of the Act currently stipulates that the HDB shall consist of a Chairman, Deputy Chairman and between three and seven other members. Clause 2 seeks to increase the maximum Board size from the current nine persons to 12 persons, by allowing a maximum of 10 members instead of seven. This is to allow a wider range of expertise to be brought into the Board. With the expansion in the Board size, the quorum for Board meetings will be correspondingly increased from the current three members to four members, by way of clause 3.

Clause 5 amends section 27A of the Act to allow HDB the flexibility to compound any offence under the Act instead of proceeding with prosecution in Court. Currently, section 27A only allows HDB to compound offences under rules made under section 27. At the same time, the maximum composition fine will be raised from $1,000 to one-half of the amount of the maximum prescribed for

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the offence, or $2,000, whichever is lower. This is in line with the Criminal Procedure Code and ensures that the fine will be commensurate with the offence committed.

Clause 6 of the Bill amends section 51 to make it clear that, in addition to prohibiting the voluntary creation of trusts over an HDB flat, the Act also prohibits any person from becoming entitled to a HDB flat under a resulting trust or constructive trust. This will help to prevent a situation where a person who is ineligible to own an HDB flat may become entitled to own one, for example, by paying the purchase price of the flat on behalf of the owner.

Section 52(2) of the Act sets out the guidelines for the transfer or sale of a flat, house or other building upon the death of the owner. Under the current provisions, a Grant of Letters of Administration or Grant of Probate must be taken out within 12 months of the owner's death and, thereafter, HDB's consent for transmission or transfer must be sought within six months. However, there is no timeframe for administrators or executors to transfer or sell the flat after HDB's consent is obtained, which implies that they can remain as legal owners of the flat indefinitely. Clause 7 seeks to address this by requiring the transfer or sale of the flat to be completed within 12 months from the date of HDB's consent. If the transfer or sale is not completed on time, HDB can take action to have the flat vested in HDB. We will, of course, invoke this provision only as a last resort.

Section 60 of the current Act states that it is an offence for anyone to make a false statement to HDB in relation to any purchase, mortgage, sale or transfer of a HDB property. Clause 8 repeals and re-enacts section 60 so as to expand the scope of the offence to include making false statements in relation to any other applications to HDB for its permission,

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consent, approval or licence under the Act or any subsidiary legislation. It will also make clear that the section covers any type of statements made, including those made electronically. The amendment is timely in view of the different types of applications which may be made to HDB and the wider usage of electronic applications today.

Finally, clause 12 amends section 80 of the Act to expand HDB's investigative powers. Apart from requiring proof of identity from any person whom it believes to have committed an offence under the Act, the clause will also empower HDB to request for other types of evidence, call for the attendance of witnesses and inspect records.

This will allow HDB to deal more effectively with offences under the Act. One such example is cash-back transactions, where the buyer, seller and housing agent may make false statements about the transacted price of the resale flat.

Sir, I beg to move.

Question proposed.

Dr Amy Khor Lean Suan: Sir, I believe, if carefully implemented, the DBSS scheme, which the Bill primarily seeks to introduce, has numerous benefits for all stakeholders.

For the Government, the scheme allows HDB to tap private developers' expertise in housing design and service delivery. It would inject some degree of competition into the market, as hitherto public housing was the monopolistic purview of the HDB. In turn, this should foster greater innovation in building and design.

For the buyers, unlike new flats built by the HDB, DBSS flats could come complete with finishes and fittings similar

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to private developments. These finishes and fittings could be priced into the flat's selling price.

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]: 4.40 pm

Purchasers of such flats would thus be able to avoid incurring out-of-pocket renovation costs or taking up separate renovation loans. This would be attractive to first-time home-owners who may be cash strapped as they are just starting out in their careeers. Looking at it in broader terms, the DBSS should improve the responsiveness of the public housing market to the needs of the residents, leading to greater housing choice for flat buyers.

The DBSS is also congruent with the philosophical shift of subjecting the provision of public services to market testing. I applaud the Ministry for heeding the call for more private sector participation in the public housing market and adopting this refreshingly bold approach, which some might even consider radical by current HDB practices!

Nonetheless, as the Minister for National Development has acknowledged, this idea is untested and unfamiliar to not just flat buyers but also to the HDB. In fact, I think developers are just as unfamiliar with the idea, and many could be adopting a wait-and-see attitude when the pilot project is launched.

It is likely that, initially, only the social conscience developers like NTUC Choice Homes or the contractor-types would have the motivation and confidence to go in for the pilot project due to their familiarity with HDB construction. In fact, I hope they will be the pioneers of the schemes, so as to get it off to a good start.

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While this approach is generally positive and could bring benefits to all stakeholders, there are inherent risks and concerns. And as with so many ideas and policies, the devil is in the details.

I would thus like to raise four areas of concern which I urge the Ministry to carefully consider when implementing this scheme.

First, land allocation and determination of reserve price. As announced by the Ministry, land under this scheme would be allocated to the developers via open tender. Presumably, there will be a reserve price set for the land, below which the land is unlikely to be awarded.

Speaking as a licensed real estate appraiser, I would suppose that for the first plot of land at Tampines under the pilot project, the reserve price of the land is likely to be determined as the residual value after relevant construction costs, including access roads, landscaping of common areas, etc, are deducted from the estimated gross selling price of all flats that can be built on the plot of land, and the consideration to be paid by HDB for the common property and the commercial properties.

The selling price of the flats could be estimated by using the prices of new and resale HDB flats in the area as a guide, with appropriate adjustments. This is because there is no market evidence of the value of such land currently.

However, for subsequent tenders of land under this scheme, the successful bid from this inaugural tender could be used as a benchmark for determining the reserve and bid prices for the land by the HDB and the private developers respectively.

In fact, this could also influence the price which HDB sets for the new flats

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that it subsequently builds. Here, I wish to sound a caution. If developers bid aggressively for the land, will this inadvertently lead to HDB revising its new flat prices?

The land market is unfettered, but hardly smooth in its functioning. It is what economists call "inefficient" because of its lumpiness, heterogeneous and inherently cyclical nature. Consequently, a high bid price at one or two tenders may not reflect what ought to be the market clearing price.

Even though the Ministry has given the assurance that the HDB will continue to be the main developer of public housing, this does not ensure that too much reliance would not be placed on the land and flat prices achieved under the DBSS. This is because such prices are market-determined, and thus very compelling evidence of the market.

In a rising market and when the scheme takes off, there could be a virtuous - or vicious, depending on whose view you take - cycle of upward price creep affecting the entire new HDB flat market. Consequently, the Ministry needs to guard against being too unduly influenced by the prices secured under the DBSS.

Sir, the affordability of public housing must always remain the top priority of the HDB. Hence, new HDB flat prices set by the HDB must first and foremost take cognisance of the income levels and needs of Singaporeans, especially first-time home buyers.

Second, allocation of flats under the DBSS. Developers will be given a free hand to decide on the pricing of the flats as no ceiling has been set on the flat prices. Presumably, developers would also be given a free hand as to the mode of allocation of flats to buyers.

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Based on market practice, this could be on a first-come-first-served basis, but subject to compliance with HDB eligibility conditions, such as the ethnic integration ratio. An advantage of this is that flat buyers may be willing to pay some premium for the flats, simply because the waiting time for the flat is likely to be shorter under the DBSS with the first-come-first-served mode of allocation.

However, in a first-come-first-served marketing situation, there could be some practical difficulty in complying with the ethnic integration ratio which should be resolved at the outset. This is needed to make the process transparent as, otherwise, potential buyers may be wary of unfair practices by the private developers.

Developers are unlikely to adopt the build-to-order approach for the DBSS if they have to incur holding costs once they are awarded the land which is on lease for a fixed term of years. This would be the case unless some kind of concession, say, in the form of a lease deferment or extension, for the period, from the date the land is awarded to the developer to the date before the trigger point, ie, where, say, at least 75% of the units are booked.

Conversely, if the developers do not rely on the build-to-order scheme on the basis of receiving high interest for the flats before proceeding to build, they may end up with unsold flats if demand is poor.

Based on the existing practice for HDB-developed unsold flats, it is likely that the developers would not be allowed to rent out these unsold flats. I would thus like to ask the Minister if there would be any guidelines as to how developers are to sell and allocate the flats under the DBSS.

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The proposed section 65P(1)(b) of the Bill requires that any unsold flat built by the developer be vested in the developer. If these flats are not taken up in order to cut cost and/or losses and dispose of the unsold flats, the developer may resort to lowering prices, as is common in market practice in the private sector. In some instances, the price reduction could be hefty. Whilst this is quite normal market practice, particularly in the private sector, and HDB has itself also been cutting prices for its unsold flats, HDB flat buyers who paid higher prices under the DBSS should be made aware of this, so that they will not feel aggrieved or shortchanged.

I raise this point because the Minister for National Development had noted in this House, when commenting about making downward price revisions for HDB's unsold flats, that these adjustments are moderated compared to the actual fall in resale flat prices. He noted that this helps to stabilise the property market and preserve the value of the existing HDB flats.

However, developers, who understandably would be driven by the bottom-line, are unlikely to place "preservation of the value of existing flats" as their priority. Hence, the DBSS is likely to inject more volatility into the public housing market.

Third, housing subsidy and resale levy. Under the DBSS, to ensure affordability, first-time buyers will receive a Government housing grant of $30,000 or $40,000, similar to the grant for first-time buyers of HDB resale flats. Eligible buyers are also able to get HDB concessionary loans.

As private developers are in the business to make profits, guided by existing new and resale HDB flat prices

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and an understanding of market conditions, the prices they bid for the land under the DBSS will give a strong indication of how much the market values a plot of land for public housing. The developers would also have factored in a profit margin.

This practice of allowing private developers to build and market HDB flats will provide an interesting profit/loss comparison with regard to the housing subsidy enjoyed by buyers of HDB flats - a contentious issue which has been hotly debated and, if I may be so bold to say, still little understood and therefore worth revisiting.

In the case of the DBSS, if the developer makes a profit from the project - and we have to assume that this is likely to be so in most cases - after having paid for the land via tender, then the subsidy given to the flat purchasers is in effect the $30,000 or $40,000 grant plus the HDB concessionary loan, if the flat buyers are eligible for them.

Otherwise, one could say that the flat buyer is not really enjoying a housing subsidy since the differential pricing, say, between the flats sold under the DBSS and those of HDB-built new or resale flats can be attributed primarily to the different sets of restrictions, criteria of allocation, etc, applicable to them.

In valuation parlance, the value of a property is not just determined by its physical attributes, such as flat size and location, but also by its bundle of legal rights. All things being equal, the smaller the bundle of rights or the more restrictive these rights, then the lower the value of the property.

Does the Ministry then need to relook at the whole issue of subsidy and how this is to be determined and allocted, as well as the related issue of resale levy and how this is to be imposed? Firstly, the

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housing grants to first-time buyers ought to be reviewed from time to time to ensure that they keep pace with affordability levels. Secondly, the mode of computation of the resale levy to be imposed when a flat owner sells the first flat he purchased under the DBSS, or direct from the HDB, and opts to make another direct purchase ought to be reviewed.

According to the Ministry, the resale levy is a mechanism to claw back some of the subsidy that the Government is handing out on the second flat. It is to make sure that the distribution of the subsidy is equitable across-the-board. However, a fall in flat price could have technically wiped out any subsidy or housing grant enjoyed by the purchaser on the first flat. For such cases, even if they benefit from another subsidised flat, the real total subsidies they enjoy from both flats would be lower than those who did not sell their first flat at a loss.

As some members of the public have voiced in letters to the press, the imposition of resale levy on a percentage of the sale price of the first flat hurts them, and may prevent them from downgrading to relieve their financial pressure. Furthermore, in the case of the DBSS, there could be purchasers who, in reality, enjoy little, if any subsidy, on the second DBSS flat they purchase, if they do not qualify for the HDB concessionary loan. Hence, in the light of the changing public housing market landscape and circumstances, it is timely to review the rationale for and mode of imposition of resale levy. I would thus like to urge the Minister to do so and to do so as soon as possible.

Finally, flat quality. Another nagging question with the DBSS is whether developers are able to build housing of even better quality than HDB-developed flats at affordable prices on land that is purchased through competitive tender. A

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developer who refused to be named commented, "If you want to build a super-duper HDB flat, consumers may not be able to afford it. It will be a challenge for developers if you want to have better designs and still keep it affordable."

The worry is that if the developer is not able to reap a normal profit or, worse still, suffers loss, then he may resort to cutting corners, and this situation may result in poorly-built flats. The Ministry has decided not to place any price ceiling, as the experience in Hong Kong has shown that this may lead to developers skimping on construction. However, developers may still skimp on construction if their profit margins are squeezed or if they make losses and have to hold on to unsold flats. Hence, there ought to be at least some form of control over the quality of the flats built, say, in terms of materials used and workmanship, and/or some BCA quality certification.

The quality issue cannot be over-emphasised as, although the developer is responsible for the one-year (or longer periods if they are applicable) liability period, defects usually occur after the first year, or after the expiry of the liability period. After the defects liability period, it is the Town Councils who may end up spending more on maintenance of poorly-built common areas and flats.

In conclusion, Sir, I note it is appropriate that the Government is treading warily in the move to open up more public housing to the private sector under the DBSS, as the idea is alien to HDB flat buyers as well as private developers. The Government should thus carefully consider the rules and guidelines under which the scheme is to be implemented as well as monitor the scheme when it is underway to avoid some of the pitfalls highlighted.

Nonetheless, I applaud MND for embarking on this daring move and

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welcome the opportunity that it affords for the private sector to participate in yet another area of public service to the citizens.

Sir, subject to the aforesaid, I therefore support the Amendment Bill.

Mr Ahmad Khalis Bin Abdul Ghani (Hong Kah): Sir, I wish to raise some points regarding new section 65S of the Bill. Section 65S deals with the events on the death of a purchaser before the relevant date. When that happens, under this section, the approved developer shall, unless the Minister otherwise directs, cancel the deceased purchaser's application and terminate the sale and purchase agreement and refund moneys paid, less administrative and legal costs.

This clause raises several issues. First, it seems to run against the general operation of law that a person's contractual obligations and rights continue even after his death to be borne by his estate. There are exceptions to this general rule, such as in contracts of service or employment and other similar agreements which are personal to the individual. The Minister has stated that the effect of section 65S is similar or exists in the Executive Condominium Scheme. I wish to ask him whether there is a rethink of that position and whether a similar rationale exists in this case. This is because, besides these few exceptions, in almost all property transactions, these are carried over by the person's estate upon his demise, and there are good reasons for this. It lends certainty to the agreement, especially from the viewpoint of the developer.

Under section 65S, the developer may also be able to mitigate the uncertainty by buying suitable insurance. But this means additional cost which, I presume, will ultimately be borne by the purchaser.

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This is not a totally satisfactory solution. I would like to ask the Minister whether there is any special reason why there is a departure from the general rule in this case.

The second point is that this clause may cause severe hardship to the purchaser's joint applicant, if any. And, indeed, in the current scheme of things, it is very likely that purchasers apply to purchase jointly. Under this clause, upon the demise of one purchaser, the joint purchaser will have his or her rights of application cancelled. This may not be fair to the joint purchasers who have shared the dream of buying the property, invested funds into the purchase and may even have the capacity to fulfil the obligations under the sale and purchase agreement, notwithstanding the demise of his or her partner. To the surviving partner, there might not be any reason why his or her rights should be terminated in the event of the demise of his co-purchaser.

The third issue is that this clause may even cause hardship to the dependants and other persons who are intended to be occupiers of the property. One could envisage a situation where a married couple have purchased jointly. They have school-going children and aged parents staying with them. The parents may have agreed to help the purchase to finance furnishings, for example. Then one of the purchasers passed away. This clause says that the developer shall cancel the sale and purchase agreement. Not only does the family suffer bereavement, we also see their plan to stay together dashed. Of course, they can re-apply elsewhere, but there will be much time wasted and loss of the opportunity to stay at the location of their choice.

It may be argued that the concerns I raised are addressed by the phrase "unless the Minister otherwise directs" found in section 65S. But the question is:

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why do we need to have the Minister to direct the developer not to cancel the sale and purchase agreement, when the developer should not cancel the agreement in the first place even without the direction of the Minister? I am of the view that, in the event of the demise of a purchaser, we will let the normal operation of law take its course, ie, the estate carries on with the purchaser's obligations and rights. If there is reason to force the parties to reconsider their positions upon such a demise, then it is better to let the deceased purchaser's estate and the co-purchaser, if any, have the option whether to continue with the purchase. Under the proposed section 65S, this option seems to lie with the Minister, and not with the estate of the purchaser or with the co-purchaser.

I hope the Minister would address these issues and, subject to these, Sir, I support the Bill.

Mr Mah Bow Tan: Mr Deputy Speaker, Sir, let me thank Dr Amy Khor and Mr Ahmad Khalis for their comments which are very relevant, and I hope to allay some of their concerns regarding the points that they have raised.

First of all, Dr Amy Khor raised four concerns.

Let me address each of them in turn.

On the issue of land allocation and reserve price, as Dr Khor mentioned in her speech, it is true that the Government will be tendering out land for the DBSS. We will award the tender to the highest bidder, in the same way that we award land for other Government land sales programmes but, of course, subject to their meeting the reserve price. Regarding the question of what the reserve price will be, Dr Khor is an eminent valuer, and she has suggested that one way of arriving at a suitable reserve price is the residual value method. I am not a valuer, but I am sure that the Chief Valuer, whose duty it

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is to set the reserve price, will know what to do. But the point really is that the land allocation and the land price that is determined in this manner will be determined by the developers themselves. It will be determined by them doing their sums, looking at the prices of flats in the surrounding area, calculating their profit margin and their own particular situation, and then making a bid for it.

It is a pilot project. As Dr Khor rightly mentioned, the developers are not very sure how this will work but, in the course of the discussions with them, HDB has tried to explain as much as possible what is the objective behind the scheme. Of course, it is the wish of the Government that as many developers as possible take part in this preliminary pilot project.

So, the issue of the land price and the reserve price, these are things that will be determined by the Chief Valuer. It is not determined by HDB. How the land will be allocated will be determined, as per normal, through the highest land bid, and how many developers will take part in the exercise and what their bid is and so on will be left to the market. I hope that, through this initial project, we will be able to learn many lessons.

But the main point of Dr Khor's concern here is not so much how much the developer is going to bid, but really how to make sure that HDB flats remain affordable. I think that is really the nub of the issue. Here I must say that it is not the intention of the DBSS to raise the price of HDB flats. Certainly, it is not in the Government's interest to do so. We want HDB flats to be affordable and, in the case of the DBSS, this objective remains paramount. But at the same time, we also want to inject that flexibility into the market to try and see whether the private sector can actually add value to the whole process of the provision of public housing. HDB has been at it for 40 years, and it has done a marvellous job.

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But I think there is scope for us, in a limited way, to allow the private sector to be involved in the provision of public housing.

I do not see the DBSS scheme will be the overwhelming way for the HDB or the Government to sell HDB flats. There are three ways that we will continue to do so, even after DBSS.

The first, of course, is for HDB itself to develop public housing, and this HDB will continue to do. Second, is the design-and-build method where HDB will remain the developer but will sub-contract or outsource the design and building of the flats to the private sector. The third way, of course, is DBSS. I foresee that the bulk of the public housing programme will still remain with HDB for the foreseeable future. Indeed, the DBSS scheme, even if we proceed after the pilot project, will remain a very small but a very meaningful part of the public housing programme. In this way, Singaporeans can be assured that HDB flat prices will remain affordable, because the Government will still remain a major provider of public housing.

The second way is through the eligibility rules for buyers of DBSS. We will continue to set the eligibility rules so tight, eg, the housing income ceiling, the family nucleus and other rules like the 5-year minimum occupation period, because these are, at the end of the day, public flats. It is part of the public housing programme. So, the target market for the developers in the DBSS programme will be limited to these groups of people. Again, I dare say that this will be another way for us to make sure that the prices of DBSS flats will remain affordable.

The third way that we will make public housing affordable under the DBSS scheme will be through the provision of

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the CPF housing grant. So, whatever the price set by the developer, any first-timer who comes and buys a flat under this scheme will immediately be able to get a $30,000 or $40,000 grant.

So, these are the three ways which I would like to assure the Member that we will continue to make public housing affordability an objective of the DBSS scheme. We will make sure that there is sufficient competition through HDB to ensure that there is a price comparable, that there are benchmarks and that the private developer is not able to set whatever price he wants. Secondly, we want to make sure that the group that is buying the DBSS flats will be a restricted group. Thirdly, there would be the CPF housing grant.

The DBSS scheme is another way for us to provide HDB flats by allowing private developers to step into the shoes of the HDB and to provide a different kind of HDB flat but, at the end of the day, still a form of public housing. It is not private housing like in the Executive Condominium Scheme, but it is a form of public housing.

On whether developers will be free to set prices, yes, I think I have mentioned earlier, we will allow developers to set prices but the developer really has to take into account many factors when he does so, eg, the surrounding flats, the comparables, as they call it, not just new HDB flats built by HDB but also resale HDB flats in the surrounding areas. So, the prices of flats will be set by the developer. We have decided not to fix the price of the flats, which I think some Members in this House suggested when I first mooted the scheme in the debate in the Committee of Supply, the so-called reverse tender scheme whereby we fix a price and then we ask the developer to tender for it. I explained in the House at that time that I thought it was not a very good idea because housing authorities,

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such as those in Hong Kong, for example, who did try this, and found that, by setting a cap on the price, the only way the developers could make money or maximise profit was really to try and scrimp on the quality, which obviously is not in our interest. So we think that by freeing up the ceiling on prices, by letting the developers set prices but yet at the same time providing sufficient competition to them, they will be able to set prices at a level that the market can bear and which, with all the other considerations, will make it affordable to housing buyers.

We will also let the developer decide on the allocation of the flats, whether it is through ballotting or first-come-first-served. Again, we do not want to restrict the developer in how he chooses. Of course, they will have to comply with the policies of HDB, such as the ethnic integration policy. They will have to provide a higher weightage or preference for first-timers and provide some priority for those under the Married Child Priority Scheme and so on. So, all the priority schemes that HDB is currently operating for its own flats will also be required of them.

Within that parameter, how they go about allocating, whether it is through a walk-in selection or whatever, we will leave it to them. I think that one of the primary difficulties of this scheme is that while we want to make sure that the rules and regulations do not depart too much from those for the current HDB flats, at the same time, we do not want them to be exactly the same because, if they are exactly the same, then a lot of the purpose of the DBSS would be lost. So, we want to allow the private developers to do as much as they can and to free up as much as possible, without violating the fundamental principles of the public housing scheme, such as minimum occupation period and the ethnic integration policy.

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The third concern that Dr Khor had was on the housing subsidy and the resale levy. On the issue of the housing subsidy and whether the housing grant needs to be reviewed from time to time, if you look at the history of the CPF housing grant, it has actually been reviewed from time to time. It is a useful mechanism. It is something that allows first-timers to purchase a HDB flat in the place and at a time of his choosing and yet, at the same time, benefit or enjoy the CPF housing grant from the Government. And we have reviewed it from time to time. We have reviewed it as and when the market situation or the economy has changed. We will continue to do so. And so it is with the resale levy. I believe many Members have commented on the resale levy in this House, and I have indicated that we are going to do a review of the resale levy. So I would just like to repeat that again. I think there are certain anomalies in the system which have arisen as a result of changing circumstances and changing market conditions, and I agree that it is timely for us to do a review of the resale levy. But let me just say this again that the principle of the resale levy, which is that we want to make sure that subsidies are not over-consumed by any single person, still remains. But how we implement the resale levy, eg, how we apply it, what are the percentages and so on, I think that we can review.

Finally, the question about quality - better design and yet trying to keep it affordable. It is a bit strange listening to Dr Khor, but I guess it is a tribute also to HDB that she is a bit worried about the quality of flats that will be built by the private sector. Usually, it is the other way around. Usually, people say that HDB flats are not as good as those in the private sector. But I think it is a tribute. For the same price, the HDB can build a good quality flat, and I would like to thank her for acknowledging this fact, although in an indirect way. I thought I would put

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it a bit more directly to her.

But it is a concern that we have. We want to make sure that the quality is there, and that is one of the reasons why I did not want to use the reverse tender mechanism, because all my friends in Hong Kong tell me, "If you do this, developers are going to take advantage of it."

We will maintain the quality because the private-sector developers will continue to be governed by all the housing construction standards that are set by BCA, the technical standards that are set by HDB and not just standards on housing quality. We will be setting standards on durability and maintainability, because one of the features of the scheme is that these flats will be handed over and vested to HDB and will be maintained by the Town Council. So, we do not want to have a situation where a flat is built

- it may look very good for the first, second or third year - and thereafter, Town Councils will be landed with the "baby", as it were. Standards on durability and maintainability are standards which apply to HDB flats and which we willl apply to the DBSS flats as well.

In summary, as far as Dr Khor's concerns are concerned, I think they are very valid concerns and we will certainly take note of them. We will proceed with the first project with our eyes wide open and we will talk to all concerned - buyers, developers and, of course, HDB - and we will see how we can improve upon it. The objective behind this scheme is a good one and that is why I am pushing for it, but, at the same time, we know that there are certain pitfalls which we have to be careful about.

Let me now turn to the concern of Mr Ahmad Khalis. He talked about the

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proposed new section 65S. First of all, let me say that this clause is also in the Executive Condominium (EC) Housing Scheme Act. The reason why we have it and why it is not in the Residential Property Act for private property transactions is because of one simple fact. In a private property transaction, you do not have issues of eligibility conditions, whereas for buying an HDB flat and an executive condominium, you must fulfil certain eligibility conditions before you can buy. That is the reason why we need this clause in the EC Housing Scheme Act and now, in the Housing and Development Act for DBSS purposes.

What are these eligibility conditions? Income ceiling, family nucleus, citizenship - these are the three basic ones. These are provided in the Bill under the proposed new section 65R. We do not want to inadvertently have a situation whereby, as a result of an unfortunate demise of one of the applicants, the remaining applicant is not eligible to buy the flat because of one or other conditions earlier. So we craft it in such a way that it is mandatory to cancel the sale and purchase (S&P) agreement. However, I would like to mention here that, in practice, what happens is that the developer will not need to cancel the S&P agreement straightaway. What he does is that he will consult HDB to check whether that person, who is inheriting the contract, is eligible to purchase. If he is, he will then refer the matter to the Minister and the Minister will exercise the discretion that is in the Act to allow him to proceed. But if he is not, then, unfortunately, he has to proceed to cancel the S&P agreement. Of course, having said that, we do get appeals from time to time from people who are not eligible, but, as a result of a demise, they cannot get another person to jointly purchase and as a result of which, he may actually lose the flat. Under extenuating circumstances, we do look at it on a case-by-case basis.

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But I want to assure the Member that there are enough provisions such that for the cases that he has pointed out, whether it is the remaining applicant or whether it is the dependant, if there are extenuating circumstances, we will look at it. But on a normal basis, we must have this provision in the Act. Otherwise, it will be very difficult for us to implement the scheme. So, that is as far as the proposed new section 65S is concerned.

Let me thank both Members again for supporting the scheme. I assure them that we will proceed with this scheme and learn lessons from it. If we can make this scheme work and iron out some of the issues, I think it would be of great benefit to public housing flat buyers.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Mah Bow Tan].

Bill considered in Committee; reported without amendment; read a Third time and passed.