Satwant: Minister, what challenges do you face when providing public housing to Singaporeans?
Minister Mah:
My biggest challenge is to provide affordable housing that meets the rising expectations of a new generation of Singaporeans, while keeping within my housing budget. Over the past 50 years, our public housing programme has transformed Singapore, and turned us into a home-owning society. Many of us started life in attap huts, moved into 1-room HDB flats, then 3-room, 4-room and upwards. More than a shelter over our heads, the HDB programme gave Singaporeans a tangible stake in our country’s progress and an asset which grew over time, as our country grew.
The Government’s commitment remains the same – to provide affordable housing, to continue to help new Singaporean households own their homes. But the HDB buyers today are different from those 20, 30 years ago. They aspire towards a bigger and better flat, better designed, and in a better living environment. They are no longer looking just for a roof over their heads. The challenge is how to fulfil our homeownership commitment, and at the same time, meet these aspirations. And to make sure that it is financially sustainable, for the Government as well as for the people.
Satwant: What are some of the changes that you have carried out to sustain the government’s commitment to provide affordable housing for Singaporeans?
Minister Mah:
Our homeownership policies have enabled more than 80% of our population to live in close to 1 million HDB flats across the island, with 95% of them owning their homes. No other country in the world comes close to this.
One key policy that has allowed us to achieve this is the income ceiling. We have a finite housing budget. The income ceiling ensures that the generous subsidies we set aside each year goes to those who need them more.
With rising incomes and flat prices over the years, there have been calls to raise the $8,000 income ceiling. But actually, we provide housing grants to households earning up to $10,000, not $8000. In other words, almost 9 out of 10 households in Singapore receive some form of Government housing subsidy. Those earning between $8,000 and $10,000 are only eligible to buy Executive Condominiums (ECs), because they should not compete with those earning less than $8,000 for new HDB flats. For the same reason, we limit those earning above $3,000 from buying 3-room flats, and those earning above $2,000 from buying 2-room flats.
To make flats affordable especially to the lower income group, we have introduced the Additional Housing Grant (AHG) for households earning less than $5,000 a month. Low income families can receive up to $40,000 in AHG to buy their first HDB flat. This is in addition to the $30,000-$40,000 CPF Housing Grant for purchase of resale flats.
We have resumed the building of 2- and 3-room flats to cater to households with lower income. We have also introduced credit assessment and the Housing Loan Eligibility criteria to ensure prudence in home purchases.
To help our elderly, we have introduced various schemes to unlock the value of their housing asset e.g. the Lease Buyback Scheme (LBS) and liberalised subletting rules. These supplement the retirement savings of our elderly residents.
Satwant: What about providing quality housing and improving the living environment?
Minister Mah:
Being a housing authority that caters to 80% of the population means that we must build flats that range from the very basic to the premium flats. So we build 1-room flats for rental and also 2-room and 3-room flats for sale at one end of the spectrum. But we also must cater to those earning at the higher end of the income ceiling. That is why we also build premium flats for the higher income group, who are willing to pay more.
Take for example The Pinnacle@Duxton. This was a pilot project that was recently completed in 2009. The Pinnacle@Duxton is HDB’s first 50-storey block, whose design was chosen through an international competition, 7 blocks linked by 12 skybridges. I wanted to redevelop this special precinct with historical significance, into an iconic HDB development. To do so, I had to convince Cabinet to keep this as public housing instead of selling it for private development. Then I had to persuade HDB to open it up for international design competition. HDB architects took up the challenge, and did themselves proud. They were one of the finalists in the competition.
We also launched two new premium projects in Dawson in December 2009 – SkyVille@Dawson and SkyTerrace@Dawson – designed by WOHA and SCDA, who are our President’s Deisgn Award winners. They introduced new concepts such as flexi-layout scheme to allow flat buyers to choose different layouts for their flats; and multi-generation living scheme to allow married children and parents to buy paired flats.
To provide even more housing options for flat buyers, we introduced the Design Build and Sell Scheme (DBSS) in 2005, where the private sector undertakes the designing and selling of premium flats. Six DBSS projects have been successfully launched so far, in various locations, including Tampines, Toa Payoh, Ang Mo Kio.
More recently, we announced our plans to develop Punggol into Singapore’s first eco-town, to try out innovative green features in energy, water and waste management. With developments like Treelodge@Punggol and the new waterway project, this former fishing village is well on its way to becoming a vibrant, modern town, which is environmentally friendly.
The bulk of our flat supply catering to the majority of the population will continue to be standard flats of good quality. HDB is so confident in the quality of its new flats that it now offers home-buyers a longer warranty against three common defects - ceiling leakage, external water seepage and spalling concrete.
We have spent as much time and resources on our existing flats. HDB does not just build and forget about you. Unlike other developers, even after 10, 20, 30 years, HDB will come back and upgrade your estate and even your home. One good example is the Lift Upgrading Programme (LUP). Introduced in 2001, it allows elderly residents to lead an active life, by putting lifts on every floor. By 2014, we would have put lifts in more than 5,000 HDB blocks. We have also introduced 2 new upgrading programmes – the Home Improvement Programme (HIP) and the Neighbourhood Renewal Programme (NRP). These will give the older flats and estates a makeover, and provide them with new facilities comparable to the newer flats and estates.
Click here to view 'Chronology of Changes since 1999'
Satwant: How has HDB evolved since taking over the building of flats from Singapore Improvement Trust (SIT) in 1960?
Minister Mah:
HDB was set up in 1960. At that time, a large number of people were living in slums and squatter colonies. However, the SIT was not building fast enough to meet the needs of the fast-growing population. In its 30 years, the SIT managed to house only 9% of the 1.6 million population in the late 1950s.
HDB was tasked with solving the nation's housing crisis. Backed by strong government support, HDB undertook the designing, planning and building of much needed flats with urgency. It built more than 50,000 flats within its first 5 years!
As HDB celebrates its 50th Anniversary this year, we can be proud of its sterling achievements. It has built close to 1 million flats, and housed more than 80% of our population. No other country comes close to achieving this.
Click here to view 'Public Housing through the Decades'
Satwant: One of HDB’s roles is to provide affordable homes. Has this been achieved?
Minister Mah:
There is no doubt about this. Let’s look at the facts. Through our housing grants and subsidies and concessionary loans, 80% of households are able to service their housing loans entirely from their CPF. They do not need any cash outlay to service their monthly mortgage loans.
Just look at our housing subsidies. All new flats are priced with a generous market subsidy. Households earning less than $5,000 monthly can also apply for Additional CPF Housing Grants (AHG) of up to $40,000. First-timers can also enjoy a CPF Housing Grant of up to $40,000 when they buy a resale flat, DBSS flat or Executive Condominiums (EC). To help them finance their flats, HDB also offers concessionary loans to eligible households. Through these measures, a household in the low income group can receive up to $80,000 in housing subsidies - $40,000 in CPF housing grant and another $40,000 in AHG.
But affordability also depends on buyers playing their part. If you earn a lower income, you should not over-commit and buy a larger or more expensive flat. Flat buyers should take their needs into account and buy within their means. We offer a wide range of flats – from smaller 2- and 3-room flats to larger 4- and 5-room flats. They are built in different locations, and with different finishes, to cater to households with different preferences and incomes.
Click here to view 'Affordability of New Flats in Non Mature Estates'
Satwant: There has been a growing concern that the public housing is beyond the reach of the man in the street, especially with the high Cash-Over-Valuation (COV). Is this just a perception? Can something be done about the high COV?
Minister Mah:
Yes, high COVs are of concern to me, because that makes resale flats less accessible to buyers who need flats urgently. They are high in a rising market. However, the way to deal with the situation is not to manage or fix COVs per se, but to look at the underlying cause of it, which is high demand, caused by excess liquidity and market sentiments, and low supply.
I would urge flat buyers to be cautious about over-paying for their flats. Do your homework and remember also that not all COVs that buyers ask for are realistic. In the free market, buyers and sellers must be free to ask and offer as they choose. But neither party is forced to accept what the other party wants. Remember that positive COVs is not something permanent. Not too long ago, when the property market was down, the median COV was zero in 2005 and minimal (at $2,000 and below) in 2006.
I can understand that young couples have many financial commitments – preparing for their wedding, buying their new homes, renovation and so on. So it is natural that some couples would be anxious and afraid that public housing is beyond their means. This happens every time prices rise. Housing is an important long-term need. My advice to them would be to prioritise their needs and exercise financial prudence. They should start with a flat within their means, and not go for the biggest flat or the best location, if such flats are beyond their means. They can upgrade later when their financial situation improves. HDB has a wide range of flats in different locations and with different finishes to cater to households with different budgets.
Satwant: The Build-To-Order (BTO) system cannot meet the needs of those who are in urgent need for a flat. Is there a better system to meet the needs of flat buyers, especially young couples?
Minister Mah:
The BTO system is designed such that flats are built based on real demand – where to build, what type of flats to build, how much to build. When we tried to build ahead of demand, before the financial crisis hit in 1997, we ended up with a huge oversupply situation which then depressed prices. It was a painful experience which we don’t want to repeat again.
HDB’s commitment today to every young couple buying his first HDB flat is that they can expect a good quality flat in a good location with good facilities, in about 3 years’ time, after booking and selecting their flat. With some forward planning, many young couples, 30%-40% of our flat applicants, cut down the waiting time by applying ahead under the Fiancé-Fiancée scheme. Those who are in urgent need of a flat immediately would have to go to the resale market, and pay a premium or come out with more cash upfront.
Satwant: How does HDB value the price of each HDB flat and what other criteria are taken into account when marketing the flat?
Minister Mah:
From the 1980s, HDB has adopted a market-based approach where each HDB flat is priced according to market comparables and taking into account various attributes such as location, facing and storey height. Such a pricing approach allows our flats to reflect their true value. It is what people are willing to pay for the flat in the open market. HDB then sells the flat to its buyers at a generous discount, and this discount is the subsidy given by the Government.
Some critics say that the subsidy is not real. But the buyers know it is – that HDB flats are good value for money – just look at the long queues for new HDB flats. You will not be able to find in the open market a flat with similar attributes going at the price of the new HDB flat. If you were allowed to sell the flat straightaway, you would make a handsome profit.
The bottom line is that on average, the selling price of new HDB flats is lower than the cost of the flats, and HDB is selling the flats at a loss. This is why HDB's financial statements have shown a persistent deficit. In FY 2008/09, HDB incurred a $1.5 billion deficit for the Homeownership Programme.
Satwant: There are many HDB dwellers who have fallen into arrears. What is HDB doing to address this problem and what are the initiatives rolled out by HDB to minimise such concerns?
Minister Mah:
The percentage of households with arrears in mortgage instalments has declined, to about 7.4%. The majority of them are existing cases that HDB has already been helping over the years. The situation is pretty much under control. This is especially after we implemented credit assessment and the HDB Loan Eligibility criteria in recent years.
HDB goes out of its way to help households in difficulty. HDB has deployed special housing counsellors at every branch office to give advice. The counsellors work closely with the families to explore possible solutions, for example, whether they are able to sublet a spare room, include other working family members to share the loan burden, or to reduce their monthly instalments.
If the family still cannot afford to keep their flat despite the assistance, they should right-size to a smaller flat to reduce their financial burden. If none of these options are possible, we will consider them for rental flats.
Satwant: Currently there is a surge in the demand for rental flats. What are the criteria for allocating these flats and who qualifies for such flats? Has HDB been able to satisfy the growing demand? Will there be more demand for such flats and will HDB build more of these kinds of flats to cater for the growing needs?
Minister Mah:
The high demand for rental flats today is reflective of the generous subsidy we provide under the Public Rental Scheme. The rents are very cheap – as low as $30 a month!
However, rental flats are our final safety net for the truly needy with no other housing options. We therefore have to be stringent in managing the demand for rental flats. Our rental flat eligibility criteria are put in place to ensure that the rental flats are allocated to only those who really have no alternative options. Those who previously owned private property, and those with family who can accommodate them, will not qualify for a rental flat.
On the supply side, we have resumed building rental flats in 2007. By 2012, 7,500 new rental units will be added, to ensure that there are sufficient rental flats for those who need them.
With the active management of demand and supply of the rental flats, we have substantially shortened the queue for a rental flat – from a 21-months wait just a year ago, to about less than 13-month wait today.
Satwant: What criteria do HDB use when providing a concessionary loan and under what such circumstances does it make an exception, if at all?
Minister Mah:
In support of our home ownership policy, eligible citizen households are given the concessionary loan to help them finance the purchase of their first HDB flat. To facilitate social mobility, citizen households who have previously taken one such loan may apply for a second HDB loan to buy a bigger flat. However, I must add that this second loan is subject to credit assessment.
Second-timers who have already taken a concessionary loan and are buying a similar or smaller flat type can generally use the proceeds from the sale of their existing flats to finance the purchase of their next flat. Because of this, they are not eligible for a second HDB loan.
Nonetheless, HDB does exercise flexibility for deserving cases. For instance, HDB is sympathetic in considering appeals from second-timers who are right-sizing due to severe financial hardship arising from retrenchment, business failure, prolonged illness or death of the sole breadwinner.
Click here to view 'Eligibility Conditions for HDB Concessionary Loan'
Satwant: What are HDB’s plans in the next 5 to 10 years?
Minister Mah:
I have outlined the main challenges of public housing earlier. Economic volatility and rising public expectations are here to stay. HDB needs to continue to work on enhancing HDB hardware and “heartware” amidst these challenges. Specifically, HDB will need to build adequate number of quality, affordable flats to meet the rising aspirations of flat buyers. It will also need to provide more choice, as these aspirations become more diverse. HDB will also upgrade more of the older flats and estates under the Remaking Our Heartland (ROH) plans to bring them to current standards.
