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Sky high HDB flat prices
Posted by Ng E-Jay on October 23, 2010
25 Comments
By David See Leong Kit
Editor’s Note: This letter was submitted to the mainstream press, but rejected for publication. We reproduce this letter with the kind permission of the author.
I refer to the commentary “Buying a flat? Choose wisely” (TODAY Oct 15) by National Development Minister Mah Bow Tan.
The following two fundamental issues have not been addressed by the various market cooling measures introduced so far.
(1) Root cause behind high prices of HDB new and resale flats
Sky-high prices of HDB flats will naturally push up private property prices. Thus this issue affects all Singaporeans, even those aspiring to own private property.
In the 1970s, at HDB Marine Parade Estate, prices of 3-room, 4-room and 5-room new flats were $17,000, $20,000 and $35,000 respectively.
In 1990, 5-room new flats cost around $70,000. Such prices then reflected a “cost-based” pricing approach.
But following the 1996 property bull run, HDB switched to a “market-based” pricing approach. It confirmed that “the prices of new HDB flats are based on the market prices of resale HDB flats, and not their costs of construction”.
In 2000, the total breakeven cost (comprising construction cost, land cost and other related costs) of a 5-room new flat was an estimated $120,000.
However, under market-based pricing, HDB will first look at the prevailing market price of, say $260,000 of a 5-room resale flat. It will then pick a slightly lower figure of, say $200,000 as the selling price of the new flat — despite its actual breakeven cost of $120,000.
HDB will then proclaim the new flat buyer is getting a so-called “market subsidy” of $60,000, the difference between resale flat market price and new flat selling price. There is really no “cash subsidy” given to the buyer, and HDB is actually making a profit of $80,000 for each flat sold.
The financial losses reported in HDB audited statements could well come from “transfer pricing” accounting between HDB, Singapore Land Authority and Ministry of Finance.
A plate of chicken rice cost $3 in HDB coffeshops and $20 at hotel coffeehouses. It is illogical for HDB to proclaim that every person eating chicken rice in HDB coffeeshops is getting a “market subsidy” of $17 per plate!
HDB’s “market-based” pricing approach is the root cause of prices of new flats and resale flats chasing each other in a never-ending upward spiral — which is detrimental to buyers of both new and resale flats.
Why then is HDB not doing the right thing as a not-for-profit low-cost public housing developer through passing on to our citizens the economy-of-scale cost savings in its huge developments by pricing new flats on a cost-based breakeven basis?
HDB flats are public housing developed with public funds. Thus, HDB must be transparent and accountable in its public replies through disclosing detailed cost figures for all its housing projects.
(2) Are HDB new flats now really affordable?
Even a taxi driver could say that, while he was able to afford a $35,000 5-room flat previously, he is rightly worried how his children could afford to buy a similar flat that is now costing close to half a million dollars.
It is misleading for HDB to just proclaim its flats are “affordable”, without clearly specifying that a 30-year loan period was assumed.
Of course, if you stretch a home loan to as long as 30 years, even private property will become “instantly affordable”.
For a couple with combined $8,000 monthly income, a 30-year HDB loan of $500,000 at 2.6 per cent interest and $2,000 monthly loan instalment may appear affordable. But at the end of 30 years, they would have coughed up a whopping $800,000 in total capital and interest repayments.
A financially prudent loan period would be around 15 to 20 years.
Posted by Ng E-Jay on October 23, 2010
25 Comments
By David See Leong Kit
Editor’s Note: This letter was submitted to the mainstream press, but rejected for publication. We reproduce this letter with the kind permission of the author.
I refer to the commentary “Buying a flat? Choose wisely” (TODAY Oct 15) by National Development Minister Mah Bow Tan.
The following two fundamental issues have not been addressed by the various market cooling measures introduced so far.
(1) Root cause behind high prices of HDB new and resale flats
Sky-high prices of HDB flats will naturally push up private property prices. Thus this issue affects all Singaporeans, even those aspiring to own private property.
In the 1970s, at HDB Marine Parade Estate, prices of 3-room, 4-room and 5-room new flats were $17,000, $20,000 and $35,000 respectively.
In 1990, 5-room new flats cost around $70,000. Such prices then reflected a “cost-based” pricing approach.
But following the 1996 property bull run, HDB switched to a “market-based” pricing approach. It confirmed that “the prices of new HDB flats are based on the market prices of resale HDB flats, and not their costs of construction”.
In 2000, the total breakeven cost (comprising construction cost, land cost and other related costs) of a 5-room new flat was an estimated $120,000.
However, under market-based pricing, HDB will first look at the prevailing market price of, say $260,000 of a 5-room resale flat. It will then pick a slightly lower figure of, say $200,000 as the selling price of the new flat — despite its actual breakeven cost of $120,000.
HDB will then proclaim the new flat buyer is getting a so-called “market subsidy” of $60,000, the difference between resale flat market price and new flat selling price. There is really no “cash subsidy” given to the buyer, and HDB is actually making a profit of $80,000 for each flat sold.
The financial losses reported in HDB audited statements could well come from “transfer pricing” accounting between HDB, Singapore Land Authority and Ministry of Finance.
A plate of chicken rice cost $3 in HDB coffeshops and $20 at hotel coffeehouses. It is illogical for HDB to proclaim that every person eating chicken rice in HDB coffeeshops is getting a “market subsidy” of $17 per plate!
HDB’s “market-based” pricing approach is the root cause of prices of new flats and resale flats chasing each other in a never-ending upward spiral — which is detrimental to buyers of both new and resale flats.
Why then is HDB not doing the right thing as a not-for-profit low-cost public housing developer through passing on to our citizens the economy-of-scale cost savings in its huge developments by pricing new flats on a cost-based breakeven basis?
HDB flats are public housing developed with public funds. Thus, HDB must be transparent and accountable in its public replies through disclosing detailed cost figures for all its housing projects.
(2) Are HDB new flats now really affordable?
Even a taxi driver could say that, while he was able to afford a $35,000 5-room flat previously, he is rightly worried how his children could afford to buy a similar flat that is now costing close to half a million dollars.
It is misleading for HDB to just proclaim its flats are “affordable”, without clearly specifying that a 30-year loan period was assumed.
Of course, if you stretch a home loan to as long as 30 years, even private property will become “instantly affordable”.
For a couple with combined $8,000 monthly income, a 30-year HDB loan of $500,000 at 2.6 per cent interest and $2,000 monthly loan instalment may appear affordable. But at the end of 30 years, they would have coughed up a whopping $800,000 in total capital and interest repayments.
A financially prudent loan period would be around 15 to 20 years.
