PSP proposes land cost to be excluded from prices of BTO flats; PAP MPs say it will distort public housing market

SINGAPORE — Non-Constituency Members of Parliament (MPs) from the Progress Singapore Party (PSP) proposed on Monday (Feb 6) that prices of new public housing flats exclude the land cost.

This suggestion was shot down by Members of Parliament (MP) from the ruling People’s Action Party who argued that such a plan was not feasible and would further increase demand for flats in prime areas or reduce the equitable access of flats to first-time homeowners.

This was during a debate for a parliamentary motion on affordable and accessible public housing, tabled by National Development Minister Desmond Lee. A separate motion on public housing policies was also filed by Non-Constituency MPs Leong Mun Wai and Hazel Poa of PSP. 

During his speech, Mr Lee said that the Government remains committed to providing affordable and accessible public housing for Singaporeans, even though the housing supply has become tight and resale prices have risen due to the Covid-19 pandemic. 

A total of 10 MPs across the aisle and one Nominated MP spoke during the first day of this debate, with several noting that the housing needs and aspirations of Singaporeans had changed over several generations. 

Ms Denise Phua, MP for Jalan Besar Group Representation Constituency (GRC), said that Singapore has become a victim of the success of its public policy, with Singaporeans viewing owning a Housing and Development Board (HDB) flat as a rite of passage and entitlement.

Similarly, Ms Cheryl Chan, East Coast GRC MP, pointed out that the demand pattern and lifestyles of the newer generations have had an impact on the affordability of and accessibility to public housing. For example, younger people want to live separately, but near their family, driving up the price of flats within the estate. 

PSP’S PROPOSALS

Mr Leong and Ms Poa put forth two proposals during the debate. 

The first was an "affordable homes scheme" where Singaporeans may buy a Build-to-Order (BTO) flat at a “user price”. This price would include the construction cost of the flat and a “notional location premium”. 

At the point of purchase, the land cost for the flat will be made known and recorded with HDB. 

The land cost will be recovered when the owner sells the flat in the resale market after the required five-year Minimum Occupation Period.

This means that as long as people are buying HDB flats to live in the units, they should not have to pay for the land cost. "They should only pay the land cost when they take the HDB flats to be an investment and sell it for a profit,” Mr Leong said.

He cited the example of a S$350,000 BTO flat in Tengah, where a buyer will only pay the user price of about S$140,000, with the balance of S$210,000 in land cost to be paid later when the flat is sold.

The second proposed scheme was a "millennial apartments scheme", where the Government will keep a “large stock of quality rental flats” near the Central Business District with affordable leases of two to five years for young Singaporeans.

Mr Leong also spoke of several concerns about the present BTO system. He said that even though the Government has said that BTO flats are affordable and most buyers may use their Central Provident Fund (CPF) savings to service their monthly property loans, this comes at the cost of depleting their CPF savings for retirement and other needs.

Both Mr Leong and Ms Poa also said that the shortage of BTO flats and high resale prices could have a negative impact on the total fertility rate in Singapore, since married couples with potential plans to start a family are unable to secure a house due to long waiting times for BTO flats and high prices.

Ms Poa suggested that the Ministry of National Development (MND) track waiting time from the point when a couple first applies for their BTO flat to the point of collection, rather than from the point of a successful BTO flat booking to the collection.

She added that the system now makes it difficult to grasp how long couples have to wait for a flat from the time they decide to marry each other to the time they get the keys to their first flat. 

WHAT OTHER MPS SAY

Several PAP MPs criticised PSP’s proposals, particularly its suggestion to exclude land cost from prices of new flats.

Mr Vikram Nair, a Sembawang GRC MP, said that the land costs of BTO flats are currently not passed on to buyers. Instead, the flats are priced based on a variety of factors linked to affordability, such as loan serviceability and ratio of income to price. 

Under PSP's proposal, the way a BTO flat is priced could create "severe market distortions", said Mr Nair.

At the time the flat is launched, it would appear very cheap. This would particularly be the case in prime areas where the demand for flats could "well explode", he added.

This will in turn exacerbate the “lottery effect” (where buyers make significant gains from the sale of their flats), such that buyers who get the prime area flat will feel happy and people who lose out will feel resentful. 

But when flat owners need to sell their flats, they will have a huge bill to pay in terms of land cost, paying more than what they paid for the flat initially, Mr Nair added.

Families may then not be able to sell their flats if they cannot stump out a large amount of cash.

Making a similar point, Jurong GRC MP Xie Yao Quan said that under PSP’s proposed scheme, first-timers buying a resale flat would also have to pay the full market value of the flat. He questioned if this provided equitable access to public housing for first-timers. 

He also asked about the impact of PSP's affordable homes scheme on resale prices and whether Mr Leong agrees that "he seriously risk risks crashing the resale market instead of keeping it buoyant, as he has claimed?"

"How can you expect to keep the resale market buoyant with such a shock?" said Mr Xie.

On PSP's proposal to offer rental housing for young Singaporeans, Mr Nair said that HDB should continue to prioritise building flats for those who need BTO flats first, given the limited supply of flats.

If the demand for BTO flats has adequately abated, the Government can consider providing rental homes, although rental housing should be prioritised for families in financial difficulty, he added.

Other PAP MPs who questioned PSP’s proposals during the debate were Mr Murali Pillai, MP for Bukit Batok, Mr Sitoh Yih Pin, MP for Potong Pasir, and Ms Phua, Jalan Besar GRC MP.

Nominated MP Cheng Hsing Yao said that given Singapore’s limited land resources, land should be safeguarded as a reserve. 

If the value of land is not factored into the cost of public housing, it would create an “open loop” for the land value to be given away for free. This will result in some parts of society enjoying a significant windfall from free land, while other parts of society will pay for the windfall. 

Factoring in the land cost for a flat will prevent undue windfall for certain people only. 

MORE PROPOSALS

To improve the public housing system, MPs also offered other suggestions:

• Mr Xie proposed capping the prices of four-room BTO flats to five times the median income of a Singaporean household, or just under S$500,000 before grants
• Ms Chan asked if MND could increase the Minimum Occupation Period for BTO flats in mature estates so as to prioritise buyers who genuinely need a flat
• Ms Phua suggested building more appealing towns, with better residential concepts and education facilities, for example, away from popular estates. This will help to shift demand away from mature estates

The debate on the two motions will continue on Tuesday, with 12 more MPs expected to speak.