In weighing HDB 'lottery effect', Singapore mulls raising subsidies, imposing clawbacks

SINGAPORE is maintaining its stance on building public housing - including rental housing - in very prime locations, like the city centre and the Greater Southern Waterfront, that speaks to efforts to keep society "egalitarian and inclusive" on the housing front, said the country's housing minister.

Given this, and to have these flats in these prime locations remaining affordable, the government may have to provide additional subsidies on top of what it typically provides now, said Minister for National Development Desmond Lee on Monday.

This idea, however, is "easier said than done", said Mr Lee at the OrangeTee Business Conference 2021, because there are many other downstream effects to be considered.

"For example, if we provide more subsidies upfront, then when these flats are sold in the future, their owners stand to benefit a lot more than those who buy flats without these additional subsidies," said Mr Lee in his speech.

"For fairness, we may thus have to find a way to recover some of these additional subsidies provided for flats in prime locations."

Mr Lee's comments come amid concerns on the so-called "lottery effect" for public housing, where Housing Board (HDB) flats built in prime locations are made available to buyers in a ballot, under the Build-to-Order (BTO) scheme. Prices of these flats therefore surge in line with the value of these prime areas.

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Concerns over the "lottery effect" also come as there has been a rise of million-dollar HDB flats in recent times.

For perspective, in April alone, 21 million-dollar HDB flats changed hands in the resale market. A total of 82 HDB flats were sold for at least S$1 million last year, compared with 64 in 2019. Most of these million-dollar flats are located in areas such as central Singapore, Bishan, and Queenstown.

But Singapore will continue to build public housing in prime locations to resist global trends of exclusion by housing locations. Mr Lee points out that housing in many global cities have become so expensive over time, that they are out of reach for the average homebuyer. 

"This may have resulted from natural economic forces, supply and demand. But it leads to undesirable social outcomes – the fragmentation of cities and societies, as wealthy households concentrate in the most attractive locations, to the exclusion of everyone else," said Mr Lee.

"Singapore is not immune to these trends. These are very powerful social and economic forces at work. But we are determined to do our best to resist them, to keep our society egalitarian and inclusive.

"We believe that Singaporeans of different income levels should have a chance to live in and enjoy these prime locations. And these prime locations, like other parts of Singapore, should reflect the diversity of our society."

Mr Lee added that Singapore also wants these flats in prime location to remain within the reach of Singaporeans "beyond the first buyer".

"There is no straightforward way to do this, because every measure has its merits and trade-offs."

He said the ministry is engaging widely with Singaporeans to "find a way to balance the many complex considerations".

Suggestions so far - from property agencies, academics, families and young home seekers - have included shorter leases for the new flats and a longer minimum occupation period.

But each idea comes with trade-offs.

For example, in launching flats with shorter leases, which will be cheaper, the government needs to weigh out the needs of subsequent buyers, and ask if the remaining lease would be sufficient to meet their needs.

And while a longer minimum occupation period can emphasise that HDB flats are meant primarily for occupation, not investment, this move may inadvertently hamper homebuyers who have a genuine need to move out as their family’s needs change, Mr Lee said.

"There are also suggestions that the flats should only be sold back to the government, which can then resell them at an affordable price. But it is challenging to ascertain a fair buyback price, and we may want to avoid artificially guaranteeing the values of these flats, which existing flat owners may view as unfair."

Mr Lee added the government will "continue to review the possibilities and refine our model, before rolling it out", citing the "important social reasons" in embarking on this engagement effort.

Meanwhile, given the manpower shortage due to border restrictions amid the rise of Covid-19 cases, BTO projects are expected by the government to be delayed by a further three months. As it is, the earlier expected delay - made known in April this year - was to stretch between six to nine months. (see amendment note)

Mr Lee said the government will continue to price BTO flats based on affordability for home buyers and not cost recovery. This means the rise in construction costs will not affect new flat prices significantly. HDB is also working closely with contractors to minimise the delays to the BTO projects, he added.

Mr Lee said that given the "exceptional circumstances" today, property agents should help to facilitate negotiations between clients and buyers or landlords "fairly" for both parties.

It comes as more buyers may need to rent a place temporarily, or extend their current rentals, while waiting for their home to be completed.

To add, others may have sold their existing home in anticipation of their new one, and may need to renegotiate with their buyers to delay the handover date. Another group may turn its interest away from new projects and toward completed ones, fuelling demand for resale flats and possibly a rise in resale prices, said Mr Lee.

OrangeTee & Tie has meanwhile launched a free market-first BTO dashboard, an online tool that first-time HDB flat buyers can access for free to make "informed choices", the agency said. The tool also includes the prices of the surrounding HDB resale flats and private properties of the BTO flats.

Mr Lee also asked property agents to look out for the interests of homeowners and tenants. Some may be facing financial difficulties due to the economic impact of Covid-19, translating to problems in keeping up with their mortgage or rental payments, he said. 

"For those who are looking to rent or buy from the market, we hope you can encourage them to consider their housing budget as well as the long term, and not overstretch themselves," added Mr Lee, speaking to property agents. 

"Interest rates may seem attractive today, but the economic situation remains uncertain, and a home purchase is a long-term commitment."

Amendment note: An earlier version of this article misstated the time of delay announcement as March when in fact it was April.

READ MORE: 

• HDB launches more than 3,800 BTO flats, including in Bukit Merah, Geylang; about 2,500 balance flats also on offer
• OrangeTee & Tie sets sights on 30% revenue growth in digital, data push