AN oversupply of Build-To-Order (BTO) flats is not the answer to keeping public housing affordable and accessible, said National Development Minister Desmond Lee in Parliament on Tuesday (Feb 7). 

The Asian financial crisis in 1997, for instance, left the Housing and Development Board (HDB) with 31,000 unsold flats, which took more than five years to clear, he said. 

Lee’s remarks were in response to various suggestions from several Members of Parliament (MPs) to ramp up supply of BTO flats and build them ahead of demand – part of a debate on two motions relating to public home affordability, filed by the Government and Progress Singapore Party (PSP) non-constituency MPs.  

Although homebuyers could “walk in to buyer-ready flats” in the early 2000s, Lee noted that homeowners paid heavily, with home prices staying depressed. “Some who bought flats just before the crisis ended up with negative equity, and even lost their homes and hard-earned savings,” he said. 

The unsold flats were also a “waste of taxpayers’ money”, added the minister, since the holding cost incurred from the vacant housing stock was money that could have been spent on other areas such as healthcare and education.

In any case, the Government has ramped up supply of BTO flats, emphasised Lee, with almost 100 BTO projects – accounting for about 80,000 flats – running across the island at different stages of construction.  “This high tempo will continue and by about 2025, we expect to have about 150 BTO projects going on at the same time,” he said. “By contract value, HDB is not just the largest housing developer, but also exceeds all the other private residential housing contracts combined, by more than 50 per cent.”

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In an earlier speech, Workers’ Party MP Leon Perera rejected claims that vacant new flats would be a loss to the state. 

“If such flats remain unsold, the selling price could be reduced until we reach a market clearing level where someone will buy it, which is how the market operates,” he said. 

Market research would also be done ahead of time to lower this risk, and any remaining unsold flats can be used as public rental stock, Perera added. 

The opposition MP also said the caveat to building BTO flats ahead of demand is that it should be done after the current backlog in the market is cleared, to avoid a diversion of resources. 

Responding to other suggestions laid out by PSP during the debate, Senior Minister of State for National Development Sim Ann highlighted that undervaluing state land and eliminating land costs to push down BTO flat prices might, in fact, backfire on homebuyers. 

“In dramatically lowering BTO prices, it is likely to trigger even more demand, especially in the prime locations. First-timers will face even higher competition,” said Sim. 

The PSP had proposed that new flats be sold at a price equivalent to their construction cost and a “notional location premium”. A land cost will be recorded by the HDB at the point of purchase, and will have to be paid for with accrued interest when the flat is subsequently sold. 

But this heavily penalises individuals, who may not be able to sell their flats, Sim said. “In fact, the next generation of flat buyers will suffer disproportionately... buying the resale flats and footing the bill for the initial land cost that should have been incurred by the first batch of flat buyers.”

Second Minister for National Development Indranee Rajah added that occupying the land without paying for it raids the country’s reserves. 

“As a result, we would forgo the monies that we would have invested and the investment returns under our current system,” she said. “To make up for what the net investment returns contribution now cannot fund, we would have to raise taxes or cut spending.” 

Indranee also pointed out that PSP’s proposed scheme could decrease the property value of existing flats, while “destabilising” the resale and property market. 

On PSP’s second suggestion, which is for the Government to make available rental flats in prime areas to young families or groups of singles, Sim emphasised that subsidised rental housing is “very targeted” for families who cannot afford homeownership – and for good reason. 

For instance, homeownership “protects (individuals) against the uncertainties of the rental market”, she said, as well as gives Singaporeans a “tangible stake in nation-building” while boosting their financial security.  

Separately, People’s Action Party MP Gan Thiam Poh warned about the necessity to “guard against the (widening) price gap between HDB flats and private properties”. 

“This will require the Government to continually look into further regulation and cooling measures,” said Gan. As such, he recommended that the Government review its property gains tax as well as increase the grants available for first-timers, while ramping up supply. 

“It is certainly unhealthy and worrying if HDB resale prices and private property prices are rising without fundamentals... we are not just building housing, but also endearing homes for all Singaporeans.”