Should land meant for HDB flats be valued at historical cost? Desmond Lee explains why it’s ‘too good to be true’

Should state land that is sold to HDB be valued at its historical cost of acquisition? This was the question that Minister for National Development Desmond Lee answered today (Jan 10, 2023) in Parliament.

He was responding to a recent comment made by Non-constituency Member of Parliament Mr Leong Mun Wai, who said that by valuing HDB land at its historical cost of acquisition, HDB flats can be made even cheaper than they are now. 

Minister Lee then raised four points to explain why Mr Leong’s suggestion simply cannot work.

The value of land

First off, land has value, which cannot be so easily wiped out. 

Minister Lee illustrated this with a Parliamentary exchange between then-Prime Minister Lee Kuan Yew and Opposition MP Mr Chiam See Tong in 1985.

The founding Prime Minister said: “…the land can be used for defence, it can be used for schools, it can be used for condominiums, it can be used for HDB, it can be used for URA. Who’s prepared to pay what price for what use? Is there no such concept as the value of land?”

Valuation principles

The second point that Minister Lee made was that professional valuers use established and accepted valuation principles – accepted by the profession and by the public – to determine current market value of land and property. 

“I don’t think you or your professional valuer will base your transaction on how much the property had changed hands back in history,” he said. 

Changes in value over time

The third point raised by Minister Lee was that value changes over time and so it’s not possible (and not fair) to peg the value of land to one historical point in the past. 

“If the land was acquired by the government in the 1960s, he should be paid for the land at 1960s pricing. If the land was, say, recently acquired maybe in 2015, they need to be paid to 2015 price – far higher than before. And what if the land had all along been state land – it was never acquired by anyone from anywhere. Is the value of the state land at historical cost then zero?”

Most property sellers today would baulk too if we use the same principle to sell resale flats. Minister Lee used the example of a Pioneer Generation senior who bought their flat at S$50,000. Using NCMP Leong’s approach, they would need to sell it at S$50,000 today — a pittance in today’s context. 

“We know that Mr Leong makes a superficially attractive proposition. But we know that the proposal is unfair. It’s not logical and simply cannot fly in the face of long established, well accepted valuation principles,” said Minister Lee.

Raiding the reserves

However, it was Minister Lee’s fourth point that illustrated why such a suggestion is problematic and lacking in foresight. 

Since state land forms part of Singapore’s national reserves, pegging its value to a historical value instead of current market value means wiping out a sizeable chunk from our reserves 

“State land in our reserves has value and its value grows if Singapore is well managed as well,” said Minister Lee, adding that a growing reserve ensures that future generations of Singaporeans will have resources to deal with crisis, catastrophe and calamity.

Proceeds from land sales cannot be touched and must be returned to the reserves, in essence, turning the state land in our reserves into its equivalent value of money.

“Mr. Leong’s proposal for HDB to pay historical price to the reserves, means putting back into the reserves far less than what the state land is really worth today. This is a raid of the reserves plain and simple, and will diminish the resources available for your children, and their children,” said Minister Lee.

He added that if dipping into the reserves is Mr Leong’s real goal, then he should say it plainly and let Singaporeans see it as it is, and allow Parliament to have a sound basis for a debate. 

“But the point that is made, the argument he is proposing, the proposition he is making – I think most people recognise that this deal sounds too good to be true.”

Cover photo credit: Jiachen Lin on Unsplash