Point/Counterpoint: Has HDB’s public housing policy been a success?

Point: A cohesive nation, thanks to the HDB

by Betsy Pisik, Straits Times US Bureau
published in the Straits Times, 25 June 2008

(Summary of ST article)

IN SOME countries, an apartment can be the heart of the family, or just a place to store clothes and a bed. In others, it is the unattainable dream, a symbol of security as far away as the moon.

In Singapore, a 48-year-old programme has turned home ownership into a formidable tool to create cohesive communities and fuel economic expansion.

“The housing programme is a key pillar for continued economic growth,” says Mr James Koh Cher Siang, chairman of the Housing Board. “The underlying philosophy is nation-building, to root the population in Singapore and its future.”

That far-reaching vision was honoured by the United Nations on Monday during a day-long celebration of public-service innovations.

In a statement issued in Singapore yesterday, National Development Minister Mah Bow Tan congratulated the HDB and said that the award was “a tribute not just to HDB, but also to the Singapore people because the home-ownership programme is very much a part of our lives today.”

Today, 80 per cent of Singaporeans live in HDB homes, the dream of owning them made possible by a combination of subsidies and access to their Central Provident Fund savings to pay for their flats.

EDITOR’S REMARK: Subsidy?? WHAT subsidy?? A market-based rather than a cost-based subsidy is NO subsidy at all!

Counterpoint: HDB contributing to price spiral

by See Leong Kit
letter to Business Times, 20 June 2008

I REFER to the article “HDB pricing policy limits impact of rising costs” (BT, June 11).

As a 60-year-old Singaporean, I empathise with the growing despair of young couples when it comes to such a basic aspiration as home ownership. Private property is mostly beyond their reach. Even for HDB flats, they are caught between waiting as long as six years for new flats or paying exorbitant prices for resale flats.

In the 1970s, a graduate’s starting pay was around $1,000 per month. Then, in HDB Marine Parade Estate, prices of 3-room, 4-room and 5-room new flats were $17,000, $20,000 and $35,000 respectively. By 1990, the average price of 5-room new flats was $70,000. Such prices then reflected a “cost-based” pricing approach.

Now, graduate starting pay is three times higher than in the 1970s, but prices of new similar HDB flats have gone up 10-30 times.

These massive price hikes are largely due to the HDB switching over to a “market-based” pricing approach, following the 1994 property bull run.

In 2007, the HDB finally 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 break-even cost for a 5-room new flat was an estimated $120,000.

But, under the market- based pricing approach, the HDB first looks 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 for the 5-room new flat (despite its $120,000 break-even cost).

HDB will then say the new flat buyer is getting a so-called “market subsidy” of $60,000, arising from the difference between the resale flat market price and new flat selling price. There is thus no actual ‘cash subsidy’ given at all.

This market-based pricing approach had resulted in new flat prices and resale flat prices chasing each other in an upward spiral, affecting buyers of both new and resale flats. It has also led to current prices of 4-room new flats varying so much from $200,000 (Sengkang) to $400,000 (Telok Blangah) and a whopping $590,000 (Boon Keng).

HDB is supposed to be a low-cost public housing developer. Why then is it not passing on to flat buyers the economy-of-scale cost savings in its huge developments by pricing its new flats on a cost-based break-even basis?

  1. Further to my published BT letter above:

    1 Using year 2000 data, estimated total breakeven cost of $120,000 for the 5-rm new flat (selling price at $200,000) comprise construction cost, land cost [at market rate] and other related costs (piling, project management,etc).

    > if the new flat cost $120,000 to build, and HDB sell it at $100,000 — the buyer is getting a “cash subsidy” of $20,000.

    > if the HDB sell it at the breakeven cost of $120,000, there is no “cash subsidy” but the buyer at least get the benefit of the economy-of-scale savings of HDB’s large projects.

    > but when the HDB sell it at $200,000 (pegging it close to the $260,000 market price of a 5-rm resale flat), it is making a big fat profit of $80,000 for every flat sold !!!
    This represents a whopping 67% profit margin — compared to the typical 10-20% profit margin of private property developers.
    [ Yet another very-clever way to suck more of the people’s hard-earned monies!!!]

    2 Practically all of the HDB’s large parcels of land were compulsorily acquired many years ago under the Land Acquisition Act with dirt-cheap compensation paid to the land owners (our father/grandfather generation).

    Notice how the HDB made big profits not just once but two times:
    — ROUND 1: costing land (acquired cheaply) at current market rates (many times higher now).
    — ROUND 2: pegging the selling price of new flats to the current market prices of similar resale flats (and not its [lower] cost of construction)

    3 For most S’poreans, the two most expensive purchase items are (i) house and (ii) car.
    If cars get too expensive to own/operate, we can at least fall back on public transport.
    But a house (roof over one’s head) is a “very basic social amenity”.
    Thus, to make such big profits out of HDB flats is really “most despicable and disgusting” of the PAP Govt — that make it “most undeserving” of the people’s respect/trust/votes.

  2. It’s not my intention to diminish all the effort contributed by the readers on this website. But the truth is, uncommited readers will surely get fatigued by the continuous yaketty-yak of long winded wordy opinions.
    Allow me to humbly offer my point of what basically Singaporeons should realize by now. That this government understands basic human nature shrewdly and how to take advantage of it. As President Nixon once said, I quote, ” When you have them by the balls, their hearts and minds will follow.” unquote. Unless Singaporeons change their mindset, all they can look forward to will be the same political landscape that their grandparents, parents, themselves and children had subscribed and subjugated to, the promise that everything is done in their best interest. What most of us can looked forward to will be, less opportunities to get by, more expensive utilities and more pay for top civil servants and the cabinet without the expectations of true accountability. Look at how new blocks of HDB housing are sited.In time to come, mark my words , it will be surrounded by a wall with one guard at the entrance and it will be called privatised housing and you are trapped in the continuous cycle called owning your own home.
    I remembered the report in our local newapaper about Bill Gates retorting our local guide dogs when they extolled the fact that ninety percent of Singaporeons owned their flats they reside in by saying, ” But the don’t own the land that their homes are sited on, do they.” The way things are, nothing can or will change until all of us exercise our right to vote wisely; of course not on the government’s terms. But you know, I daydream all the time.