REVISED ALLOCATION SYSTEM FOR NEW HDB - FLATS IN NON-MATURE ESTATES - (Statement by the Acting Minister for National Development)
Mr Speaker, Sir, balloting was introduced in 1989 as the basis of the new booking system. In its original form, all applicants had equal chances in the ballot. In 1992, HDB revised the scheme to give first-time applicants better chances of success than upgraders who apply at the same time. Furthermore, the probability of success was also increased with each successive application. The system functioned well for some time. However, the situation has changed dramatically in the last 12 months. First, the rapid increase in HDB resale prices has made upgrading affordable and profitable to an even larger population. Many can sell their 3-room or 4-room flats on the resale market, pay the 20% downpayment for their new 5-room or Executive flats, and still make a substantial capital gain. Second, the very buoyant property market has made many worry that if they do not buy their flats now, they will be unable to afford the higher prices later on. First-time applicants have also rushed to apply for their flats, despite Government reassurances that prices for new HDB flats will remain affordable. As a result, the number of applications has increased from between 20,000 and 30,000 in each quarter of the period 1991 to mid-1993, to 93,000 in third quarter 1994. In particular, the number of upgraders has more than tripled. As recently as the first quarter of 1993, the total number of applications from upgraders was only 16,000. By the second quarter of 1994, however, this number had shot up to 53,000. Difficulties faced by first-timers. Thus, despite the priority given to first-time applicants, first-time applicants have found it increasingly difficult to get their flats. Many first-timers, who are usually just-married young couples setting up their first home, are understandably concerned that their chances of getting a flat early are being eroded by the sheer numbers of upgraders. First-timers are also frustrated by the element of chance in the balloting system. They are not quite certain when they will get their flat. They may get it on their first try, or they may have to wait till their fifth try to get their flat. What upsets the applicants most is the sense of inequity when they see somebody who applies later than them, succeed in the ballot. Many Members of this House have raised the unhappiness of applicants with the uncertainty they face under the balloting system. For example, the Member for Bukit Batok, during this year's Budget debate, told the House that one of his residents described the ballot as a state lottery system. Allow me to quote the hon. Member: "Each computer ballot is like tikam-tikam. You pray that you will get it. Sometimes you do, but most times you do not, according to some residents." Mr Speaker, Sir, the balloting system worked when there was a reasonable match between demand and supply. The priority for the first-time applicants was effective, and the element of chance was tolerable. But when the number of applications surged to 93,000, the priority for first-time applicants is overwhelmed by the large number of upgraders. When applicants have to wait much longer, they prefer a more equitable and predictable system where those who apply earlier get their flats first. A review of the allocation system is therefore necessary. Increase in flat supply How then do we cope with this surge in the number of applications? The direct solution is to increase the supply of new flats. But how far can we increase? As this House has been told, HDB has already increased its building programme from 24,000 in 1992 to 28,000 in 1993, and 30,000 in 1994. In other words, we have increased the supply by 25% in three years. We should not raise the building programme very much beyond this level. If the Government responds to the surge in applications with an equally big surge in the building programme, say, to 50,000 per year as we did in the 1980s, we will create major problems. First, this will overstretch the construction industry. There will be overheating, quality will drop and costs will go up. This was exactly what happened between 1983 and 1986, and we should not repeat that mistake. Second, when we built 53,000 flats in 1983, these were allocated mainly to people buying flats for the first time. So they could absorb the huge supply. This time it will be different. 60% of applicants are upgraders. When they take delivery of their new flats, they have to sell their existing flats. Whom can they sell to? Every year, about 30,000 to 32,000 new households, made up of newly-weds, new PRs or expatriates, need new housing in Singapore. The private sector is building 8,000 to 10,000 new units per year. HDB is building 30,000 units per year. This means 38,000 to 40,000 units per year. When the upgrader takes delivery of his new flat in two to three years, he will find it harder than he now anticipates to sell his flat. More flats will be vacant. If we increase the supply too much, resale prices will tumble. HDB will therefore increase the building programme judiciously. It will build 32,000 flats in 1994 and 34,000 flats in 1995. Even so, between now and the year 2000, HDB will be building 164,000 new flats. Increasing the flat supply alone, however, will not remove the element of chance that has caused so much dissatisfaction, unless at the same time we change the allocation system. Hence, my Ministry will replace the balloting system with a queuing system, to be called the Registration for Flats system. Registration for flats system Under the new system, flats available for booking will be divided into three zones, in the North, the Northeast, and the West. Applicants will apply for flats in the zone they select and join the queue for a particular flat type for that zone. Applicants will then be called up to select their flats on the basis of their queue position. The queuing system will eliminate the chance and uncertainty inherent in the current balloting system. But how will it ensure that first-timers get their flats ahead of upgraders, and within a reasonable time? Apportionment ratio Mr Speaker, Sir, this will be achieved through the apportionment of flat supply between the two groups. There will be separate queues for first-timers and upgraders. The first-timers will be allocated 60% of the flat supply under the public scheme. The remaining 40% will go to upgraders. First-timers will, therefore, be assured of priority because they form a separate queue, with the majority of flats allocated to their queue. CPF Housing Grant Scheme To help first-time flat buyers to buy resale flats in the New Town or estate where their parents live, Government will pay, as the Prime Minister has announced, a $30,000 grant into CPF accounts of such flat buyers. The $30,000 grant is to be used solely as a capital payment to reduce the principal of the mortgage loan. The applicants must satisfy all the usual eligibility criteria as if they bought the flats direct from HDB, and also fulfil the same conditions. For example, they will have to occupy the flat for five years before they can apply for another flat from the HDB. They will then be considered an upgrader, and have to pay the resale levy or premium for their second flat. They will also have to wait five years before they can sell their flats in the resale market if they want to do so. The CPF Housing Grant Scheme will strengthen family ties by helping children to live near their parents, especially in the older estates where HDB is not building many new flats. This scheme will therefore widen the choice for the first-time applicants. They can opt to remain in the queue for new flats or buy a resale flat near their parents. Managing upgrader demand Mr Speaker, Sir, let me now turn to the upgraders. The Government appreciates the needs and aspirations of HDB dwellers to upgrade. It encourages HDB dwellers to make the effort to set aside enough savings to do so. It has structured the rules for selling HDB flats, so that households who have already bought one flat directly from HDB have a second chance to buy another flat directly from HDB. These upgraders pay more for their HDB flats than first-timer buyers, but still get their flats at prices well below true market values. What HDB cannot do is to guarantee an Executive flat to every Singaporean household who wants one. Nor can HDB satisfy all 53,000 upgraders at the same time. Therefore, we seek the cooperation of the upgraders to be patient as they queue for their second flats. We want to help HDB households to upgrade but the demand for HDB flats for upgrading exceeds the supply, so we need to prioritise the needs of the different groups of uggraders to make the system fair. One group which deserves priority is households living in 3-room flats, especially those who bought their flats sometime ago. Singapore was then less affluent than now. The flats that the HDB could provide then had simpler finishes, lower quality, and less resale value than the larger and better quality flats that HDB has been building in recent years. Furthermore, as the families of these 3-room households have grown over the years, the 3-room flats have become too small for them and their need for more space has become pressing. Therefore, as a general principle, households who have stayed longer in their first HDB flats should have priority in upgrading over those who have stayed only for a short period. Secondly, those who upgrade from smaller to larger flats should have priority over those who move from one large flat to another large flat. HDB will take two measures to implement these principles. First, owners who have bought flats directly from HDB may now only apply for a second direct-purchase flats after they have fulfilled the five-year minimum occupation period. At present there is no such rule. A minority of applicants have therefore taken advantage of this and applied for a new flat soon after taking possession of their first flat. In the second quarter 1994 booking exercise, 4,700 (or 8.7%) of the 53,000 upgraders applied before staying five years in their first direct-purchase flats. This new rule will therefore not affect the majority of upgraders, particularly the 3-room applicants, who are likely to have stayed longer than five years in their existing flats. Second, the premium imposed on the second flats bought direct from HDB will be raised from 10% to 20%. At present, lessees who sell flats bought direct from HDB, and apply to HDB for a second flat, must pay either a 10% premium on the price of the second flat, or a graded resale levy based on the flat-type of the sold flat. The levy is 10% of the resale price for 3-room flats, 15% for 4-room, 20% for 5-room and 25% for Executive flats. The graded levy is fair because upgraders from the bigger flats make a bigger capital gain from the sale of their flats and should therefore pay more. The 10% premium, however, favours those in bigger flats. As a result, upgraders from the 3-room flats choose to pay the 10% levy, whereas upgraders from the bigger flats opt to pay the 10% premium. The 10% premium makes it worthwhile for the owner of an Executive flat to sell his flat and apply for another Executive flat. To close this loophole, HDB will increase the premium from 10% to 20%, while continuing to allow upgraders to choose between levy and premium. Upgraders from 4-room and bigger flats will have to pay more. This will also discourage lessees from moving laterally between the same flat-types, and lessees who do not need the second flat from applying for one. For example, those who move from a 5-room flat to another 5-room flat will pay about $20,000 more than at present, while those who move from an Executive flat to another Executive flat will pay around $35,000 more. Upgraders from three rooms, however, will not be affected. They can continue to opt to pay the 10% levy. Low Income Group Mr Speaker, Sir, in the revision of the allocation system, my Ministry will make sure that the needs of those in the lower income group continue to be catered for. We will give a headstart in the first-timer queue to tenants of HDB rental flats, under the Priority Allocation for Tenants scheme. This is an existing scheme and we intend to preserve it when we change to the new scheme. From October 1994, HDB will offer to households with incomes of $1,000, or below, 3-room flats at subsidised prices that it has bought from the resale market. There will be a separate queue for such flats, which will be offered only to first-timers. Again, this is an existing scheme which we will preserve in the new system. Family Ties HDB will also take the opportunity to improve the existing schemes which promote the family unit. It will set aside 5% of the total flat supply for each of the Multi-Tier Family, Joint Selection and Third Child Priority schemes, or 15% in total. The Multi-Tier Family scheme gives priority to married couples who apply to stay together with their parents and grandparents in the same flat. The Joint Selection scheme allows both parents and their married children to submit separate applications for the same estate. As long as one of the applications is successful, the other will automatically succeed as well, and both parents and children will get to select flats in the same estate. The Third Child Priority scheme encourages families to have more children, if they can afford it. These schemes are HDB's contribution to the strengthening of the family unit because we acknowledge that geographical proximity is an important factor in enhancing family ties. Implementation by HDB Mr Speaker, Sir, the new system will come into effect from 1st October 1994. HDB will announce the details next week on how to handle the transition, especially on how to ensure fair treatment to those who have applied earlier and have participated in the balloting for the non-mature estates over the last few quarters. Mr Speaker, Sir, to sum up, the policy measures which I have outlined will strike a fairer and more equitable balance between the needs of first-time applicants and upgraders. The Registration for Flats system will ensure that the basic need for shelter of first-time applicants can be met within a reasonable and more predictable time. This solution addresses the suggestions and concerns raised by Members of Parliament and by the public. I hope Singaporeans will give the new system their strong support.