The following question stood in the name of Mr Leong Mun Wai –
3 To ask the Deputy Prime Minister and Minister for Finance whether there is a net increase in the past reserves when state land is first sold and the sales proceeds are transferred to the financial assets, and when the land is sold again after reverting to the Government’s ownership upon the expiry of its lease.
4 Mr Leong Mun Wai asked the Deputy Prime Minister and Minister for Finance whether Singaporeans are paying (i) the cost of state land used for public housing when initially acquired by the Government (ii) the difference between the higher land cost when the land was purchased by HDB for development, and that which the Government initially acquired the land for and (iii) taxes to cover the shortfall incurred by HDB from the land cost paid to past reserves at full market price, thereby amounting to triple payments for use of state land that are developed into HDB flats if the land acquisition and development occurred in two different terms of Government.
5 Mr Pritam Singh asked the Minister for National Development in view of the POFMA Correction Directions issued on 14 October 2022 to an individual for his Facebook posts dated 4 October 2022, whether HDB will provide (i) a clear breakdown of the total development cost of all new flats henceforth and (ii) the value of the “generous subsidies” applied to the assessed market price of these new flats.
Mr Speaker: Question No 3? Mr Pritam Singh, would you like to move the question?
Mr Pritam Singh (Aljunied): Question No 3, please.
The Minister, Prime Minister’s Office and Second Minister for Finance and National Development (Ms Indranee Rajah) (for the Deputy Prime Minister and Minister for Finance and for the Minister for National Development): Mr Speaker, may I take Question Nos 3 and 4 addressed to the Deputy Prime Minister and Minister for Finance, and Question No 5 addressed to the Minister for National Development together, as they relate to the same subject matter, namely, the sale of state land, how the proceeds are treated and the reserves.
Mr Speaker: Please proceed.
Ms Indranee Rajah: Mr Speaker, Sir, before these questions can be addressed, it is necessary to understand the relationship between state land, land sales proceeds and our reserves. It has been explained before, but it bears repeating and some elaboration.
Under our land laws, which trace back to English land laws, all title to land in Singapore is derived from the state. It is from this ultimate title to land that is held by the state that interest in land, such as leases, can be carved out and granted by the state to other persons. The leases confer ownership and possession of those lands to such other persons, but only for the duration of the lease. The state retains the interest in the balance of the lands not leased, and for lands which have been leased, in the rest of the period not granted.
In the case where the state has granted a portion of its interests – for example, under a 99-year lease – to other persons, the state holds the remainder of those interests, meaning, after the 99th year for perpetuity – which we refer to as the “reversionary interests”.
Where the state has not granted any interest in a piece of land, or no one is named as the person owning the lease, that land remains “state land”.
Under the Constitution, all state land forms part of our reserves.
Land is a physical asset. Mr Speaker, just to help people understand, may I have permission to show some slides?
Mr Speaker: Please do. [Slides were shown to hon Members.]
Ms Indranee Rajah: When we sell state land, we convert the physical asset into a financial asset. For example, if we sell a parcel of state land at its fair market value of, say, $1 million, we no longer have the land for the term of the lease sold, but we have $1 million.
After this transaction, there is no net increase in the reserves. We have merely changed the physical land in our reserves into an equivalent amount of financial reserves. There is no new value created and hence, no addition to the reserves.
Let us see what happens to the cash and to the land.
The $1 million cash now forms part of our financial reserves, which the Government invests, for example, through GIC, to grow for the benefit of Singaporeans.
We use up to 50% of the long-term expected real returns on the investment every year in our annual Budget. This amount is known as the Net Investment Returns Contribution or NIRC.
The rest of the actual returns – that is, 100% of the actual returns minus 50% of the long-term expected real returns – is re-invested. This rule strikes a balance between the needs of current and future generations of Singaporeans. It preserves the real value of our reserves and assures us of a rainy-day fund in the event of future crises.
Let us turn to the land that has been sold. As the state holds ultimate title to the land, the land automatically reverts to the state once the 99 years is up. It then becomes state land again and will be protected as past reserves once again. When that happens, there is no net increase in our reserves either. This is because the reversionary interest in that parcel of land had all along formed part of our reserves. In other words, the financial proceeds that we had earlier received was to make up for the state’s loss of use of the land for 99 years, and not for the state giving the land away forever.
If the Government then carves out another lease of the same land and sells this land on a fresh lease, the same process as before will apply. Again, it would be a conversion of a physical asset to a financial asset to make up for the state’s loss of use of the land for the period of that carving out.
Thus, the answer to Mr Leong’s first question is:
(a) There is no net increase in the reserves when state land is first sold and the sales proceeds are transferred to the financial assets. It is just a conversion of one asset form to another.
(b) There is no net increase in the reserves when land returns to the state after the lease expires, as the value of the lease did not include the value of the reversionary interest.
(c) There is again, no increase in the reserves when the land which was returned to the Government is sold again. As before, that is merely a conversion of one form of asset to another.
(d) There is an increase in reserves when the Government invests and grows the financial assets. This is the outcome of careful and prudent management of our reserves by this Government and should not be taken for granted.
I move on to Mr Leong’s second query. There is no “triple payment” by Singaporeans for the land used to develop HDB flats. From time to time, the Government may need to compulsorily acquire land for public housing. In that event, the following steps occur.
First, the Government will acquire the land and compensate the landowner for its value. Since 2007, the compensation is based on fair market value. This compensation may be funded from past reserves or Government revenues. Land acquisition through SERS, for instance, is funded by past reserves.
Second, HDB will purchase the land from Government. HDB pays fair market value for it, just like any other buyer of state land. Why do we do this? Why do we not simply transfer the land to HDB at zero cost since it is a transaction between Government and a Government agency?
The reason is because, the transfer to HDB for developing public housing results in the land being taken out of the past reserves. If fair market value is not paid in exchange for the land, the past reserves would be depleted. There would be no corresponding financial asset to replace the physical asset and no land sale proceeds to invest and generate returns for use in the form of the NIRC. Requiring HDB to pay fair market value for the land cost thus preserves the value of our past reserves for the benefit of all Singaporeans, both present and future.
The third transaction is when HDB sells flats to Singaporeans. HDB does so at a discount from fair market value to keep flat prices affordable. The difference between the fair market value and HDB’s posted price is the market subsidy. In addition, the Government provides generous grants to eligible applicants, to purchase flats below HDB’s posted price.
Because of these grants and subsidies, HDB’s effective selling price is typically much lower than the total cost of development, which results in a revenue shortfall. This shortfall is covered by a Government grant to HDB which is funded by NIRC and taxes, which are paid not only by Singaporeans but also by PRs, foreigners working and living in Singapore, tourists and companies and other tax-paying entities.
The answer to Mr Leong’s second question, therefore, is that:
(a) The Government does not profit from the sale of state land developed into public housing.
(b) There is no triple payment by Singaporeans for state land used for public housing.
(c) Singaporeans buy BTO flats at a discount from their fair market value and in addition, eligible first-timer flat buyers can enjoy the Enhanced CPF Housing Grant (EHG) of up to $80,000.
(d) This can be seen from the fact that a private property of similar size and in a similar location would cost significantly more and also the fact that after the Minimum Occupation Period, HDB flat owners are typically able to sell their flats at comparable or higher prices than they paid when they purchased their flats from HDB.
Mr Pritam Singh asked whether, in view of the POFMA Correction Direction issued on 14 October 2022, HDB will provide a breakdown of the total development cost of BTO flats and the value of the subsidies applied to them.
The POFMA Clarification states that “HDB does not price new flats to recover the cost of land and construction. Instead, it prices flats significantly below market value using generous subsidies to ensure they are affordable to Singaporeans.” This is indisputable, for the reasons I have just explained.
It is also confirmed by the fact that the vast majority of first-timer families are able to buy new BTO flats in non-mature estates and service their monthly mortgage instalments using their CPF, with zero or minimal cash outlay.
Finally, it is evident from HDB’s audited financial statements which are publicly available. The financial statements contain information on the costs incurred in its Homeownership Programme. They show that the total amount that HDB collects from the sale of flats is less than the cost of its building programme and the housing grants it disburses each year. As a result, HDB incurs a net deficit in the development and sale of new flats.
For the Financial Year (FY) 2021/2022, HDB recorded a deficit of $3.85 billion in its Homeownership Programme. The average deficit incurred by HDB in the last three years, FY2019/2020 to FY2021/2022, was about $2.68 billion a year.
Mr Speaker: Leader of the Opposition, Mr Pritam Singh.
Mr Pritam Singh (Aljunied): Mr Speaker, I do not believe Minister has answered Question No 5, whether HDB will be providing a clear breakdown of the costs.
Ms Indranee Rajah: Can I just check before I respond to that? Because the question that was asked by the Leader of the Opposition in his Parliamentary Question (PQ) was in view of the POFMA Correction Directions issued, whether HDB will provide a breakdown. So, I am just seeking to understand, so that I can give an appropriate answer. What is the correlation between the POFMA Correction Directions and your request?
Mr Pritam Singh: The correlation is the Government’s point that flats are generously subsidised before they are sold. That is the correlation. So, the subsidy is applied by HDB and that is why flats can be sold at an affordable price. So, that is the correlation.
Ms Indranee Rajah: I am not sure I understand the correlation. I think everybody knows that HDB applies subsidies, significant subsidies. So, I think there are two things. If Mr Singh was just asking, “Can you provide the breakdown?” – that I understand. But he is saying in view of the POFMA Correction Directions, whether HDB will provide the breakdown.
So, I will answer Mr Singh’s question on whether we will provide breakdown. I am just trying to understand how it is correlated. Because the fact that we provided subsidies has always been known, long before the POFMA Correction Directions. So, I just want to know the connection.
Mr Pritam Singh: The connection would be that the identity of the individual who was issued the POFMA Correction Direction – I cannot name him by virtue of Standing Orders, but he was the chief economist of the Government of Singapore Investment Corporation. So, if the Minister says that this has been known for a long time, one would expect someone of that stature to also not fall afoul of POFMA and be POFMA-ed.
But I think the Minister has said that she will answer that question – so, I hope the Minister can answer that question on whether HDB will provide a breakdown of the subsidies.
Ms Indranee Rajah: Again, I will answer the question, but I want to deal with the first part. If Mr Singh says how come somebody who was an ex-economist of — did you name the organisation?
Mr Pritam Singh: I did.
Ms Indranee Rajah: Okay, of GIC, can be POFMA-ed. I do not think there is any rule in the law books, which says that economists and ex-economists of GIC cannot be POFMA-ed. What the law says is that if you say something which is factually incorrect, then you are required to post a Notice, pointing out to it. And you can challenge that if you wish to – which he has not.
Point number two is, Mr Singh still has not really answered what the correlation is, but now I will just cut to the chase, unless Mr Singh wishes to provide a further clarification.
The chase is this: the POFMA-ed post alleged that there was a “disingenuous and misleading analysis” of the $270 million loss made by HDB. That is what the POFMA-ed post said. It also said that it was “an accounting sleight of hand being the omission that the government acquired most of the land at minimal or much lower cost by compulsory acquisition” and that the “true cost price should be the original book value”. Those were the key things.
And in response, the POFMA Clarification pointed out that actually there is a real loss. The fact that when we build HDB flats under the housing programme, the fact that the Government incurs losses, that is known and was always known, even before Mr Yeoh posted it.
But coming back to the question that the Leader of the Opposition has asked, the reason why I say there is no correlation is this: it is because what Minister Desmond Lee gave in the POFMA Clarification was the net loss. Let me just explain.
Total development cost is land costs plus construction costs and that gives you total development cost. Then, you have the selling price. The selling price is the market value of the land after it has been built, we apply a market subsidy, we derive the selling price, we put in various grants and we arrive at the effective selling price. [Please refer to “Clarification by the Minister, Prime Minister’s Office and Second Minister for Finance and National Development”, Official Report, 7 November 2022, Vol 73, Issue No 95, Clarification section.]
The effective selling price – what we sell to Singaporeans – less the total development cost, will give you, in virtually all cases, a net loss – obviously, because we are subsidising and selling below market value. If we were to sell at market value, all purchasers of HDB BTOs will be paying a lot more. And that is just evident, as I had explained in my earlier answer, from the resale prices after the MOP expires when they sell.
So, I just wanted to establish that the POFMA Clarification talked about the net loss for a particular project. That is a subset of the information which is already in HDB’s financial statements, which is the total aggregate net loss. And it is a separate issue from total development costs, which is a separate thing.
So, when Mr Pritam Singh asked in view of the POFMA Correction Directions, is HDB going to give the breakdown of total development costs, there is not a real correlation there, as they are two separate things.
Should we give the total development costs? The answer is that we do not think that anything would be achieved by doing so. And the reason is this: what is the real important thing to Singaporeans? The real important thing is, are you able to afford the flat? And what the Government considers is the market value, which people will know. In any particular area, you ask any valuer, and they will be able to give you a general value.
And you look at the selling price and the grants. Every Singaporean who buys a BTO knows that actually the price that they are paying is less than what you would have to pay if you were paying at pure market price. That is why BTOs are so popular. Otherwise, you would buy a resale flat.
And then, what happens is, at the end of the day, for almost all cases, we have a net loss.
So, different places will have different prices and different subsidies. Mr Singh’s question was, he said, would we provide a breakdown of the cost of all new flats henceforth. It is not meaningful, because you would just be comparing this one with this one and prices in one area may not be the same as the other.
So, that is the answer. My straightforward answer is that it would not be helpful or meaningful to do so.
Mr Speaker: Mr Pritam Singh.
Mr Pritam Singh: I thank the Minister for answering the question. Let me suggest why, it perhaps could be meaningful. And I will do this by way of two supplementary questions. This is specific to Question No 5. I will come back to Question Nos 3 and 4 in a while.
Since the introduction of the Prime Location Housing, or PLH, flats last year, it provides an example of why a detailed publication of HDB subsidies are actually warranted. An HDB PLH flat buyer, upon selling his PLH flat after the 10-year MOP, will have to return the quantum of additional subsidies provided as a percentage of the original assessed market value of the flat; and the subsidy recovery will apply to the resale price that is a reflection of the prevailing market value, regardless of whether the flat is sold at a gain or a loss.
Another reason I would suggest to the Minister to publish the dollar value of the subsidy is to scrutinise and track the amount of subsidies being diverted for homeownership purposes. This is, particularly, in view of the MND’s 2011 decision to delink BTO prices from the rising resale market then. The median price of a 4-room and larger HDB resale flats has increased 26% between 2017 and 2022, with resale prices reaching record highs today and, therefore, pushing up the market price of land. Increasing the size of the subsidies under the current HDB policy would appear to be the main way through which BTO prices will be kept affordable.
In view of these new reasons, what is preventing HDB from publishing the dollar value of HDB subsidies for new BTO flats?
The second supplementary question: HDB’s index for affordability – the Minister spoke about it in her last reply – only covers non-mature estates. HDB states that the price-to-income ratio for BTO flats offered in non-mature estates is around five or less, which means the purchase price is around five times one’s annual income, or around 25% of one’s salary is set aside for mortgage servicing. Why does the Ministry not disclose the corresponding affordability figures for HDB estates which are mature estates.
Ms Indranee Rajah: In respect to Prime Location Housing, it actually does not really change my answer. Because at the end of the day, the question is – what is affordable to the person who is buying? And we have made no secret of the fact that, for Prime Location Housing, you would have to have a greater subsidy. That is the key thing.
It comes back to the same question, which is: why would you have to disclose or put out the development cost of every single project? It is just not meaningful. The key thing is, to the buyer, is this affordable and that is what HDB does.
And, I think, for the second question, if Mr Singh could just pinpoint the gravamen of what he is asking, so that I can be sure I address it.
Mr Pritam Singh: Sorry, is Minister referring to the second supplementary question or the second limb of the first supplementary question?
Ms Indranee Rajah: The second supplementary question.
Mr Pritam Singh: The second supplementary question pertains to disclosing the affordability index for mature estates. That is the supplementary question. But the Minister did not answer the second limb of the first supplementary question.
So, the second limb, the Minister replied for PLH. I take Minister’s answer, even though I disagree with it, of course.
The second question was with regard to the delinking of BTO prices as a reason to reveal the subsidy in full.
Ms Indranee Rajah: I do have the question and I thank Mr Singh for it. Can I ask Mr Singh to file a separate Parliamentary Question on this? The reason is this. I have an answer formulated, but I also want to be sure it is accurate, and because, as you know, it affects property prices and the way people approach it.
So, I think that it would be safer if it is filed and I give you an accurate answer.
Mr Pritam Singh: I understand. So, just to be clear, the question the Minister is asking me to file another question for, is the reasons why HDB does not publish the affordability index for mature BTO estates? Okay, I will do so.
For the first question, I restate my position that because we have now delinked BTO prices, the value of the subsidy becomes more important, particularly, with resale prices going up.
On the earlier question, which I believe was directed at Mr Leong Mun Wai’s Questions Nos 3 and 4, just for clarification and my understanding about how land is booked in the reserves, and I am looking at this from the perspective of reclaimed land: Singapore’s total land area has grown by 2.45 square kilometres per year for 60 years – from 851 square kilometres in 1962 to 728 square kilometres in 2020. The state can reclaim land and draw on the reserves for land reclamation activities and expenses – I think Minister also alluded to that in her reply.
My two supplementary questions are as follows. I would like to ask the Minister, does the value of new land that has been reclaimed go into current reserves; and, in connection with this, is it based on the actual cost of reclamation or the value of new land based on the chief valuers’ land betterment charge (LBC) tables? That is the first supplementary question.
The second one is, for land that has been reclaimed years prior, is the revaluation for marking to market done once a year based on the annual LBC rates, or once every six months based on the six-monthly LBC rates, or is the value of the land in past reserves held at the cost of land reclamation until it is sold to the Government for specific use?
Ms Indranee Rajah: Again, Sir, I would ask Mr Singh to file a Parliamentary Question formally. The answer is likely to be technical, it has to do with how we treat the land in our books and I really want to make sure that both the Accountant-General and the Auditor-General are satisfied that what I say is not inaccurate.
Ministry of National Development
7 November 2022