Root cause of sky-high HDB flat prices
September 16th, 2009 | 
Author: By David See Leong Kit
[Original Text of my letter to TODAY Voices forum. Letter was published in its 16 Sep 09 edition but with last two paragraphs edited out.]
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.
Its root cause was not covered in the anti-speculation measures just announced.
Following our 1996 property bull run, the HDB had switched from a “cost-based” to a “market-based” pricing approach. The selling price for a new flat is pegged not to its cost but to the prevailing market price of a similar resale flat.
This has resulted in prices of new flats and resale flats chasing each other in a never-ending upward spiral that is detrimental to buyers of both new and resale flats.
The Total Breakeven Cost of a new flat comprise Construction Cost (CC), Land Cost (LC) and Other Related Cost (ORC).
The HDB Pinnacle @ Duxton project has 1,848 units cramped into 50-storey blocks occupying a small plot of land.
From available public tender information, the actual CC component is $150,000 per unit. The onus is now on HDB to publicly disclose the remaining LC and ORC components.
A quick estimate of LC plus ORC is around $80,000, leading to an estimated Total Breakeven Cost of $230,000 per flat.
When launched in 2004, average Selling Price was $370,000 (actual range: $288,000 to $450,000), which translates to an average profit of $140,000 per unit sold.
428 unsold units were relaunched in 2008 at average Selling Price of $550,000 (actual range: $450,000 to $645,000), which is $180,000 higher than initial launch prices. This arose from the HDB ”market-based” pricing approach, as prevailing market prices of similar resale flats nearby were between $593,000 to $670,000.
For the average Singaporean, his HDB flat is the single most expensive purchase item in his lifetime. Applicants of HDB new flats are mostly young Singaporeans wanting to get married, move into their own homes and produce babies, which will alleviate our declining birth rate.
Why then is HDB not doing the right thing as a not-for-profit low-cost public housing developer through passing on to such citizens the economy-of-scale cost savings in its hugh developments by pricing new flats on a cost-based breakeven basis?
A Ministry of Trade and Industry public reply on the hugh electricity price hike had stated that “the Government’s approach is to price goods and services at their full cost”. Why then the double standards in the HDB statement that “the prices of new HDB flats are based on the market prices of resale HDB flats, and not their costs of construction”?
In promoting Singapore as a Business Hub, our Ministry of Finance constantly preach transparency and accountability in corporate governance. HDB flats are developed with public funds. Thus, HDB must provide transparent replies to the two simple questions above, and disclose detailed cost figures for its Pinnacle project.
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9 Responses to “Root cause of sky-high HDB flat prices”
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There must be a determinant, sustaining boycott of all MSMs. Personally, I hardly watch TV and had not read the ST or any print media for years.
Everyone should take a stand and stop purchasing ST and other printed newspaper. Free newspaper is tricky as they rely on readership for advertising revenue. So a person can be a “reader” even if he just take a copy of Today as toilet paper.
If one really must utilise newspaper, for e.g. for job application or classified ads, at least try to get an old copy from those who have bought it. At least YOU are not contributing to the coffers of ST and other mainstream media.
Just like PAP hit at other media’s pocket for criticising them, we the consumers and readers must hit at the pocket of these MSMs by NOT patronising them. There are already a lot of quality news and blog that you can catch for free in the internet anyway.
Once readership goes down, the MSMs will wake up. They can then do two things : continue to be the government’s mouthpiece and perish OR finally earn a backbone and print some fair and uncensored article.
If we keep focusing on these media instead of ignoring them, we are just validating them indirect.
The boycott should start immediately. Start ignoring them.
bootstrapping effect. to solve this ,inject competition by splitting hdb and privatise it, welcome private developers to build flats too.
It appears that HDB is now caught between the devil and the deep blue sea. To tell or not to tell.
To tell would reveal how much the govt is actually charging for the land. Given that the land practically costs the govt next to nothing since the govt owns the land, it can be implied that HDB’s profit margin may be even higher than that of private developers. Looking at the prices they are selling the flats, it has to be the case.
So its better for HDB to keep quiet. otherwise it may expose the fact that govt does not actually subsidise the sale of HDB flats. And all along it has been a lie ?
If you are used to taking Strawberries, will you switch back to eating Rambutans?
I think that is the root cause. Greed of a few men in white.
Kam is right; that few probably have not learnt the lessons of the saga of America top bankers! Just wanna be paid big fat bonuses while the majority slogged for peanuts to own a house!
By pushing up the price of resale flat, the government can sell the land and new HDB flat at a higher price, so will they be interested to do anything ???
The speculation in the property market is NOT driven by PAP.
It is the combined greed of many Singaporeans that has driven the government into switching in the a Market based approach. If government allows the the property to be held a a fixed price, that is not a market. Because BOTH the people and government are enticing each other to induce “wealth” from property, we have the resultant high housing prices today.
This is a game played by both willing parties.
For those who bitch about it, there is no point bitching really. Just sell it while the demands are still high and what ever measures now from the government will not burst this bubble.
I think the HDB has to consider making an adjustment again. Increase the number of years before the flat can be sold in the open market. The current 5 year rule will apply for flats returned at cost to the HDB. There can be a rule change such that HDB will take the flat back at the price it was sold.
This will reduce the knock-on effect on the open market since flats entering the open market is older and once the initial sale price is lower the valuation will be lower. Yes the people who bought flats under the old pricing scheme will suffer in a equity crisis. I would suggest that for those who are still in their first flat (or flat bought directly from HDB) they can get their loans refinanced. As for those who got theirs from the open market, as much I would feel for my fellow man they made a choice then they can go to their banks and work out something. Chances are given that if the HDB is doing what I suggested then the banks will have to follow.
In all these discussions about HDB prices, it is important to remember that HDB is a PUBLIC HOUSING concern, it’s objective should be to provide affordable housing for those who need it, not straddle our newlyweds with 30-year loans at the beginning of their lives together to make a profit, and then have them pay for property that is going to be worth much less than what they paid for it by the time they pay up their loans.
It just feels like HDB has forgotten its fundamental purpose, and in so doing, it has now created a bubble it cannot back down from, because any adjustments or curtailment of pricing and resale valuations would surely result in the unraveling of the private property sector. This is a house of cards waiting to fall, and yet another clear example of inept regulatory decision making. We are now stuck in a situation where we have suppressed salaries, and public housing that is too expensive that we cannot price down for fear of a property market meltdown.
I reject the notion that it is the greed of the people to blame. Sound regulation and policies SHOULD factor in the element of human greed – People are greedy, it’s a fact, design a policy that curbs the potential impact of this fact.
The reason why we want the best and brightest in government is SO they can PREVENT these very situations from happening.