Sim Ann to Leong Mun Wai: Further increasing BTO subsidies leaves S'pore with less to spend on urgent priorities like education, healthcare

Leong questioned if government subsidies on HDB flats are "really very generous".

Fiona Tan| Sulaiman Daud| December 12, 2022, 11:39 PM

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Senior Minister of State for National Development Sim Ann wrote in a Dec. 11 Facebook post that the Singapore government has been increasing subsidies and grants to keep Build-To-Order (BTO) prices affordable and stable.

Sim was responding to Leong Mun Wai, Progress Singapore Party's Non Constituency Member of Parliament, who questioned if the Housing & Development Board (HDB) subsidies are "really very generous" relative to the cost of land.

Who said what

Leong: Government subsidies are a "small discount"

In his Facebook post on Dec. 8, Leong compared the subsidies granted for BTO flats and land costs.

Citing data that HDB and the Ministry of National Development jointly released on Dec. 7, Leong pointed out that land costs made up around 59 per cent of the total cost of building HDB flats for the financial year (FY) of 21/22.

In comparison, government subsidies, which includes Central Provident Fund (CPF) housing grants, "only accounted for 12 per cent" of the total cost.

Leong said this is "a small discount from the government that barely covers one-fifth of the land charges" and that Singaporeans are paying "market price" for the land.

Leong also referred to data released by the government in response to a query from then-Member of Parliament Chiam See Tong in 1988. This looked at 4-room HDB flats in four different Singaporean towns.

In FY 86/87 and 87/88, government subsidies formed 23 per cent of the total cost, whereas land costs made up a smaller portion of the total price, at 33 per cent.

Land costs should be taken out of the picture: Leong

Leong said that in his opinion, HDB flat prices should only account for construction costs and price differences between the locations of flats.

"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."

Leong added that the Pioneer Generation endured "difficulties" when evicted from their homes and were resettled with a "low level" of compensation.

Though according to History SG, any disputes between landowners and the government over the compensation amounts were presided over by an Appeals Board.

You can see Leong's post below.

Sim: Government has been increasing subsidies and grants to keep BTOs affordable

In her post, Sim said that by "objective measures", the government has kept BTOs affordable for Singaporeans.

For a large majority of Singaporeans, the home price to annual income ratio is about four to five, as compared to global standards of eight to over 20 times annual income.

Many BTO buyers therefore service their mortgages solely out of CPF contributions, and pay little to no cash.

Land costs cannot be taken out of the picture

Sim also made the point that the most sought-after BTOs are in attractive locations with larger units, and affordability concerns usually focus on such units, but pricing them lower would attract more buyers, therefore making them less likely to be bought by those starting families.

"I am glad Mr Leong concedes that BTO pricing should account for such location differences. We are in agreement here," Sim Ann said.

However, she said that land costs cannot be taken out of the picture, because land values vary across different locations.

Market knows government has been generous with subsidies

On Leong's point that the government has become less generous with housing subsidies, Sim countered saying the "market knows this is not so".

Sim said the government has been increasing subsidies and grants where necessary to keep BTO prices affordable and stable.

"This is clear from the relatively stable prices of BTO flats – the average price of a 4-Room BTO flat in non-mature estates was $341,000 in 2019 and $348,000 in 2022 – despite the Resale Price Index rising much faster by 28% over this period."

Therefore, what Leong wants is for the government to price BTOs at an even lower level, Sim said.

However, increasing housing subsidies further could mean reducing spending on other areas like education, healthcare and security or even require a raise in taxes.

HDB has to buy land at fair market value from govt so as not to draw down on reserves

Sim anticipated Leong's hypothetical response, and guessed that he would say that the government could charge HDB less for acquiring land.

However, this would mean a larger draw on Singapore's reserves, as state land forms part of the nation's reserves.

Second Finance Minister Indranee Rajah made this point in Parliament, also to Leong, during the Nov. 7 sitting of Parliament.

Indranee also explained that the sale of state land does not increase the reserves, as it converts the physical land in the reserves to an equivalent amount in financial value.

Sim said that if HDB does not pay the government a fair market value for the land, this would effectively run down the value of Singapore's reserves, to the detriment of current and future generations.

Sim said the government is sympathetic to Singaporean homeowners' needs and concerns, adding that "HDB will make sure that every eligible BTO homebuyer has an affordable housing option".

However, "drastically lowering BTO prices, to the extent of disregarding land costs, would only end up hurting all Singaporeans, instead of helping them."

You can see her Facebook post below:

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