The Straits Times, 26 Mar 2022, Sat 5:00 am

By Michelle Ng

An executive maisonette on the 12th floor, located within walking distance of Aljunied MRT station, has many of the attributes Housing Board flat buyers look for.

With an asking price of about $950,000 – lower than the $965,000 fetched by a unit in the same block last month – it should have been snapped up in the buoyant HDB resale market.

But because only Malays, Indians or those whose ethnic classification falls under “Others” can buy the flat, it has been on the market for three months.

The seller, Ms Suhana Suhaimi, 39, is not surprised as she had tried for a year but failed to sell it in 2016.

Her home is affected by the Ethnic Integration Policy (EIP) introduced in 1989 to set racial quotas on flat ownership in each HDB block and neighbourhood based on the ethnic makeup of the Singapore population.

The limits apply when a flat is bought, and when it is resold.

For instance, if the number of Chinese households has reached the set limit for the block, sellers in minority groups can sell only to other minority groups. In exceptional cases, they can apply for a waiver from the HDB.

Today, nearly one in three HDB blocks and 16 per cent of HDB neighbourhoods have reached at least one of the EIP limits.

Ms Suhana, a civil servant, said the last offer she got was $936,000, which she rejected.

“We got this unit for $675,000 in 2011, so if we sell it for lower than $950,000, we won’t have a good amount of cash to buy our next home after we pay off our mortgage, refund CPF (Central Provident Fund) and pay other miscellaneous fees,” said Ms Suhana, who plans to move closer to either her ageing parents or in-laws.

When owners sell a property that was paid with CPF savings, they must refund the principal amount withdrawn, along with interest calculated at 2.5 per cent a year.

“We get calls from many interested Chinese buyers, but there is no point showing them the unit because they cannot buy it.”

To address the grievances of sellers like Ms Suhana while hewing to the intent of the EIP, National Development Minister Desmond Lee announced earlier this month that HDB would, from March 8, buy back, on a case-by-case basis, flats from households that have difficulty selling them because of the ethnic quota limits.

To be eligible, owners need to have owned the unit for at least 10 years and made regular, genuine attempts over a period of six months to sell at a reasonable asking price on the open market.

Ms Suhana, who is supportive of the scheme, said she will consider the buyback if she receives no other offer after six months, contingent on the price offered.

Property agents told The Straits Times that sellers like Ms Suhana often have to lower their asking price, sometimes to below market valuation, and need more time to sell their flat to a smaller pool of eligible buyers.

ERA Realty property agent Nona Kirana, who is currently marketing three units affected by the EIP, said it can take up to a year to find a serious buyer for such units, compared with one to three months to close a deal for other flats in a buoyant market.

Last July, Ms Nona sold a five-room HDB flat at the SkyTerrace @ Dawson Build-To-Order (BTO) project in Queenstown for about $950,000, compared with the $1.03 million commanded by another unit two floors lower, because of the EIP limits.

“When the owners bought the unit at the BTO stage, they were subject to similar rates like everyone else. But when they exited the market, they had to sell lower than everyone else – that’s not really fair, right?” said Ms Nona.

Flats constrained by the EIP are even harder to sell in sought-after mature estates like Queenstown and Bukit Merah, where HDB resale prices tend to be higher than those in non-mature estates like Bukit Batok and Sengkang.

Singapore University of Social Sciences associate professor of economics Walter Theseira said property pricing is driven by the Chinese majority market and these buyers often have significantly higher household incomes that can afford higher prices for housing.

“If you’re in the minority group that’s constrained by the EIP and you want to sell your flat for a price comparable to the prevailing resale price in an estate that commands higher prices, the reality is your available pool of buyers is much, much smaller than it would be for the majority sellers,” he added.

“So this has put EIP-bound minorities in the difficult position of needing to accept significant discounts from the prevailing price in order to sell.”

The bigger picture here is that group-based disparities in income and wealth, which feed into HDB property prices, are a fundamental issue that needs to be continuously looked at, said Prof Theseira.

He expects to see more buybacks in popular mature estates where prevailing housing prices are higher relative to affordability for minority buyers.

“Unless HDB is prepared to quickly put EIP buyback homes on the market, and to address affordability concerns for minority buyers, this may result in a reduction of minority presence in those neighbourhoods if no one ends up living in (the units) for some time,” he said.

Dr Leong Chan-Hoong, head of policy development and evaluation at Kantar Public, said that although the difficulties posed by the EIP are not new, the issue has been amplified in recent years, which may have prompted the authorities to adjust the policy now.

“As a country, we are more cognisant of various aspects of inequality and how it is manifested. The unintended side effect of EIP is one such (example),” he added.

He noted that the price differentiation is “very real” for minority home sellers who are unable to sell their homes to Chinese buyers.

“There are anecdotes of $50,000 to $100,000 in resale price discrepancy. This price gap is the annual income for some Singaporeans and it’s a substantial amount. The stakes are getting higher due to the escalating property prices sparked by Covid-19,” he said.

The buyback assistance is “a step in the right direction to ensure parity in home resale transactions and affected minority home sellers will not be penalised for their ethnicity”, added Dr Leong.

PropNex property agent Neeza Ali agreed that the EIP buyback scheme is long overdue.

A four-room HDB flat on the third floor at the SkyVille @ Dawson BTO project in Queenstown that she helped to market sold for $660,000, after almost a year and 10 months, far lower than the $726,000 for the next-door unit.

“We can show buyers that the next-door unit sold for this price and this is the going rate, but because the buyers have unlimited choices, they can come in and say ‘we don’t like your price’,” she said.

“I had a $600,000 offer, some around $650,000. Some people may think that if you’re desperate, you’ll just sell.”

The issue of the EIP came under the spotlight in Parliament last July when Mr Lee and Leader of the Opposition Pritam Singh engaged in a lengthy debate on the issue, coming to a consensus in the end that the policy was still needed.

Dr Gillian Koh, deputy director of research at the Institute of Policy Studies, said a sticking point for minority groups is the “perception of an imbalance in the distribution of burden” through the EIP.

In dealing with the issue through the EIP buyback scheme, the Government is putting skin in the game, showing it is sincere in wishing to foster harmonious race relations, she added.

“It’s a welcome adjustment as most who have anything to critique the EIP for, cite this issue… The perception is the price that is paid for ensuring social cohesion is borne more fairly across the races,” said Dr Koh.

For property agents like Mr Muhammad Syafiq Mohd Esa, the EIP buyback scheme is an alternative he can now present to sellers.

The ERA Realty agent, who goes by Syafiq Focus, said: “It gives sellers an option, and for us agents, it means we can move on to other units.”

How the policy came about

The Ethnic Integration Policy (EIP), introduced in 1989, sets racial quotas on flat ownership within each Housing Board block and neighbourhood when a flat is purchased, and subsequently when it is resold.

The policy can be traced back to the lessons learnt from the segregation of ethnic groups into distinct enclaves when Singapore was under British rule. 

Under the Raffles Town plan, Malays, Chinese, Indians and Europeans lived in different areas and had little interaction with one another.

Explosive racial tensions in the 1960s, which led to Singapore’s independence in 1965, were key in sparking change.

Learning from the experience, Singapore’s founding fathers were determined to foster racial harmony and build a cohesive, multi-racial society. 

One of the ways they did so was through public housing policies.

In the 1960s and 1970s, the Government was able to break up communal enclaves through a massive resettlement and public housing programme.

Then, flats in newly built HDB towns and estates were allocated in such a way that every HDB block and precinct all over Singapore reflected the ethnic mix of the population.

However, similar curbs were not placed on resale transactions, which were first allowed in 1971.

As more people sold, bought and moved homes, ethnic concentrations started to re-emerge in particular areas by the late 1980s.

Then National Development Minister S. Dhanabalan warned that it would be unthinkable for Singapore to regress to the days before independence.

However, uprooting residents to break up the enclaves, like in the resettlement exercise in the 1960s, was deemed not feasible. 

Hence the EIP was introduced in 1989, with limits set based on the ethnic proportions in the population, with an allowance for some local variations in each block and neighbourhood.

Source: https://www.straitstimes.com/singapore/housing/tackling-woes-of-flat-sellers-hit-by-ethnic-quotas