Experts in 2019 raised concerns over building too many HDB flats, black swan events can disrupt plans: Desmond Lee

Desmond Lee referred to a 2019 position paper from the Workers' Party that raised concerns of an oversupply of BTO flats.

Matthias Ang | February 08, 2023, 05:02 PM

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Given Singapore's lack of natural resources and its need to build up fiscal resources over time to support home ownership aspirations, the government will prioritise first-timer families who need housing, National Development Minister Desmond Lee said in Parliament on Feb. 7.

The government will also do more to help lower-income households as it believes in housing as a social leveller, he added.

Lee was speaking at the close of the debate on the parliamentary motion for affordable and accessible public housing, at around 10:00pm after a marathon debate.

He added that Singapore's housing policies reflect values of prudence and sustainability, as the government cannot subsidise housing at the expense of other, "equally important needs".

It also can't enhance housing affordability and accessibility for this generation by "robbing" future generations, whether by use of land, fiscal resources or reserves.

On the supply of housing and building more flats

Lee noted that the Progress Singapore Party's (PSP) Non-Constituency Member of Parliament (NCMP) Hazel Poa, the Leader of the Opposition, Pritam Singh of the Workers' Party (WP) and WP MP Louis Chua asked the government why it has not built more flats at a faster rate.

The minister responded that the government was already doing just that, and added, "Today, we are already overseeing almost 100 BTO projects island-wide, at different stages of construction. There are almost 80,000 HDB flats under construction as we speak."

This "high tempo" will continue and by about 2025, MND expects to have about 150 BTO projects going on at the same time.

He also highlighted that HDB is not the only entity "ramping up" after the pandemic, with private developers and public agencies all pushing ahead with their projects, thereby impacting manpower resources.

Lee also said that Poa, Singh and Chua had suggested the government has underestimated demand and under-built the supply of flats.

On this matter, he said that the government has models which take into account many considerations, like marriages, births, deaths and economic conditions, among others, in trying to project the real demand for flats and property in general. But this was not a "perfect science", as sudden shocks could occur.

Housing market is "sentiment-driven"

Prior to Covid-19, for many years, application rates for Build-to-Order (BTO) flats were low and the resale market was soft, Lee said.

When the pandemic hit, the dynamics shifted "rapidly" and Singapore is now in the current situation where demand for housing shot up. "The housing market is highly sentiment-driven and demand can suddenly appear, or disappear," Lee highlighted.

The minister then gave the example of a mid-90s property boom, with flat waiting times as long as seven years, and HDB ending up with 31,000 unsold flats when the Asian Financial Crisis struck in 1997. He added:

"Because of the unintended oversupply, home buyers could walk in to buy ready flats in the early 2000s. However, home owners paid a heavy price, with flat prices or resale flat values staying depressed. Some who bought flats just before the crisis ended up with negative equity and even lost their homes and hard-earned savings."

However, the many unsold flats also represented a waste of taxpayers' money, he added, and said that the holding cost incurred from the vacant housing stock was significant, and could have been spent on other needs like healthcare and education.

Lee: WP was cautioning against oversupply of flats in 2019

Lee pointed out that some People's Action Party (PAP) MPs such as Cheryl Chan and Sitoh Yih Pin had pointed out the danger of oversupply is real. If there was significant oversupply, there would be a downward pressure on the market, hurting the asset values of flat owners.

The WP is also cognisant of the implications of an oversupply, as seen in their 2019 Working Paper on HDB resale prices, he noted. Lee added, "Even the WP calling for the kind of perfect hindsight that they are calling today, for actions of the years before indicate that vulnerability."

The paper at the time said new dwelling units have exceeded the resident population growth, and asked: "Will the HDB have a vacancy rate problem, compounded by a still steady stream of 16,000 to 17,000 BTO units in the last few years, which will continue to increase supply up to 2022?"

Lee: If the government followed WP's report, the BTO shortage would be even greater

This report, Lee further highlighted, quoted experts from the property sector. In addition, the WP in 2019 cautioned HDB from persisting and building 16,000 to 17,000 BTO units. He elaborated:

"So in 2019, the WP was recommending that HDB should only build 9,000 dwelling units or so. To put this into context, HDB launched around 16,000 flats the year before the report in 2018, 15,000 flats in 2019 and 17,000 flats in 2020. The rest is recent history. Had we tapered down our supply to WP’s level in 2019, or listened to you and your experts, I think our BTO shortage would be even greater today."

He said this demonstrated how the "best of models" cannot fully account for black swan events. Also, there is no certainty on market psychology, as many factors have an influence.

"This shows just how difficult it is to accurately predict residential property demand or for that matter, the direction and size of movement in the property market," he added.

HDB is more transparent than any property developer: Lee

Lee also addressed what he described as Singh's repeated questioning about transparency and the extent of the subsidies given to buyers at the mature estates and at the non-mature estates.

You can watch Singh's full speech here.

The minister said that when HDB flats are built, the government looks at the market comparable for HDB because it is public housing. The government then determines the affordability indicators for different income levels and the mortgage servicing rations.

Lee then said that HDB is already the "most transparent" on its pricing cost than any other property developer.

Construction costs are published on HDB's website and GeBiz, and the costs of building flats and the revenue from sale of flats can be found in HDB's financial statements, the minister reiterated.

Information on costs provided by HDB

Lee said, "Look at the information we put up every launch for every project, the range of BTO prices, which are subsidised, and right next to it is a column of the comparable resale prices that we use," adding that some adjustments had to be made depending on factors like amenities and level.

Once someone has seen the available information made available, they can see this difference "broadly" reflects the extent of the market discount, which buyers can realise after the minimum occupation period (MOP) when they sell, as it is significantly below the market.

It is also necessary to recognise that for each flat type, there are different floors and the government indicates the range to be transparent.

"And that difference broadly reflects the extent of the market subsidy for the projects and you can see today that has become very large compared to say, 10 years ago," he said.

Apart from market discounts, there are also housing grants

This in turn, feeds into the psychology of the public, the minister explained. Should a member of the public see the resale prices going up and BTO prices remaining almost the same, there is a sense of going for a better deal, he added.

However, if one wants to know the extent of the subsidies for each project, it is also necessary to account for the grants that MND gives, according to Lee.

These are the Proximity Housing Grant, and CPF Housing Grant, among others, he highlighted, which has various parameters and depends on factors like meeting the criteria and means testing.

Lee: Singh makes a "good point" about equity

Lee acknowledged that Singh made a good point about whether there is equity, in which the government is giving people in certain HDB projects more discounts and subsidies relative to others.

In citing the aforementioned parameters for grants as a factor, Lee answered, "The broad market discounts, across all projects, barring PLH (Prime Location Housing), in the same launch, is broadly in the same parameter to ensure there’s equity, but later on when they sell, it depends on the condition of the flat."

In the case of PLH, as additional market discounts are given in order to make sure the sticker price before grants is still within reach of Singaporeans, the government has to also give extra subsidies. That's why subsidies for BTOs in mature estates are generally higher.

With regard to mature estates, Lee said that the government must study "carefully" how to continue to keep BTO prices there affordable.

"For mature estates, we will price flats affordably, but as I described at length earlier, we cannot price them like Non-Mature Estates. We have implemented the Prime Location Public Housing model to ensure that flats in the Central region remain affordable at the point of sale, and at subsequent resale. But they come with additional conditions to ensure equity and fairness."

As for resale prices, Lee concluded:

"Today resale prices are as they are and we’ve put in cooling measures and measures to address them. But in the long-term, resale prices will be kept affordable and yet remain largely as an appreciating asset for the nest egg of Singaporeans, through a combination of grants and policy measures such as PLH and others, as well as measures that ensure that the property market does not run ahead of economic fundamentals."

Top screenshot via MCI Singapore/YouTube and Google Street View.