Why Government should stick to hands-off policy on HDB sellers' profits

It is not its job to identify groups most likely to enjoy windfall gains from flat sales, and figure out how to claw back the profit

Han Fook Kwang

Editor-at-Large

Public housing is close to the hearts of many and they have plenty to say about it.PHOTO: ST FILEJul 25, 2021, 5:00 am SGT

For once, I hope the Government does not listen too much.

I am referring to its call for feedback on a new public housing model for flats to be built in the central area.

Suggestions have poured in from 6,500 respondents, showing how interested people are in this issue.

Public housing is close to the hearts of many and they have plenty to say about it. But looking at some of the ideas, I fear they may want the Government to do more than is possible.

What is the issue?

Second Minister for National Development Indranee Rajah set it out well in a piece last month in this newspaper when she wrote about the plan to build new flats in prime areas in the city centre and the Greater Southern Waterfront.

But how to price them? If they were sold based on location and land price, they would be out of reach of the working class unless the Government provided bigger-than-normal subsidies.

But overly subsidised flats in such desirable areas will confer windfall gains to the lucky owners when they sell later.

This was how owners of the prized jewel of public housing, Pinnacle @ Duxton, whose units now carry million-dollar price tags, pocketed more than $600,000 in windfall gains.

The Government says it does not want to create more of these lottery winners, which will encourage speculative buying and selling.

So, various ideas have been suggested such as making the sellers of these flats return some of the original subsidy back to the Government, restricting buyers of resale flats to those who meet the eligibility criteria for new flats, or setting an income ceiling for buyers of these resale flats.

The problem with having a lottery tax like this is that, to be fair, it will have to be imposed on all who make outsized profits from selling their flats and not just those living in these newly built areas.

There are many other million-dollar HDB flats in Ang Mo Kio, Toa Payoh, Bishan and Clementi, especially those next to an MRT station. If there are new flats built in these areas in the coming years as the estates are renewed, their owners too might become potential lottery winners.

Should the proposed reselling conditions be applied to these flats as well? But who knows which flats in other estates might become sought after as well in future, reaping their owners similar windfall gains?

The Government cannot foresee how property prices will change in future and devise rules that take into account these unpredictable trends.

One solution might be to apply the subsidy clawback or resale levy on any gains beyond a certain amount.

For example, if the profit from reselling a flat is more than $300,000, you have to pay back $100,000 to the Government.

But it would be tantamount to introducing a capital gains tax only on HDB flats, which would not be fair since there is no such tax on other gains such as for private property or stock market transactions.

Why should HDB owners be the only ones singled out for this tax when their much richer private property-owning counterparts get away tax free?

Because the HDB owners enjoyed state subsidies in the first place, say those in favour of such a proposal.

My view, though, is that this is not how one should look at a subsidy. When someone enjoys a subsidy from the Government, it is granted at the point in time when he or she qualifies for one.

What happens in future, whether the price of the flat goes up or down, can be due to any number of reasons and has nothing to do with the original grant.

To take an extreme example, if a person from a poor family that has received substantial state subsidies does well later in life, should the Government claw back the money?

If not, why insist it does so for those who receive HDB subsidies?

What about the suggestion that these flats can be sold back only to the Government to limit the gains?

As with the subsidy clawback proposal, this reselling condition would have to apply to all flats, including those outside of the central area, where sellers are able to potentially make windfall gains.

But how would you know beforehand where these winners will be and impose the government buy-back condition on them?

It is unworkable in practice.

More important than the merits or otherwise of these individual ideas is to be clear about the role of the state in providing public housing to the people.

The Government has done an exceptional job so far, housing more than 80 per cent of the people in high-quality estates with some of the best amenities in Singapore, including public transport, schools, food and commercial centres and recreational parks.

It should continue excelling at this and not attempt to do more outside its area of responsibility.

The Government is not a property speculator trying to predict how prices will go up or down and where windfall profits might be made.

It has no business trying to identify which group might be most likely to enjoy these gains and how to claw the profit back.

Its job is to build the flats, price them correctly, and let the market do the rest.

In fact, it is already doing a lot more than this.

In her piece, Ms Indranee highlighted the HDB's role in making sure housing is affordable, accessible and inclusive.

These are highly commendable aims and the Government should continue to work on them.

For example, the right way to make HDB estates inclusive, including the ones planned for the central area, is to build a diverse range of flats of different sizes and prices, with different lease periods, and rental options. As Singapore society matures, people will want to try out different housing options.

For me, the most important job is to make these flats affordable. That means different types with different prices and different subsidy amounts varying with income levels.

That's already a lot to do without the additional headache of trying to figure out how prices will increase in future.

Will some of these flats become so popular later that their owners reap windfall gains?

Perhaps, and good luck to them. But it is not the Government's job to either ensure this outcome or prevent it from happening.

What it should avoid is to build standalone developments like Pinnacle @ Duxton that are so obviously showy projects bound to turn into the biggest lottery in town.

Some people have a problem with the idea that your home can be an appreciating asset.

For my generation of baby boomers, it was a godsend as we saw home prices rise over time.

It enabled many to upgrade their homes, but most of all, to feel more secure financially, especially after retirement.

Home prices rose because the country did well economically and there was confidence in the future.

It can happen to the younger generation as well if the economy continues to grow and incomes rise.

Property appreciation is not a dirty word and we should not deny future generations the benefits it brings, much less introduce rules to stop it from happening.

• Han Fook Kwang is also a senior fellow at the S. Rajaratnam School of International Studies, Nanyang Technological University.