Implication of Huge Net Deficit in HDB Budget

Ms Foo Mee Har asked the Minister for National Development (a) what implication does HDB's net deficit of $1.97 billion in Financial Year (FY)2013/2014 have for Singapore; and (b) whether this deficit trend will escalate in the future years.

Madam, the Housing and Development Board (HDB)'s deficit is the outcome of Government policies to provide Singaporeans with good, affordable public housing and quality living environments in HDB towns.

HDB's deficit is largely due to the subsidy extended to buyers of new flats and the disbursement of Central Provident Fund (CPF) housing grants to eligible buyers of resale flats.

The spike in HDB's deficit in Financial Year 2013 (FY2013) was due to HDB's ramp-up in its flat-building and upgrading programmes. The deficit will remain high in the next few years, as flats launched in the ramp-up phase are progressively completed and handed over.

For future years, the deficit level will depend on several factors, such as housing demand, policy changes, HDB's building and upgrading programmes, as well as development costs. HDB will continue to use its allocated resources judiciously to provide affordable and quality homes for Singaporeans.

Madam, I thank the Minister for his response. I have two short supplementary questions for the Minister. I would like to ask the Minister how

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HDB financials would be impacted by other HDB initiatives, such as the Home Improvement Programme where the Government subsidises up to 95% of the upgrading cost. And I understand there are plans to ramp up this initiative covering about 100,000 flats in the next two years.

Second, I would like to ask the Minister whether he expects the deficit of $1.97 billion as part of the budget process from committed projects. How much of the deficit was anticipated and how much was due to cost overruns? And how does the Government cover the deficits that HDB incurs?

Madam, indeed, other HDB initiatives, like HIP, will contribute to the deficit of HDB. But the single biggest ticket item in our deficit is the subsidy and housing grants under the Home Ownership Programme. For upgrading, as we ramp up some programmes, there are other upgrading programmes which we are ramping down, for example, LUP, which is a big $5 billion project.

How do we finance it? HDB operates under what we call the deficit financing model. So, whatever the deficit is for the year, we receive a grant from the Ministry of Finance (MOF), so that, in the end, we will balance our account. That grant is reflected in the overall Government Budget for the year, which we debate during COS.

Was the almost $2 billion deficit expected? Yes, it was expected because as we ramp up the numbers – 25,000 homes – you should expect that the deficit will grow accordingly. But going forward, I do not see us building 25,000 units per year for a long time. In fact, this is already Year Four, and we have started the process of tapering it down for the simple reason that the number of family formation is not of that order. While I hope even more Singaporeans will get married and have larger numbers of babies, I do not see that happening in the near future or the medium term.