SINGAPORE - A housing scheme proposed by the Progress Singapore Party (PSP) to exclude land costs in pricing Housing Board flats would not only erode Singapore’s reserves, but also benefit only a select group of flat buyers at the expense of all Singaporeans, said Minister in the Prime Minister’s Office Indranee Rajah on Tuesday.
It would also exacerbate the very issues of housing affordability and accessibility that PSP Non-Constituency MPs Leong Mun Wai and Hazel Poa said it would solve, she added.
Addressing Singapore’s one million home owners directly in her speech, Ms Indranee warned: “The PSP portrays it as cheap housing with no downsides. This sounds too good to be true.
“And if something sounds too good to be true, it probably is too good to be true. That is to say: There is a catch you haven’t been told about.”
Ms Indranee was among four ministers who spoke in the debate on two motions about public housing – one put forth by National Development Minister Desmond Lee, and the other put forth by Mr Leong and Ms Poa.
Under the PSP’s scheme, an individual buys a new flat at a “user price”, which is set based on “construction cost and a notional location premium”, Ms Indranee said, adding that Mr Leong did not say how this notional location premium would be calculated.
If the individual were to sell his flat in the resale market after the minimum occupation period, he would have to pay the land cost that HDB had recorded at the point of purchase, along with some accrued interest.
This, said Ms Indranee, is essentially a “national prepaid rental scheme with an option to buy”.
“And that’s why Mr Leong uses the phrase ‘user price’, not purchase price. Because he knows it is not ownership, it’s prepaid rental.”
Moving on to the issue of land, she said that under Mr Leong’s proposal, the Build-To-Order user does not have to pay for land value or bear any cost of the land until he chooses to sell it.
And the cost of land for the duration that the user lives there is borne by all other Singaporeans across several generations, she said. They would pay for it in three ways: financially through the erosion of shared reserves, in inequity where some benefit at the expense of others, and in poor policy with implications for the broader housing market.
Eroding shared reserves
On reserves, the state sells land at fair market value. When that happens, the physical asset – land – is converted into sales proceeds. To preserve the value of the reserves, the land sales proceeds go back to Singapore’s reserves, and are reinvested by its investment entities to benefit both current and future generations.
Half of the investment returns supplement the national Budget annually, through the Net Investment Returns Contribution (NIRC), and the other half is reinvested for the benefit of the people and future generations.
But under the PSP’s scheme, users get to enjoy the land without paying for it. So long as they are occupying the flat without paying for the land, that is a draw on the nation’s reserves, she said.
“As a result, we would forgo the monies that we would have invested and the investment returns, under our current system. And that means less NIRC for the Budget every year.“
And to make up for what the NIRC cannot now fund, she said, the Government would have to either raise taxes or cut spending.
Nor is the PSP’s proposal fair to Singaporeans, said Ms Indranee, as those who choose not to sell their flats would enjoy a large subsidy at everyone else’s expense.
Those who choose to sell their flats, on the other hand, would have to pay recorded land cost and accrued interest, but with no subsidies or grants.
“For the one million existing home owners, you should consider what PSP’s proposal means for you. If you are an HDB (flat) owner today, you should think what the PSP’s proposal means for you,” she said.
“Essentially, there will be a new precinct right next to you with flats of similar attributes, but much cheaper. Please consider what this might mean to your property value. Also consider, is it fair that by policy design, somebody else gets the same flat as you but at a much cheaper price?”
Bad housing policy
Ms Indranee added that the PSP’s model of deferring land cost until resale also kicks the can down the road for home buyers, who might be worse off under this model as, when they sell their flat, they have to pay for the recorded land cost without the benefit of grants or subsidies.
This, she said, could affect their net proceeds and even affect their ability to finance another home. It is unlike the current HDB home ownership model, which enables Singaporeans to own their flat at an affordable price, and benefit from overall economic growth when they subsequently monetise it.
Another issue is the lack of clarity as to the legal nature of the PSP’s scheme. Mr Leong, she said, had not clarified what the user gets at the point of disposition – meaning when the user gets the flat from HDB, whether he gets a legal title or just the right to occupy.
“If it is just the right to occupy, then the person is not the owner. You only become an owner when you pay for the land, and that only happens when you sell the land,” said Ms Indranee.
“In short, you only own when you sell! Whereas under our current scheme, you are an owner from the time that you buy the flat.”
She went on to point out that while Mr Leong had promised Singaporeans a future they could look forward to, the irony is that for so long as they are occupying a flat under his proposed scheme, they are not the owner: “You only become the owner, just a short while before you sell it.”
“Mr Leong wants to turn our nation of home owners into a nation of renters. And to become a home owner, you have to sell your property, with no assurance of being able to afford a new one after that.”