Transactions pertaining to land sold for private housing developments are not being used to value the land that is sold to the Housing Development Board (HDB) for public housing, National Development Minister Desmond Lee said in Parliament on Jan. 10.
Instead, the Chief Valuer considers relevant public housing transactions and the specific parameters of the site.
The minister was responding to a question posed by Workers' Party Member of Parliament (MP) Gerald Giam about the differential that the Chief Valuer applies to land used for public housing compared to that for private housing.
Giam also asked if the valuation of land for HDB Build-to-Order (BTO) is based on the records of the last transacted private residential land sold by the government and private parties.
Subsequently, Lee addressed recent comments made by the non-constituency member of parliament Leong Mun Wai from the Progress Singapore Party (PSP), who said that state land sold to HDB should be valued at historical cost.
Premiums paid by HDB for public housing land lower than payments paid for equivalent land use on private land
For the differential that the Chief Valuer applies to land used for public housing, Lee highlighted that the premiums paid by HDB for public housing land parcels is lower than the premiums paid for equivalent private housing land usage.
This can observed from the returns of successful tender bids by private developers through government land sales, Lee noted.
Lee attributed this difference in premiums to the greater restrictions placed on public housing such as buyers' citizenship status, minimum occupation period, non-ownership of private properties and income ceiling, among other factors.
He added, "I must caveat that I'm saying this broadly, at the expense of technical accuracy and detail of the work actually done by the Chief Valuer, which is an independent office."
However, the Chief Valuer also adopts the same valuation principles used by professional valuers in the private sector.
These principles are used not just to value private properties, but are also consistent with the principles that other valuers use to value public housing or HDB flats, Lee added.
Hence, this is why when residents apply for a loan, they receive a valuation regarding their HDB flat.
Lee said, "there is such a thing as the value of public housing and public housing land, and it can be ascertained."
State land sold to HDB valued at historical cost "cannot work"
Lee then turned to addressing a proposal by Leong that state land sold to HDB should be valued at the historical cost of acquisition, rather than based on professional valuation principles. This is so that flats can be made even cheaper than they currently are.
In explaining why Leong's proposal "cannot work", Lee replied that land has value, a fundamental point understood by professional valuers in the private sector and the public sector.
Lee: Leong ignores a significant portion of a home's asset value
As such, Leong's point is "overturning this fundamental point", the minister added.
Given that most Singaporeans own their homes, Lee pointed out, Leong is therefore essentially saying a "significant" portion of their homes' asset value should be ignored.
Previous debate between Lee Kuan Yew and Chiam See Tong on real value of HDB land
Lee also referenced a previous debate between retired MP Chiam See Tong and the late Lee Kuan Yew in Parliament in 1985.
At that time, Chiam had been arguing about what the real value of HDB land is and whether it can really be discovered.
Eventually, this prompted the late Prime Minister to ask Chiam if he conceded that there is such a concept called value of land and if there is such a profession in Singapore known as a land valuer, and if the government has a Chief Valuer, Lee pointed out.
In addition, Lee Kuan Yew further questioned Chiam rhetorically if he conceded that the value of land can be determined, given that land can be used for different purposes such as defence, schools, condominiums or HDBs.
Lee added that Chiam eventually accepted Lee Kuan Yew's point.
Generally the norm to call for a valuation report based on principles accepted by the public
Lee then said a valuation report is often called in Singapore and many parts of the world, whenever land or property is bought or sold.
"The valuer will usually apply established and accepted valuation principles, accepted by the profession, by the public, to determine current market value," he said.
This includes looking at recent transactions and making adjustments for attributes, among other factors, to produce the report.
Lee noted,"I don't think you or your professional valuer will base your transaction on how much the property changed hands back in history."
The idea of valuing land at historical cost is also problematic, despite sounding attractive, he added.
If the land was acquired by the government in the 1960s, HDB pays for the land at the 1960s pricing, while for land acquired in 2015, HDB pays the 2015 price which is far higher than before, according to Lee.
As for land that has always been state owned land, Lee questioned if the cost is either zero or if the government should go back to 1819 in an attempt to find a historical transactional record to indicate the price.
The minister elaborated:
"I think most people will understand why this is wrong. If you want to sell your property today, whether it is HDB flat, condo, terrace house, shophouse or office, you will look at what it is worth in the market today and use that as some basis for you to transact, bargain and negotiate.
Imagine if someone comes up to you and says point blank, 'Hey, he should really be paying you the historical cost instead of market price, how much you or your forefathers had paid for it way back in the past. Let's use that as the basis, really what it cost you or your lineage.'"
In the case of a senior from Singapore's pioneer generation who many have paid S$50,000 for his flat in the 1960s, Leong's approach means that said senior will be required to sell his flat at just above the price he bought it for or with cash-over-historical value, even though it is now worth a lot more.
The non-constituency member of parliament (NCMP)'s proposal is therefore unfair, not logical and cannot fly in the face of established valuation principles.
Leong is effectively calling for the reserves to be raided
Lee also accused Leong of making a dangerous proposal as it is not about valuation principles, but seeking to "raid" Singapore's national reserves by promising to make HDB flats "dirt cheap" without having to tax Singaporeans or finding ways to pay for the flats through revenue sources.
Lee added that state land is part of Singapore's natural reserves and is quite different from other countries where the sale of land is used to fund their recurrent expenditure.
"State land in our reserves has value and its value grows if Singapore is well managed as well. If our reserves are well-husbanded and grow, they give greater assurance that our future generation of Singaporeans will have resources to deal with crises, catastrophe and calamity like pandemics, like war, like economic crises, like climate emergencies."
The growth of the reserves therefore benefits both future and current generations.
"While the government cannot touch the proceeds from land sales, which go to the reserves and are then reinvested, part of the growth in the value of our reserves, the NIRC (Net Investment Returns Contribution), is used to fund today's needs such as health care, housing subsidies, security and so on."
Hence, when state land is sold to HDB, the statutory board must put back into the reserves the fair market value of the land, determined by professional valuation principles, and turn the land that is in the reserves into its equivalent value of money so that the reserves are not diminished, Lee pointed out.
Leong's proposal for HDB to pay historical price therefore means putting back into the reserves far less than what state land is really worth presently, Lee said.
It will also require either a cutback in other areas of expenditure such as healthcare, education and security or by raising revenues through taxation or other means, according to the minister.
Leong is therefore adopting a "populist" approach, Lee further asserted.
The minister reiterated:
"We spend considerable amounts of national resources to keep our BTO flats affordable at the house price-to-income ratios comparable to other countries. You see the stark difference, at the mortgage servicing ratios as they are."
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