Source: TR EMERITUS
Most significant debate ever in our Parliamentary history
April 10th, 2014
First and foremost – thanks very much to ES for sending the following to me.
In the annals of Singapore’s Parliamentary debates – perhaps the most significant and interesting debate ever was the following, on 17 March, 1988.
Little did we know arguably how significant it was then – until today.
How much do HDB flats really cost?
“Mr Chiam See Tong (Potong Pasir): I am much obliged to you, Mr Deputy Speaker. There are two questions which I would like the Minister to answer, both in regard to the pricing of HDB flats. The first one is, would the Minister be willing to announce or make public the market value of all the land in the housing estates used by the HDB? Now the Minister has come out quite forthrightly, unlike his predecessor, to say that the pricing of HDB flats, in fact, includes the land cost at market value. This market value is a very volatile concept or a very unsure one because market value can mean really anything, depending on what the HDB would like to peg the market value on. If the HDB could give an indication, then I think the public would know how much their flats really cost. Because successful tenders of construction cost are usually gazetted, so we have information on that. But up to now, the land cost has been a complete mystery. I think the Minister should have this cost of land value because he put up a table which was distributed yesterday, and this table does not really give any details of how the price of each individual flat is arrived at.
The other question is the unit cost per flat. The Opposition has been at this since, I think, 1984 but we were unsuccessful every year. All kinds of excuses were given. If the Minister would remember, the former Minister said that it was difficult to give the unit cost because it varies from area to area. To make it easy, perhaps we confine ourselves to each particular New Town. I am sure he has figures of each unit cost.
HDB flats are subsidised?
Until the Minister can enlighten us on that, I think the two points which the HDB has always been canvassing cannot really be cleared up from the air. No. 1 – HDB has been subsidizing the flats; and No. 2 – the HDB has not been making a profit. Of course, we in the SDP have said to the contrary. We do not believe that the flats are subsidized in the sense that the HDB has taken money, out of pocket, to top up what they have lost in regard to cost per flat. And also we say that the HDB does make profits in the sale of their flats.
As regards land, I think everybody knows that when land is acquired compulsorily, normally the compensation is based, in the past, on 1973 values. But after the new law was passed, land value is taken at the price in January 1986 for those lands that are acquired after November 1986. Somebody asked the Minister why the price of land was taken at January 1986, and he was quite forthright: “because prices of land at that time were at its lowest point.” We can see that the land acquired by the Government is almost for a song. We know that land in outlying areas, was acquired and compensation was paid at something like 60> per sq ft. And not long ago I even read of rubber land at Mandai being acquised and the Government compensated the landowners something like 15> per sq ft. So it would be interesting to see what is the market value of the various estates which the HDB has taken. I think this is an important point because I think the public would go along with the Government to allow their land to be compulsorily acquired at a very low value, and not only at a very low value but, in fact, a lot of hardship has been endured by those people who have been evicted from their land forcibly against their will. I think many MPs have spoken about resettlement and, in fact, the story of the human side of the resettlement has not really been fully told.
As I said, the public would go along with the Government and allow their land to be compulsorily acquired if they know that the land acquired is to be used for public purposes, for the national good. But if the market value fixed by the Government is so high and it can be deemed by the public that, in fact, the Government is using the Land Acquisition Act to make a profit on their land, then I am afraid it would be very difficult in future for the Government to acquire land. There will be more resistance to it.
Mr Dhanabalan: Mr Deputy Speaker, Sir, the Member for Potong Pasir wants to know whether the HDB will make public the value of individual lots. Of course, the HDB does have details of the value of individual lots. But I must take very strong objection and, I think, the profession of valuers in Singapore will take very strong objection to his suggestion that the value of land is completely arbitrary. It is not arbitrary. It is not up to the HDB to peg it to any level that it wants. As I mentioned yesterday, I would suggest that the Member for Potong Pasir should try and get hold of a copy of the text, and if he cannot, I will let him have a copy of the text of what I said yesterday: the value of the land that the HDB purchases is fixed by the Chief Valuer.
There are very specific criteria and approach that valuers use in order to arrive at the value of a piece of land. Land is sold and bought all over Singapore all the time, not just private land but also Government land. And using the sale prices of land between willing buyer and willing seller, valuers are able to make the kind of adjustments necessary to arrive at the value of land in other areas or adjacent areas. So it is not arbitrary. In fact, valuers have claimed that though they exercise judgment, their approach is a rather scientific and rigorous one.
Mr Chiam See Tong: Subjective.
Mr Dhanabalan: It is not. As I said, they have to exercise judgment but it is not just completely arbitrary. I have already explained yesterday why we had to use market value of land. But I did make it very clear that HDB prices do not cover the market value of land, which is why 98% of the flats completed have a subsidy element. And I made it very clear what we mean by subsidy.
I would urge the Member to get his thinking right. It is not a question of whether you spend money out of pocket. The point I made was that as long as HDB sells its flats at a price lower than what the purchaser has to pay in the market, there is a subsidy. And this has been demonstrated again and again by HDB purchasers being able to sell on the market at a price higher than what they paid the HDB. That is the only rational, logical definition of subsidy.
I made this point once before. If the Member were to give his son a house which he had bought 10 years ago, either free or even at cost, would he not think that he has done his son a favour?
Chiam See Tong vs Dhanabalan?
Mr Chiam See Tong: That is different.
Mr Dhanabalan: It is not different. The point I am making is that you would be giving a benefit to somebody which he would not get if he were to go into the market to get that particular service or that particular asset.
Mr Chiam See Tong: That is father and son relationship.
Mr Dhanabalan: Or it can be to anybody. So there is no purpose in trying to pursue this point, what is the cost? I have already said that I have asked the HDB to let us know what the historical values are, just for us to note. But HDB has used the market value as a guide to price its flats. And it is very obvious and quite conclusive from the evidence I gave yesterday that 98% of the flats are priced below what they are worth on the market. And people know.
Mr Chiam See Tong: We do not know.
Mr Dhanabalan: If the HDB purchaser thinks that he is paying the HDB more than what he can pay on the market, he would not buy from the HDB. HDB is not the only developer in the market. It is very simple. There are private developers. They build apartments. Some of them look very much like HDB apartments. People are free to buy those apartments.
Mr Chiam See Tong: I think we are going to have a repeat of the last four years. Is the Minister going or not going to answer my question?
Mr Dhanabalan: I am not giving way, Mr Deputy Speaker, Sir,
Chairman warns Mr Chiam See Tong?
The Chairman: Mr Chiam, I must warn you not to embark on a speech until I have given you permission to do so. You are very fond of doing this before I give you permission. Please continue, Mr Dhanabalan.
Mr Chiam See Tong: We are not getting the answers.
Mr Dhanabalan: So the question of whether HDB makes a profit does not arise. As I said, at the end of every year, HDB totes up what it costs to build its flats, which means construction cost, development and infrastructural costs, the land price that it pays the Government. It totes what it gets by way of its sales receipts, and there is a very big deficit which is shown in the budget, and it runs into billions of dollars. If the Member for Potong Pasir does not want to understand, then of course there is no way I can make him understand.
Who is not understanding?
An hon. Member: He can’t understand!
Mr Dhanabalan: I do not think the Member for Potong Pasir is incapable of understanding. I think he does not want to understand. As it is said, there is none so blind as those who do not want to see.
I have gone to great lengths yesterday and I would seriously urge the Member to study what I have said and try and understand the purpose behind the pricing policy of HDB. I have already explained very clearly why it is not possible to use historical value and that we will not be able to do a proper, rational, allocation of public housing resources in the present generation, let alone take care of the interests of future generations. We can be very popular, as I said, by giving away land but we will not be doing Singaporeans a favour.
The other point is the question of land acquisition. I did make the point yesterday that Government has been acquiring land at very low values, 1973 values and now 1986 values. Let us not pretend that we are acquiring from a large number of people and then redistributing it also to a large number. In fact, we are acquiring from a very small number of people. Even the resettlement cases which the Government deals with usually do not arise out of acquisition of land which belongs to the resettlement case. Very often, the land is Government land on TOL or on lease. And when Government needs it, the tenants are resettled. Or the land is acquired from a big landowner and the people occupying the land are not the owners. The owner is compensated. The tenants are resettled. The number of people from whom we acquire land is very small. This is a Robin Hood act, as the Prime Minister pointed out once. It is a Robin Hood act. We have taken land from a few landowners and redistributed it. And every HDB flat sold in 1986-87 was below cost; only 2% covered the full cost. Before that, it was 100%. Every HDB flat purchaser pays less than what the market value is.
What is the point of giving a breakdown?
Mr Chiam See Tong: Why don’t you give us a breakdown?
Mr Dhanabalan: What is the point of giving a breakdown? The point is, as I said, 98% of the flats are subsidized, in the definition which I have given and which I have stated is the only rational and logical definition. It is very easy to talk about making profits, book subsidy and be irresponsible. I would ask the Member for Potong Pasir who, I think, usually is quite rational and quite reasonable, to go back and think carefully about the method that we have adopted which is not to make the purchaser pay the full cost. We have never said that the purchaser has paid the full cost. But the market value is a guide towards which we must finally arive at. Maybe the Member for Potong Pasir thinks that there is a fairer and better way of ensuring that we do a proper allocation of our housing resources for the present generation as well as safeguard future generations’ interest. If after he has studied carefully what I have said and he still wants to bring up new arguments, I am prepared to entertain them when we come to the subhead on the HDB, if there is time.
Regarding the GPC recommendations, I must apologize to the Member for Punggol that I did not acknowledge the recommendations. It happened that the recommendations of the GPC coincided with the thinking of the Ministry as well as the Ministerial Committee. And since so many different bodies or committees were thinking along the same line, I overlooked the fact that this particular recommendation came from the GPC. So I want to make due acknowledgement now.
As far as full home ownership is concerned, as I said yesterday, we want to ensure that our construction programme and the pricing of HDB flats will enable Singaporeans to afford at least the basic of a 3-room flat. It does not mean that the other types of flats will not be subsidized. In fact, as I pointed out, all the flats are subsidized but the subsidy for the smaller 3-room flat is higher. Over a period of time, we will have to decrease the subsidy. But I think this will have to be done over a long period of time. And I explained yesterday that if there are no increases in fuel, material, wage cost and if inflation remains low, there is no reason for an across-the-board price increase of HDB flats.”
Leong Sze Hian
Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow and an author of 4 books. He is frequently quoted in the media. He has also been invited to speak more than 100 times in 25 countries on 5 continents. He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional qualifications. He blogs at www.leongszehian.com.
Most significant debate ever in our Parliamentary history
April 10th, 2014
First and foremost – thanks very much to ES for sending the following to me.
In the annals of Singapore’s Parliamentary debates – perhaps the most significant and interesting debate ever was the following, on 17 March, 1988.
Little did we know arguably how significant it was then – until today.
* * * * * * * * * * * * * *
How much do HDB flats really cost?
“Mr Chiam See Tong (Potong Pasir): I am much obliged to you, Mr Deputy Speaker. There are two questions which I would like the Minister to answer, both in regard to the pricing of HDB flats. The first one is, would the Minister be willing to announce or make public the market value of all the land in the housing estates used by the HDB? Now the Minister has come out quite forthrightly, unlike his predecessor, to say that the pricing of HDB flats, in fact, includes the land cost at market value. This market value is a very volatile concept or a very unsure one because market value can mean really anything, depending on what the HDB would like to peg the market value on. If the HDB could give an indication, then I think the public would know how much their flats really cost. Because successful tenders of construction cost are usually gazetted, so we have information on that. But up to now, the land cost has been a complete mystery. I think the Minister should have this cost of land value because he put up a table which was distributed yesterday, and this table does not really give any details of how the price of each individual flat is arrived at.
The other question is the unit cost per flat. The Opposition has been at this since, I think, 1984 but we were unsuccessful every year. All kinds of excuses were given. If the Minister would remember, the former Minister said that it was difficult to give the unit cost because it varies from area to area. To make it easy, perhaps we confine ourselves to each particular New Town. I am sure he has figures of each unit cost.
HDB flats are subsidised?
Until the Minister can enlighten us on that, I think the two points which the HDB has always been canvassing cannot really be cleared up from the air. No. 1 – HDB has been subsidizing the flats; and No. 2 – the HDB has not been making a profit. Of course, we in the SDP have said to the contrary. We do not believe that the flats are subsidized in the sense that the HDB has taken money, out of pocket, to top up what they have lost in regard to cost per flat. And also we say that the HDB does make profits in the sale of their flats.
As regards land, I think everybody knows that when land is acquired compulsorily, normally the compensation is based, in the past, on 1973 values. But after the new law was passed, land value is taken at the price in January 1986 for those lands that are acquired after November 1986. Somebody asked the Minister why the price of land was taken at January 1986, and he was quite forthright: “because prices of land at that time were at its lowest point.” We can see that the land acquired by the Government is almost for a song. We know that land in outlying areas, was acquired and compensation was paid at something like 60> per sq ft. And not long ago I even read of rubber land at Mandai being acquised and the Government compensated the landowners something like 15> per sq ft. So it would be interesting to see what is the market value of the various estates which the HDB has taken. I think this is an important point because I think the public would go along with the Government to allow their land to be compulsorily acquired at a very low value, and not only at a very low value but, in fact, a lot of hardship has been endured by those people who have been evicted from their land forcibly against their will. I think many MPs have spoken about resettlement and, in fact, the story of the human side of the resettlement has not really been fully told.
As I said, the public would go along with the Government and allow their land to be compulsorily acquired if they know that the land acquired is to be used for public purposes, for the national good. But if the market value fixed by the Government is so high and it can be deemed by the public that, in fact, the Government is using the Land Acquisition Act to make a profit on their land, then I am afraid it would be very difficult in future for the Government to acquire land. There will be more resistance to it.
Mr Dhanabalan: Mr Deputy Speaker, Sir, the Member for Potong Pasir wants to know whether the HDB will make public the value of individual lots. Of course, the HDB does have details of the value of individual lots. But I must take very strong objection and, I think, the profession of valuers in Singapore will take very strong objection to his suggestion that the value of land is completely arbitrary. It is not arbitrary. It is not up to the HDB to peg it to any level that it wants. As I mentioned yesterday, I would suggest that the Member for Potong Pasir should try and get hold of a copy of the text, and if he cannot, I will let him have a copy of the text of what I said yesterday: the value of the land that the HDB purchases is fixed by the Chief Valuer.
There are very specific criteria and approach that valuers use in order to arrive at the value of a piece of land. Land is sold and bought all over Singapore all the time, not just private land but also Government land. And using the sale prices of land between willing buyer and willing seller, valuers are able to make the kind of adjustments necessary to arrive at the value of land in other areas or adjacent areas. So it is not arbitrary. In fact, valuers have claimed that though they exercise judgment, their approach is a rather scientific and rigorous one.
Mr Chiam See Tong: Subjective.
Mr Dhanabalan: It is not. As I said, they have to exercise judgment but it is not just completely arbitrary. I have already explained yesterday why we had to use market value of land. But I did make it very clear that HDB prices do not cover the market value of land, which is why 98% of the flats completed have a subsidy element. And I made it very clear what we mean by subsidy.
I would urge the Member to get his thinking right. It is not a question of whether you spend money out of pocket. The point I made was that as long as HDB sells its flats at a price lower than what the purchaser has to pay in the market, there is a subsidy. And this has been demonstrated again and again by HDB purchasers being able to sell on the market at a price higher than what they paid the HDB. That is the only rational, logical definition of subsidy.
I made this point once before. If the Member were to give his son a house which he had bought 10 years ago, either free or even at cost, would he not think that he has done his son a favour?
Chiam See Tong vs Dhanabalan?
Mr Chiam See Tong: That is different.
Mr Dhanabalan: It is not different. The point I am making is that you would be giving a benefit to somebody which he would not get if he were to go into the market to get that particular service or that particular asset.
Mr Chiam See Tong: That is father and son relationship.
Mr Dhanabalan: Or it can be to anybody. So there is no purpose in trying to pursue this point, what is the cost? I have already said that I have asked the HDB to let us know what the historical values are, just for us to note. But HDB has used the market value as a guide to price its flats. And it is very obvious and quite conclusive from the evidence I gave yesterday that 98% of the flats are priced below what they are worth on the market. And people know.
Mr Chiam See Tong: We do not know.
Mr Dhanabalan: If the HDB purchaser thinks that he is paying the HDB more than what he can pay on the market, he would not buy from the HDB. HDB is not the only developer in the market. It is very simple. There are private developers. They build apartments. Some of them look very much like HDB apartments. People are free to buy those apartments.
Mr Chiam See Tong: I think we are going to have a repeat of the last four years. Is the Minister going or not going to answer my question?
Mr Dhanabalan: I am not giving way, Mr Deputy Speaker, Sir,
Chairman warns Mr Chiam See Tong?
The Chairman: Mr Chiam, I must warn you not to embark on a speech until I have given you permission to do so. You are very fond of doing this before I give you permission. Please continue, Mr Dhanabalan.
Mr Chiam See Tong: We are not getting the answers.
Mr Dhanabalan: So the question of whether HDB makes a profit does not arise. As I said, at the end of every year, HDB totes up what it costs to build its flats, which means construction cost, development and infrastructural costs, the land price that it pays the Government. It totes what it gets by way of its sales receipts, and there is a very big deficit which is shown in the budget, and it runs into billions of dollars. If the Member for Potong Pasir does not want to understand, then of course there is no way I can make him understand.
Who is not understanding?
An hon. Member: He can’t understand!
Mr Dhanabalan: I do not think the Member for Potong Pasir is incapable of understanding. I think he does not want to understand. As it is said, there is none so blind as those who do not want to see.
I have gone to great lengths yesterday and I would seriously urge the Member to study what I have said and try and understand the purpose behind the pricing policy of HDB. I have already explained very clearly why it is not possible to use historical value and that we will not be able to do a proper, rational, allocation of public housing resources in the present generation, let alone take care of the interests of future generations. We can be very popular, as I said, by giving away land but we will not be doing Singaporeans a favour.
The other point is the question of land acquisition. I did make the point yesterday that Government has been acquiring land at very low values, 1973 values and now 1986 values. Let us not pretend that we are acquiring from a large number of people and then redistributing it also to a large number. In fact, we are acquiring from a very small number of people. Even the resettlement cases which the Government deals with usually do not arise out of acquisition of land which belongs to the resettlement case. Very often, the land is Government land on TOL or on lease. And when Government needs it, the tenants are resettled. Or the land is acquired from a big landowner and the people occupying the land are not the owners. The owner is compensated. The tenants are resettled. The number of people from whom we acquire land is very small. This is a Robin Hood act, as the Prime Minister pointed out once. It is a Robin Hood act. We have taken land from a few landowners and redistributed it. And every HDB flat sold in 1986-87 was below cost; only 2% covered the full cost. Before that, it was 100%. Every HDB flat purchaser pays less than what the market value is.
What is the point of giving a breakdown?
Mr Chiam See Tong: Why don’t you give us a breakdown?
Mr Dhanabalan: What is the point of giving a breakdown? The point is, as I said, 98% of the flats are subsidized, in the definition which I have given and which I have stated is the only rational and logical definition. It is very easy to talk about making profits, book subsidy and be irresponsible. I would ask the Member for Potong Pasir who, I think, usually is quite rational and quite reasonable, to go back and think carefully about the method that we have adopted which is not to make the purchaser pay the full cost. We have never said that the purchaser has paid the full cost. But the market value is a guide towards which we must finally arive at. Maybe the Member for Potong Pasir thinks that there is a fairer and better way of ensuring that we do a proper allocation of our housing resources for the present generation as well as safeguard future generations’ interest. If after he has studied carefully what I have said and he still wants to bring up new arguments, I am prepared to entertain them when we come to the subhead on the HDB, if there is time.
Regarding the GPC recommendations, I must apologize to the Member for Punggol that I did not acknowledge the recommendations. It happened that the recommendations of the GPC coincided with the thinking of the Ministry as well as the Ministerial Committee. And since so many different bodies or committees were thinking along the same line, I overlooked the fact that this particular recommendation came from the GPC. So I want to make due acknowledgement now.
As far as full home ownership is concerned, as I said yesterday, we want to ensure that our construction programme and the pricing of HDB flats will enable Singaporeans to afford at least the basic of a 3-room flat. It does not mean that the other types of flats will not be subsidized. In fact, as I pointed out, all the flats are subsidized but the subsidy for the smaller 3-room flat is higher. Over a period of time, we will have to decrease the subsidy. But I think this will have to be done over a long period of time. And I explained yesterday that if there are no increases in fuel, material, wage cost and if inflation remains low, there is no reason for an across-the-board price increase of HDB flats.”
Leong Sze Hian
Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow and an author of 4 books. He is frequently quoted in the media. He has also been invited to speak more than 100 times in 25 countries on 5 continents. He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional qualifications. He blogs at www.leongszehian.com.
