HDB – Leong Sze Hian responds to Mah Bow Tan

Leong Sze Hian

 

I refer to the article “WP’s housing proposal irresponsible, says Mah” (ST, Apr 15).

The report says that “National Development Minister Mah Bow Tan yesterday called the Workers’ Party (WP) “irresponsible for proposing cheaper HDB flats without explaining how it planned to pay for them.

In my view, there may be no need for the WP to do any explaining, because what it may simply mean is that the HDB may make less profits, if HDB flats are priced lower.

Mr Mah claims that “the government subsidy on new HDB flats already adds up to $1 billion a year”.

Without the break-down of the costs of building flats, actually nobody knows how much exactly is the subsidy or whether there is any subsidy at all?

If the WP wants a larger subsidy, does it plan to find it by cutting government spending in other areas, Mr Mah says, because “you can’t get something for nothing”.

Mr Mah asks:

“Is it going to come from education?  From healthcare?  From defence?  They didn’t say. Ór if they say it is not going to come from any of this, are they going to raise taxes?  Or are they going to dip into the reserves?’ he said in his first response to the opposition party’s housing proposals contained in its manifesto.”

In my opinion, the main cost or subsidy component – depending on who you believe – is the land cost charged to every HDB flat.  Therefore, even if HDB flats are priced lower, there may be no need to fund it by cutting other government spending.  The outcome may likely be just a reduction in the land sales revenue of the Government, which in any case is not reported as forming part of the Government’s revenue in the Budget.

Thus, in my humble view, the Minister’s questions may be irrelevant.

Resale prices will crash?

“The WP’s proposal to peg the prices of new HDB flats to median incomes of households that qualify to buy them, instead of to resale market prices, would also lower the value of Singapore’s one million homes,” Mr Mah warned.

I think since it takes about five years for a Build-to-Order (BTO) flat to be built and another five years Minimum Occupation Period (MOP), for flats to be available in the resale market, the short-term impact on resale prices may be minimal, and in the longer term, may help to cool the over-heating in the resale market.

In other words, the likely outcome may be a more gradual and moderate rise in prices in the future.

So, I do not agree with the Minister’s assertion that the WP’s proposals are part of an “asset devaluation policy”, as opposed to the People’s Action Party’s asset enhancement policy. This is because the lessons of history tell us that it may be less risky to have moderate price increase than to have rapid price rise like what is happening now. Such rapid rise in prices may likely cause the property bubble to burst eventually, like it did in 1996, which led to a 14-year property bear market in Singapore, with prices falling by almost 50 per cent by 2003.

Mortgage arrears and negative equity?

Mr Mah also asks: “What happens to those people who want to sell, who are in mortgage arrears?  It will be negative equity.”

In this regard, the Minister has raised very pertinent questions. So, shouldn’t he tell us how many HDB loans and HDB bank loans are in arrears over three months?  How many HDB flat owners who couldn’t pay their mortgage during the bear market of 1996 to 2010, lost their homes, CPF savings, cash utilised, or were made bankrupt, because of negative equity?

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