Factors in Determination of Value of Land for Public and Private Housing

Mr Speaker, the Member asks what differential is applied by the Chief Valuer to land use for HDB, compared to private housing. He goes on to ask whether the private housing land use comparables that are used to value land for HDB BTO flats are based on records of the last transacted private residential land sold by the Government and private parties. Let me explain.

The land sold to the private sector for private housing development is typically done by open tender through the Government Land Sales, or GLS, programme. The value of the land is determined through price discovery as developers bid for the land.

On the other hand, sale of state land to HDB for public housing developments does not fall under GLS. Instead, the fair market value that HDB must pay for the purchase of state land for public housing is independently determined by the Chief Valuer using well accepted and established valuation principles. Transactions pertaining to land sold for private housing developments are not used to value the land sold to HDB for public housing developments. Instead, the Chief Valuer considers relevant public housing transactions and the specific parameters of the site.

On the differential, which is also the Member's question, HDB has publicly stated that the land premium paid for public housing land parcels is lower than the premiums for equivalent land used for private housing, as observed from the returns of successful tender bids by private developers through GLS. This is in part because of the greater restrictions that apply to public housing such as buyers' citizenship status, minimum occupation period, income ceiling, non-ownership of private properties and so on.

I must caveat that I am 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. But suffice to say, he adopts the same valuation principles used by professional valuers in the private sector and these principles are also consistent with the principles that other valuers use to value public housing or HDB flats. So, when your residents apply for loans, they get the valuation. That is what the valuer does – determine the value of HDB flats.

There is such a thing as the value of public housing and public housing land and it can be ascertained.

Relevant to this topic raised by Mr Giam are the recent comments made by Mr Leong Mun Wai in the public domain, where he said that state land sold to HDB should instead be valued at the historical cost of acquisition rather than on professional valuation principles which I have just articulated. He argues that by doing so, HDB flats can be made even cheaper than they are. I will leave the point about HDB home pricing and affordability for the debate that we will all be having soon. But we will deal with the point about valuation of land for public housing today.

Let me take a bit of time to explain to fellow Singaporeans and Members of this House why Mr Leong's proposal to value state land meant for HDB at historical cost cannot work.

First, land has value. Professional valuers in the private sector will tell us that. And actually, all of us intrinsically understand this. So, when Mr Leong calls for land to be sold at historical cost, he is overturning this fundamental point that land has value. Given that most Singaporeans own their homes, he is essentially saying that by a stroke of his pen, a significant portion of the asset value should be ignored.

In fact, this was the discussion too that Mr Chiam See Tong had with then Prime Minister Lee Kuan Yew back on 21 March 1985 in Parliament, where Mr Chiam was arguing about what the real value of HDB land was and whether it could really be discovered. And after some to-ing and fro-ing, if you check Hansard, then Prime Minister Lee Kuan Yew stood up and asked the Member squarely.

Allow me to quote. Mr Lee asked, "May I ask whether the Member concedes that there is such a concept called 'value of land'? And that there is such a profession known in Singapore as a Land Valuer? That the Government has a Chief Land Valuer? That there are, in the private sector, experts who regularly go to Court and give evidence as to what the value of land is? And that the Ministry of National Development, by transferring it from the HDB to the Government, is in fact making the books widely known that the value of each plot of land will be determined, and is determinable, because the land can be used for defence, it can be used for schools, it can be used for condominiums, it can be used for HDB, it can be used for URA, who is prepared to pay what price for what use. Is there no such concept as value of land?"

That in a way is a rhetorical question that he asked at the end. And after some further exchanges, Mr Chiam accepted that if that was what the Prime Minister said, then that was what he said. Perhaps grudgingly but I think that made the point clear. So, that is the first point.

Second, when you buy and sell land or property in Singapore, and I will say in many parts of the world, you may often call for a valuation report. The valuer will usually apply established and accepted valuation principles accepted by the profession and by the public to determine current market value.

For example, he looks at the relevant recent transactions, makes adjustments for attributes and so on, and produces the valuation report, detailing his grounds. But I do not think you or your professional valuer will base your transaction on how much the property had changed hands back in history. So, that is second.

Third, the idea of valuing land at historical cost sounds attractive but is really problematic. If the land was acquired by the Government in the 1960s, HDB pays for the land at 1960s' pricing? If the land was, say, recently acquired, maybe 2015, then HDB pays the 2015 price, far higher than before? And what if the land had all along been state land and was never acquired by anyone or from anyone? Is the value of the state land at historical cost then zero, that is, HDB pays zero dollars? Or do we go back to 1819 or thereabouts or further back in time to try to find some historical transactional record that was made and say, "Ah, that is the price"?

I think most people will understand why this is wrong.

If you want to sell your property today, whether it is an 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, to bargain or to 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", that is, how much you or your forefathers had paid for it way back in the past – let us use that as the basis, as it is really what it costs to you or your lineage.

Or imagine one of our Pioneer Generation Singaporeans, one of our seniors, maybe in the past earning $500 a month, maybe more, maybe less; and who may have paid say $50,000 for his flat back in the early days. Today, because Singapore has done well thanks to his generation's hard work and contribution, it is certainly worth a lot more. When you go and do house visits, many seniors tell you proudly they are still living in the flat but it is worth a lot more.

If you adopt Mr Leong's new approach, would this senior be required to sell at just above $50,000 or even with say, COV, cash over historical value? Would his children and descendants inherit a flat valued as it was back then in the 1960s, that is, worth very little compared to today's prices?

We know that Mr Leong makes a superficially attractive proposition but we know that the proposal is unfair; it is not logical and simply cannot fly in the face of long-established, well-accepted valuation principles.

Fourth, Mr Leong's valuation approach is actually dangerous for Singapore, because it is not really about valuation principles at all. It sounds like it, but it is not. He is in fact seeking to raid our national reserves in promising you that he can make HDB flats dirt cheap – but better, without having to tax Singaporeans more or to find ways to pay for it through revenue sources.

As my colleague Minister Ms Indranee Rajah had explained late last year, state land is part of our national reserves – quite different from other countries, other provinces, other cities, other districts in other countries which use the sale of state land as a way to fund their recurrent expenditure.

State land in our reserves has value. Its value grows if Singapore is well-managed and does well. If our reserves are well-husbanded and grow, they give greater assurance that our future generations of Singaporeans will have resources to deal with crises, catastrophe and calamity, like pandemics, like war, like economic crises, like climate emergencies. If they grow, they not just benefit the security of our future generations, but they also benefit us today. While Government cannot touch the proceeds from land sales which go to the reserves and are then re-invested, part of the growth in value of our reserves, the Net Investment Returns Contribution (NIRC), is used to fund today's needs such as healthcare, housing, subsidies, security and so on.

So, when state land is sold to HDB, HDB must put back into the reserves the fair market value (FMV) of the land, turn the land that is in our reserves into its equivalent value of money at this point in time, so the reserves are not worse-off or diminished. And FMV is determined by professional valuation principles.

Mr Leong's proposal for HDB to pay historical price to the reserves means putting back into the reserves far less than what the state land is really worth today. This is a raid on the reserves, plain and simple, and will diminish the resources available for your children and their children.

When Mr Leong advances his argument, it is about affordable housing, cheap housing; it is about valuation approach. So, it is complicated, with lots of charts, but the end product is housing will be a lot cheaper, but hey presto, with no need to pay more today by you.

He says everything else but through sleight of hand, he hides from you the plain fact that he is really wanting to raid our reserves.

Finally, while I said I would leave the debate on HDB affordability to another time – and as PSP has said, they would also debate in Parliament on this point – I will just make this final related point for Members to consider. We spend considerable amounts of national resources to keep our BTO flats affordable: at the house price-to-income ratios being comparable to other countries, where you can see the stark difference; at the mortgage servicing ratios as they are.

Mr Leong says he can make them even cheaper. They should be, he says. But to do this, there is one way: cut back on other Government expenditure, whether it is healthcare, security, education, or whatever you would want to trim back so that you spend more on this. Or by raising revenues through taxation or through other means, so that he can deliver on even cheaper BTO flats. But they are not going to be popular or wearable. So, instead, the approach is the populist one – raid our reserves, but do not say it.

He says Government can sell land to HDB at distant historical cost and ignore market valuation principles, so that Singaporeans today can get dirt cheap housing without having to pay more taxes or experience cutbacks elsewhere to pay for this. Get the benefit of the cake and eat it. As Deputy Prime Minister Lawrence Wong had said previously in a debate on the GST and on many other occasions, if you want to tap more on the reserves, diminish it, use more of it for today and leave less for tomorrow, let us just say it plainly – let Singaporeans see it as it is and we can have a debate come the next round when we talk about housing, about reserves, about expenditure, about sustainability. Then, we can have a sound, fair basis for discussion.

But the point that he has made, the argument he is proposing, the proposition he is making, I think most people would recognise that this deal sounds too good to be true.

I thank the Minister for his reply to my question. Will the high resale prices that we have seen in recent years push up the value of BTO flats and impact the price that Singaporeans pay for their BTO flats? Or does HDB increase subsidies to completely offset the increase in land valuation due to this factor?

Second, the Chief Valuer's decision on the valuation of a piece of land has a great impact on the amounts that Singaporeans have to pay for their HDB flats. How does the Government ensure that, in practice, the Chief Valuer is able to make his valuation decisions completely independently and that no one attempts to influence his decisions?

First, let me put it beyond any shadow of doubt: the Office of the Chief Valuer is independent. It is in the Constitution his powers and his protection are set out in law. And that answers his second question clearly. There is presidential protection on the Office of the Chief Valuer.

Second, the Member asks how to ensure that the Chief Valuer's valuations do not overly impact the cost of BTO flat prices. We have explained previously that HDB does not price HDB flats to recover the cost of land and construction. The Member may be thinking about what the private sector does. The private sector developer bids for a piece of land. It has to be very careful how much it bids for. It then says, "Okay, let me call my consultant and contractor to ask about the costs of development. And then, let me set my per-square-foot price or price my units in order to recover my costs and also to make a profit." That must be it – being a profit-driven private sector.

But I have said – and my colleagues and my predecessors have said – we do not price HDB flats to recover cost of land and construction. The land and construction prices fluctuate. And in some time in our history, including in the last two years, these prices fluctuated a lot – material prices, labour cost and land cost have gone up quite a bit because of the pandemic. If it were so, then, would you not see BTO prices shooting up?

In fact, the average price of 4-room flats in non-mature estates has remained fairly constant before the pandemic in 2019 and last year, despite the resale market having gone up 28% to 29%.

Why is that so? First, we do not price HDB flats to recover costs of land and construction. And that is why HDB collects far less than the costs it has to pay out. And the deficit has been growing, especially the last two years. So, that is first and foremost, the fallacy in the Member's question; and I hope that by this explanation, you understand how it is done.

I go to the Member's first question where you asked how we ensure that resale price increases in the last two years do not overly push up BTO prices. I think what I have just explained answers that. In order to keep the price of BTO flats relatively steady, despite all these resale price increases, we first look at transactions of resale flats that are comparable. But then, we have to apply the appropriate subsidies and grants in order to bring down these costs to an affordable level for Singaporeans.

That is why from year to year, from launch to launch, the subsidies have to be adjusted – because of location, because of resale prices – to ensure that relative stability in the BTO market prevails.

We can have further debate on this when the PSP and the Government debate this. We welcome the WP to participate as well.

Thank you, Mr Speaker. Just following up from Minister's point on subsidies – I filed a written question for yesterday's session, enquiring the dollar value of subsidies allocated by HDB in each year from 2010 to 2022 for HDB BTO apartments in both mature and non-mature estates respectively, and how many of such flats were constructed each year.

Minister replied saying that the market subsidies are not directly comparable across projects, launches and years as they depend on prevailing market conditions, attributes of the BTO projects offered and prevailing household incomes. I understand that answer. But Minister in his reply did not set out the subsidies for each year. I cannot understand why that information cannot be made public because those subsidies are taxpayers' subsidies. The taxpayer is actually funding the home ownership programme, vis a vis subsidies. I need the Minister's explanation as to why that information cannot be given out by the Ministry.

I think we can deal with this more thoroughly in a debate on a Motion. The short answer is if you look at every brochure when we have a launch – and I am sure the Member has got residents come up to him to say, "Which one, 3-room, 4-room, which floor" – and if you look at the range of BTO prices, we made the effort to put the comparable resale price next to it. That is a sense, broadly, of the whole range of market subsidies that are given to Singaporeans. But we have to bear in mind that based on each family's circumstances, additional grants may or may not be available. So, it will vary, not just project by project, but also depending on who buys it. So, not just subsidies but also grants that a flat buyer receives.

And we have provided the cost of construction, which is put out and published. The overall amount of money that Government uses as taxpayer dollar to fund home ownership is public information; it is a huge figure, with some breakdown. And we also put it in the brochure, not just for Members of Parliament but for individual buyers to get a sense of the range of the difference between the resale prices that are comparable and the prices that they are being asked to pay. Again, prices come in a range due to different floor, different facing, different block.

And of course, as I have said before, the subsidies that we provide, on top of the grants, will vary from launch to launch, from year to year, even within the same town, because and especially when resale prices fluctuate a lot. I mean, when the market is flat, the subsidy is roughly about the same. But just think about it: you have resale prices shooting up 28%, 29% in the last two years. I may be getting my figures a bit wrong but broadly, you know the resale price has gone up a lot. But look at the average BTO prices. They have remained relatively stable – of course, adjusting for different locations. That must mean that you have to adjust the subsidies even for projects launched in succession in an area, in order to ensure that there is stability.

Thank you, Mr Speaker. I would like to ask the Minister a supplementary question. As we talk about valuation and its impact on BTO prices, as we know, because of the current situation of supply, the affordability of resale flats is also in question.

So, how can we assure people if BTO is not an option and they are going into the resale market, that it is still affordable, especially for first-time home owners.

We all recognise that resale prices have gone up. The reasons for this have been articulated before. That is why, amongst other things, we have made two rounds of cooling measures to moderate demand. We are also mindful of the headwinds that may come our way this year – economic headwinds, geopolitical headwinds, very high mortgage interest rates. So, all in, let us keep an eye on the resale market, both private and HDB. People are being rather prudent and careful as they should be. There are macro prudential rules to constrain overstretching. And if you have read news articles at the early part of this year, there have been reports that suggest that the property market is stabilising.

It may be too early to draw definitive conclusions, but our overriding objective is to ensure stability in the property to ensure it does not run away from economic fundamentals. So, I think that is important. On top of that, we continue to study how to ensure that both BTO and the resale market continue to remain affordable for different groups of Singaporeans at different income levels. That study continues.

Speaker, I would like to ask the Minister one question. I am not sure when I mentioned that HDB prices should be priced based on historical cost of land. Where did I write that? I think I did not mention that.

There was an exchange between the hon Member and Senior Minister of State Sim Ann last year. And further, Facebook and social media posts. I think we leave that for the debate. If the Member tells us that he does not think Government should charge HDB at historical prices, then I think that advances the discussion. Basically, a step forward.