Nov 25, 2006
No Subsidy In New HDB Flats, Just A Discount
From the letter by the Housing Board's Ms Kee Lay Cheng ('How prices of new HDB flats arrived at'; ST, Nov 17), it would appear that new flats that are sold are not subsidised. Ms Kee said that 'new HDB flats are priced below their equivalent market values so that buyers enjoy a substantial market subsidy' - that is, they are sold at prices lower than those sold in the open market.
There is no such thing as 'market subsidy'. If a flat's price in the open market is $400,000 and the seller reduces it to, say, $350,000, he is giving a discount and not a subsidy. Likewise, if the HDB sells its flats at $350,000 each, it is giving a discount to what similar flats can fetch in the open market.
A subsidy is the difference between the cost of a product or service and the reduced price at which the product or service is sold or provided, the difference being absorbed by the Government to make the product or service available to those who may not otherwise be able to afford it.
Thus, if it costs $200,000 to build each flat (land cost + construction cost + consultants' fees and other incidentals) and they are sold at $150,000, then the HDB is giving a subsidy of $50,000. On the other hand, if it sells the flats at, say, $350,000, it is in fact making a profit of $150,000, even though it may be giving a discount of $50,000 to the market price.
The flats in Queenstown that are close to the MRT station were constructed after demolishing low and medium-rise blocks that were constructed during the early 1960s. The land on which they stood was acquired at very low cost. Even allowing for inflation, the final costs of the flats cannot be the prices now quoted by the HDB. At these prices, the flats are not subsidised.
To say they are sold at these prices because they are near the MRT station is to place a value on them and not their cost. It would have been far better had the HDB said that, because the flats are located close to amenities, they will not be subsidised, but will be sold at cost or at a small profit to subsidise flats not so well-located.
Cheong Chee Mun
ST Forum
Dec 8, 2006
HDB Consistently Incurs Losses Selling New Flats
Mr Cheong said that HDB acquires land for public housing at 'very low cost'. This is not correct. The land for public housing is purchased from the Singapore Land Authority at market value, based on the Chief Valuer's assessment.
The total cost of developing four- and five-room flats is higher than the example of $200,000 mentioned in the letter. The development cost is even higher in mature HDB estates where the market valuation of the land is higher. Hence, the assumption that HDB enjoys a profit of $150,000 per flat is wrong.
HDB has consistently incurred losses in the development and sale of new flats. It is unable to fully recover the costs of development as it sells new flats at a subsidised price. Together with the other types of housing subsidy, such as the CPF Housing Grant and the Additional CPF Housing Grant for lower-income families, the sale of subsidised new flats results in a tangible and substantive cost to the Government. Specifically, over the last five years, HDB's home-ownership programme incurred an average annual deficit of $390 million.
Kee Lay Cheng (Ms)
Deputy Director
(Marketing & Projects)
For Director (Estate Administration & Property)
Housing & Development Board
ST Forum
Dec 14, 2006
Deficit In HDB Flat Sales A Paper Loss To Govt
Ms Kee took the stand that HDB did not acquire land at a very low cost. However, she failed to note that since the 1970s, the Government had acquired land at very low cost under the Land Acquisition Act.
She then informed us that the Singapore Land Authority (SLA), a government agency, sold the low-cost land at a value determined by the Chief Valuer, another government body, to HDB, yet another government agency. This inter-government agency sale certainly ramped up the total development cost for HDB.
As the vendor and purchaser are related, the transaction is a zero-sum game to the Government's bottom line because HDB's liability matches SLA's gain. Hence, I see the deficit in HDB's sale-of-flats account as an internal 'paper loss'' to the Government, not a tangible cost.
Ms Kee merely stated that the total development cost of an HDB flat is higher than $200,000 and disputed the deduced profit of $150,000. However, no figures were provided. Why can't Ms Kee reveal the true land cost, construction cost, consultants' fees and other incidentals in the building of a typical flat?
Steven Lo Chock Fei
ST Forum
Dec 28, 2006
Why Sale Of State Land Is Done at Market Price
Mr Lo agrees that CPF housing grants are a tangible cost to the Government. However, he feels that new HDB flat prices are not really subsidised because the land is not priced at original cost.
We wish to explain why he is mistaken. Whenever state land is sold by the Government, it has to be done at market price, whether for public or private housing. If not, it may result in a drawing on past reserves for which the President's approval is required under the Constitution. This price takes into account the fact that substantial resources are invested to provide major infrastructure, such as roads, MRT, sewers and utilities, for the new housing development. The land value would have been significantly enhanced beyond the acquisition costs incurred by the Government.
The price of HDB flats takes into account the market value of the land. In order to make the flats affordable, they are sold at a price which is lower than the market. The difference in price is the subsidy. It is a real subsidy, and not a paper loss.
HDB does not reveal the land and construction costs of specific projects as they vary from location to location, and from time to time. However, overall, it is unable to recover the development cost of new flats. That is why it incurs an overall deficit each year for its home-ownership activity, as reflected in its annual accounts which is available publicly.
Kee Lay Cheng (Ms)
Deputy Director
Marketing & Projects)
For Director (Estate Administration & Property)
Housing & Development Board
ST Forum
Jan 10, 2007
New Flats' Market Value Minus Sale Price = Subsidy
I refer to the letters from Mr Viktor Ye Kok Kheong and Mr Leong Sze Hian (ST, Jan 1 and 2, respectively) pertaining to the subsidy for new HDB flats.
First, Mr Ye asked if it is true that the Chief Valuer values all land in Singapore using Raffles Place as the benchmark. We wish to state that it is not so. It is a fundamental valuation principle that lands are valued based on the specific attributes of the site, such as location, the permitted use of the land, and tenure. The Chief Valuer's valuation has to be supported by comparative land-sales evidence.
It is simply not tenable to benchmark every plot of land to Raffles Place pricing, as this would drive property prices beyond the reach of most Singaporeans.
Second, Mr Leong asked HDB to reveal its land and construction costs to prove that HDB flats are subsidised. He has missed the point. To understand the full extent of public-housing subsidy for new HDB flats, one should be comparing the market value of the flats with the sale prices charged by HDB, rather than look at the input costs of land and building.
New flats are subsidised as they are being sold at prices that are lower than what they would otherwise fetch in the open market. If this subsidy is not real, why should many flat buyers choose to buy new flats from HDB instead of resale flats in the open market using the CPF Housing Grant?
Kee Lay Cheng (Ms)
Deputy Director
(Marketing & Projects)
For Director (Estate Administration & Property)
Housing & Development Board
Art of Subsidizing Housing in Singapore
Many Singaporeans are asking how much it cost to build those HDB flats. Since they are delivered to buyers not in stayable condition, you have to spend tens of thousands more to fix it up with flooring, etc. Some people are wondering if the subsidised flats are sold above building costs...
Construction costs have NOTHING to do with subsidy. What HDB gives out is a market subsidy. As long as your new flat is less that what it cost to buy off the market, you are subsidised. Even if HDB can construct each flat for $1, they can claim they subsidise you. Get it?
Lee's High Horse
Lee Kuan Yew: "Singapore’s brand of democracy works because the Government gives the country’s citizens every reason to vote for it at elections. But we have engineered it so carefully that they must be very stupid to vote this government out. The government solved the housing problem by building public housing using Central Provident Fund (CPF) money. These flats are then sold to Singaporeans at cost price. For the Singapore citizen, his flat is something substantial that he owns and has to pay installments. So he must have a job. If you change the government, you have no jobs, the house is taken back."
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