Root Cause of Sky-High HDB Flat Prices

September 16, 2009 by admin
Filed under: Current Affairs 

by See Leong Kit (61-year old S’pore Citizen)

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 comprises Construction Cost (CC), Land Cost (LC) and Other Related Costs (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, the 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 huge developments by pricing new flats on a cost-based breakeven basis?

A Ministry of Trade and Industry public reply on the huge 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 preaches 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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Comments

3 Comments on Root Cause of Sky-High HDB Flat Prices

  1. The Singapore Daily » Blog Archive » Daily SG: 17 Sep 2009 on Sat, 19th Sep 2009 11:19 am

    2. [...] – Sgpolitics.net: Root Cause of Sky-High HDB Flat Prices – The Temasek Review: HDB: buy resale if you cannot afford private – Who Moved My Singapore Cheese: [...]

  2. comeonlah on Thu, 24th Sep 2009 11:43 pm

    3. Please lah! Since when has the Government promote transparency? They have already mentioned that no civil servants are to give their personal opinion on government policies as this would undermine the public trust on the government. Is this freedom of speech? Is this democratic freedom? That if you work for the government, you can argue against its policies even when it’s wrong. I don’t know about you idiots, but I’m migrating already.

  3. Ivan on Fri, 25th Sep 2009 10:40 am

    4. It could very well be that there are government spooks working as gatekeepers in our mainstream media. This probably accounts for those last two paragraphs – embarrassing to our govt – being omitted from the version as published by Today.

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