Public housing - sucking the citizens dry to fatten state's reserves

http://yawningbread.wordpress.com/2011/04/17/papsicles-2/

Papsicles 2
Published 17 April 2011

Singapore’s public housing policy is like a giant vacuum cleaner that sucks up personal reserves from citizens in order to fatten the state’s reserves. This was revealed by none other than Minister for National Development Mah Bow Tan. Personal savings are depleted so that national savings continue to grow.

The Workers’ Party’s recently-released manifesto proposes to peg the prices of newly-built public housing to the median income of eligible buyers. It is the party’s response to widespread unhappiness about home prices rising to unaffordable levels.

Workers’ Party chief Low Thia Khiang had accused the minister of not painting the full picture on costs. Specifically, he pointed to the cost of land. Although a statutory body in itself, the Housing and Development Board (HDB) has to pay the Singapore Land Authority for the land it uses for public housing.

While Low was speaking about taking money from the government’s left pocket and putting it into its right pocket, that metaphor only captures a part of the picture. Looking at the situation from a total perspective, it is taking money from the individual’s pocket and putting it into the state’s pocket, as I will explain below.

First however, we need to pin down a few facts, or rather a few things as close as fact as we can get in the absence of the government releasing data. The refusal to release data breaking down costs of building public housing has characterised this government for as long as anyone can remember.

Thanks to business weekly The Edge, PropertyGuru and Lucky Tan’s blog, we have a nugget of information dating from a year ago.

We still need to bear in mind a few things: the contract value per flat given to Sim Lian is not the only cost, although it is very likely the bulk of it. There may be other smaller contracts for ancillary works. There is also, undoubtedly, overhead costs at the HDB itself in designing the flats and associated civil works. Let’s say then that the total cost of building these flats work out to about $150,000 each. If the selling price per flat averages $300,000, then HDB’s gross profit appears to be the other $150,000.

Yet, Mah says the HDB generally makes a loss, which indeed is what the HDB’s annual financial report shows. Whether or not this will be the case with these particular flats in Queenstown is unknown, but let’s assume that these costings are typical. In that case, HDB’s cost per flat, on an accounting basis, must be higher than the flats’ selling prices of $300,000, but since we estimate (from the above paragraph) that design and construction costs comes to about $150,000, then HDB must be paying more than $150,000 for land from the Singapore Land Authority.

Or not. It is also possible that this is a Selective En-bloc Redevelopment Scheme (SERS) project, in which case, a good part of the cost would come from buying out the existing residents in the area to repossess the site, plus costs associated with demolishing the old buildings. In such a case, HDB would pay only a top-up Development Charge to the Singapore Land Authority to intensify the use of the land. If we make this assumption that it is a SERS project, the costing gets a lot more complicated; too complicated to discuss here without having to make innumerable assumptions. This, frankly, is yet another reason why HDB’s refusal to release details is a blatant case of frustrating public debate and accountability.

Either way, whether HDB is paying for a fresh piece of land or paying a top-up charge to intensify land use, a biggish sum of money goes to the Singapore Land Authority. Mah admits as much:

In a fresh rebuttal yesterday, Mr Mah said Mr Low is “well aware” that land in Singapore is valued by the chief valuer and the proceeds go into Singapore’s national reserves.

There you have it. It works like this: When you buy a new flat from the HDB, you deplete your present and future savings paying for your flat. The money you pay goes to the HDB. Part of it goes to pay for the actual construction of the block, but a large (though indeterminate because of lack of data) part of it goes ultimately to the Singapore Land Authority based on a notional value of the land your block sits on. That money that is paid to the land authority is considered part of the national reserves.

In short, your personal savings have been sucked out and piled onto the state’s savings.

Low’s query is over how that notional value is arrived at by the Chief Valuer. The government says it is based on “market value”. The consequential questions would naturally be (1) how is “market value” determined, and (2) should it be based on market value? That’s another extremely complicated debate which I won’t go into here.

* * * * *

Of course, the government is never going to admit that they have sucked away all your savings. What they say instead is that your liquid savings (present and up to 30 future years’ worth depending on the term of your mortgage) has been exchanged for an asset.

Here we go again. I argued recently that 99-year leaseholds cannot keep rising in value indefinitely. For a minister to make this claim once again is in fact the irresponsible thing to do. When the HDB says your money buys this “asset” that will keep going up in value, it is nothing less than an invitation to walk into a chamber of smoke and mirrors.

There is one last bit that I think is also worth mentioning. The Sunday Times quoted Mah as saying:

I will humbly suggest that there is another way to look at it: After the giant vacuum cleaner known as HDB has sucked out all your personal savings and deposited it into the national reserves, the key to all this hijacked money is given to the elected president who swallows it. It sits in his large intestine until he agrees to move his bowels.

It is given to the Lee family that owns both the GIC, temasek. The Lee family is the world's richest family.