SINGAPORE - Non-Constituency MP Leong Mun Wai’s proposal to exclude land costs in pricing Housing Board flats is “superficially attractive” and “not logical”, said National Development Minister Desmond Lee.

Mr Lee was responding on Tuesday to a question by Workers’ Party MP Gerald Giam (Aljunied GRC) on how land used for public housing is valued compared with that for private housing, when he rebutted the point made by the Progress Singapore Party (PSP) NCMP in a Dec 8 Facebook post.

“It is not logical and simply cannot fly... (with) long-established, well-accepted valuation principles,” said Mr Lee, adding that Mr Leong’s approach is dangerous for Singapore.

“He is in fact seeking to raid our national reserves in promising you that he can make HDB flats dirt cheap, but better, without having to tax Singaporeans more or to find ways to pay for it through revenue sources,” he said.

In his Dec 8 post, Mr Leong said HDB flat prices should account only for construction costs and price differences between locations.

“Land costs should be taken out of the picture, because much of the land used for building HDB flats was surrendered by the Pioneer Generation to the Government for a relatively modest sum under the Land Acquisition Act between the 1970s and the 1980s,” he wrote.

On Tuesday, Mr Lee said Mr Leong is overturning the fundamental point that land has value by calling for land to be sold at historical cost.

He added that a valuation report has to be done when buying and selling a property, which applies established and accepted valuation principles like relevant recent transactions to determine its current market value. Valuation will not be based on how much the property was sold for historically, he said.

The idea of valuing land at historical cost sounds attractive, but is problematic, said Mr Lee, citing how an HDB flat bought by a Pioneer Generation citizen for $50,000 would be worth a lot more today.

He said: “But if we adopt Mr Leong’s new approach, will this senior be required to sell at just above $50,000? Or even with, say, cash over historical value? Will his children and descendants inherit a flat valued as it was back then in the 60s – worth very little compared to today’s prices?”

Mr Lee added that state land, which forms part of the country’s reserves, has value which grows if Singapore is well managed and does well.

This provides greater assurance that future generations will have the resources to deal with crises, catastrophes and calamities, such as pandemics, war and economic crises, he said.

When state land is sold to HDB, it puts the fair market value of the land back into the reserves, which are then reinvested. Part of the growth in value of the reserves is used to fund needs such as healthcare, housing subsidies and security today, Mr Lee noted.

“Mr Leong’s proposal for HDB to pay historical price to the reserves means putting back... far less than what the state land is really worth today,” he said.

“This is a raid on the reserves, plain and simple, and will diminish the resources available for your children and their children.”

He said Mr Leong’s argument about valuation paints a picture that housing will be much cheaper.

“But hey presto, don’t need to pay more today. He says everything else, but through sleight of hand, he hides from you the plain fact that he is really wanting to raid our reserves,” the minister said.

Mr Lee noted that public housing can be made cheaper by cutting back on government expenditure in areas such as healthcare, security or education, or by raising taxes.

“But this is not going to be popular or wearable. So instead, (Mr Leong’s) approach is the populist one – raid our reserves, but don’t say it.”

Mr Leong’s suggestion for the Government to sell land at historical cost to HDB – ignoring market valuation principles – so Singaporeans get “dirt cheap” housing without having to pay more taxes or experience cutbacks elsewhere to fund it, was akin to getting “the benefit of the cake and eating it”, Mr Lee added.

“I think most people will recognise that this deal sounds too good to be true,” he said.

On Mr Giam’s question about land valuation, Mr Lee said the selling of land to the private sector for development is typically done by open tender through the government land sales (GLS) programme, where the value of the land is determined through price discovery as developers bid for the land.

The sale of state land to HDB for public housing does not fall under GLS, he said. Instead, the Chief Valuer independently determines the fair market value that HDB must pay, and considers relevant public housing transactions and specific parameters of the site. These are the same valuation principles used by professional valuers in the private sector, he added.

Mr Giam also asked if high HDB resale prices will push up Build-To-Order (BTO) flat prices.

Mr Lee said HDB looks at transactions of comparable resale flats, then applies subsidies and grants to bring prices down to an affordable level for Singaporeans. HDB flats are not priced to recover the cost of land and construction; if that were so, then BTO prices would have shot up, he added.

He cited how the average price of four-room BTO flats in non-mature estates has remained fairly constant between 2019 and 2022, despite resale prices having gone up by 28 per cent to 29 per cent.

Ms Jessica Tan (East Coast GRC) also raised the issue of affordability of resale flats, and asked how to assure people, especially first-time buyers who cannot get a BTO flat.

In response, Mr Lee said the Government has introduced two rounds of cooling measures to moderate demand.

“We’re also mindful of the headwinds that may come our way this year – economic headwinds, geopolitical, very high mortgage interest rates,” he said, reiterating that the Government will monitor both private and HDB resale markets.