“No Land Cost” HDB Proposal Sparks Concerns About Social Mobility

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Progress Singapore Party’s (PSP) NCMP Leong Mun Wai proposed a recommendation in Parliament on 6 Feb aimed at lowering housing prices.

Problems of Public Housing

Despite 80% of Singaporeans being able to service mortgages with little to no cash outlays, Mr Leong identified affordability and availability of public housing as major pain points.

This is because BTO flats are short in supply, he said.

Purchasing a home would also mean that Singaporeans would deplete their CPF savings which threatens their retirement adequacy.

Affordable Housing Scheme

To tackle this issue, Leong recommended the Affordable Housing Scheme.

Under this scheme, Singaporeans can buy a new flat at a “user price” that comprises construction costs and a location premium. Importantly, this user price excludes the price of the land.

While the price of the land is excluded from the purchase price under the scheme, homeowners would have to pay back the land price with accrued interest if they decide to sell their flat in the resale market after the Minimum Occupation Period.

In effect, this means that homeowners who don’t move never pay for the full price of the flat, while those who decide to move must make up for the land cost with interest.

“They should only pay the land cost when they take the HDB flats to be an investment and sell it for a profit,” he added.

While the proceeds of land sales generally go back to Singapore’s reserves, he reassured that the Affordable Homes Scheme would not have a major impact on the nation’s fiscal position and reserve accumulation.

He shared that about two-thirds of HDB flats are resold after the Minimum Occupation Period and even if this proportion drops with the introduction of the Affordable Homes Scheme due to the incentive to not move, the Government will still be able to recover a substantial part of the deferred land cost.

Concerns of social mobility

Given that the proposed scheme creates an incentive to never move, some raised concerns about the impact it would have on social mobility.

Senior Minister of State for National Development Sim Ann noted that the high clawbacks imposed under the scheme on homeowners who try to sell their flat on the resale market make upgrading or moving more difficult.

First time buyers intending to purchase their first home from the resale market would also therefore face more difficulty in accessing such flats.

Other politicians cautious towards the proposal

The recommended scheme drew criticisms and questions from other MPs.

Leader of the Opposition and Workers’ Party (WP) leader Mr Singh also clarified that his party would not support the proposal, adding that the proposal should be studied further.