Sunday, January 14, 2007

The Art of Subsidizing Housing in Singapore

There is a spate of letters in the Straits Times forum page asking whether HDB flats are subsidized, how much does it cost to build a flat, etc. can the HDB be more transparent...?

Once again ordinary Singaporeans have failed to appreciate the great achievement of HDB to house 70-80% of the population. Just because your HDB flat cost more than a landed property and 5 times more than a condo in Johor, it doesn't mean HDB is not subsidizing you.


Understanding the Subsidy

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 subsidized flats are sold above building cost. ....Of course they are!!!! Judging from the fact that in Johor they can sell a condo for $40K complete with pool, parking and clubhouse.....the cost is of building a HDB flat is probably in that ballpark since many construction workers are malaysians and construction companies work both sides of the Causeway.

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 that they subsidise you. Cost of land, construction, material etc etc are totally immaterial. Get it?

So some of you may ask in that case it is possible for HDB to price flat above total costs and make a profit. If you ask them, HDB does not make profit, it makes a SURPLUS. Over the years, they make billions of surplus.

Understanding the Market in Market Subsidy

Have you ever wondered what will HDB flats costs if the PAP did not change the rules and allow CPF to be used to pay for them? Have you ever wondered what they will cost if only 12 year housing loans are allowed instead of 25 yr loans?

Since the HDB supplies 70-80% of property market, it is a virtual monopoly. Given that HDB is part of the govt, it also has control of the property market in terms of policy. So Singaporeans are subsidised against a market that is created by the HDB and govt.

In order to give you a BIG market subsidy, they have to ensure that the market price is high. That incidentally will also help to enhance their surplus.

Market Subsidy NOT EQUAL TO NO LOSS

One of my relatives bought a flat after 6 years she realised that a similar flat now cost $80k less than hers. Her flat which was based on the market subsidy when she bought is now below the market price.

MOST EXPENSIVE PUBLIC HOUSING IN THE WORLD

I think it comes as no surprise to anyone that our subsidised HDB flats are the most expensive public housing in the world. More expensive that in countries where incomes are far higher. Thanks to the market subsidy that we all receive, we should all consider ourselves lucky to be able to own affordable housing paid with loans stretching over 25 years.

This subsidized housing is also part of the reason why many Singaporeans will have very little CPF when they hit age 55 and have to work until they are 80 years old. Think about that, market subsidised housing that helps to motivate you to work longer and harder.....a uniquely Singapore phenomena.

--------------
Jan 2, 2007 Settle question of HDB subsidy once and for all
I REFER to Mr Viktor Ye Kok Kheong's letter, 'Did HDB land pricing use Raffles Place as rule?' (ST, Jan 1).

The Housing Board said that 'HDB does not reveal the land and construction costs of specific projects as they vary from location to location... 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'.
The reason given for not revealing the land and construction costs is somewhat illogical, because the HDB is not being asked to disclose the costs of every project or location. Why not just reveal the breakdown of total costs, and a few examples of some projects and locations, now and in the past?

What the HDB is saying is akin to 'since we cannot tell you each and every item, we won't tell you anything at all'.

Every once in a while, the question of the cost and pricing of HDB flats comes up in the media. So, why not put a stop to the on-going speculation that HDB flats are not really subsidised?
In the interest of maintaining Singapore's reputation of having the highest standards of transparency and corporate governance, the HDB should keep up with the standards of disclosure in the private sector.

To illustrate the point of transparency, no real-estate investment trust or publicly-listed company would be able to give the reason given by the HDB for not breaking down the information on the major cost components in its accounting statements.
How can we tell whether HDB prices are 'at market price' without a breakdown of the land and construction costs for comparison purposes?

As to the market price for land taking into account the 'substantial resources... invested to provide major infrastructure, such as roads, MRT, sewers and utilities, for the new housing development', thus significantly enhancing the land value beyond the acquisition costs incurred by the Government, aren't the billions collected every year from road tax, electronic road pricing, property tax, 30 per cent water- conservation tax, etc, supposed to be used to provide such infrastructure?

Leong Sze Hian

-----------------------

ST 10/1/07
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.

For example, state land alienated by the Singapore Land Authority for housing in Tampines will be valued taking into account the market values of housing in Tampines, while state land for industrial use in Tuas will take into account industrial- land values in Tuas, etc.

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?
Third, Mr Leong asserted that HDB has not kept up with the standards of disclosure in the private sector. He is wrong.

HDB's financial statements are prepared in accordance with the Financial Reporting Standards, audited by the Auditor-General and tabled in Parliament for information.

HDB's standards of disclosure and governance are no less than those required of publicly listed companies and real-estate investment trusts in Singapore.

Overall, HDB is unable to recover the development cost of new flats that it offers to the public, and has incurred a deficit averaging $390 million in its home-ownership programme in the last five years. These figures are reported in HDB's audited financial statements, which are publicly available for inspection and scrutiny.

Kee Lay Cheng (Ms) Deputy Director (Marketing & Projects) For Director (Estate Administration & Property) Housing & Development Board
------------------------------------------

10 comments:

Anonymous said...

Ya, la. Singapore gahmen so good one. Quality and cost of housing is so fantastic in Singapore. Most PAP leaders and ministers got stay in public housing HDB and they are happy with the price - so Singaporeans have no reason to complain. They should just be grateful and keep voting correctly for eternity - also bow down when they see their mandarin leaders.

The Human Battery said...

HDB did not lie about anything, in the sense that this is a very old debate.

Chiam See Tong cross-sword with The late National Development Minister Teh Chean Wan over this, when the former first went into parliament. That was like 20 years ago! Didn't Teh challenge Chiam to build a few block of flats, and Chiam fumbled his way out?

So in this sense, voters are all aware of this ancient issue and they have willingly accepted such "market subsidy" year after year.

So we have to respect their choice. If this is what 66.6% want, then so be it. "You" get what "you" deserved! Serve "you" right to be screwed upside down. "You" asked for it!

In fact, these people will fight to protect the very system who screw them, as very well explained by Morpheus.

Capt_Canuck said...

That is too funny. Conspiracy theories abound all over this world, people blame the gov't for hiding certain 'truths' from the people. (http://en.wikipedia.org/wiki/List_of_conspiracy_theories) funny, how the Singaporean conspiracy of the HDB flat pricings are not mentioned here.

Something tells me either Singaporeans are either spineless enough not to actually push their gov't for information that they rightly deserve, or else they are like an audience at a magic show and are so thrilled by the dazzling assistant and the smoke and lights that they really dont care how many pockets inside the jacket the magician on stage has.

Won't be long til I am living in that magic show myself, so might be able to have more insight then. But, till then, enjoy the sales at the malls.

Anonymous said...

I always thought that the meaning of 'subsidy' was to provide some form of 'financial assistance'. This would also mean that one would incur some kind of expense or loss in providing the 'subsidy'.
We should be so lucky that the HDB is not selling at 'market price' and making massive profits but rather, they are selling at lower than market prices and simply just making profits. Best of all, no loss or expense seems to have been incurred.
Our wonderful HDB has now expanded the meaning of the word 'subsidy' to include 'not making the full profits than otherwise they are entitled to under market prices'.
Is this a 'subsidy' in the true sense of the word? Or should some other less confusing term be used instead, like 'potential profit that could have been made had the flat been sold at market price'? Is there an accounting term for this? Do accounting rules provide for this situation in the first place?

freemason said...

thats why they wear white, you see, cos they're vampires... they have no blood, need to continuosly suck blood until everyone also turn white

Anonymous said...

A market subsidy is a very common thing in Singapore. Many retailers subsidise shoppers by selling their wares below the market price. They call it a sale when in actual fact, it is a market subsidy!

Anonymous said...

Starting salary of a civil engineer decades ago - $1800 per month.

Starting salary of a civil engineer now - $2300 per month.

Wages of bagala workers as construction workers decades ago - $n per month

Wages of bagala workers as construction worker per month now - $n month

Where does the huge inflation in HDB flats come from?

Web Design Company said...

Nice information, many thanks to the author. It is incomprehensible to me now, but in general, the usefulness and significance is overwhelming. Thanks again and good luck! Web Design Company

h4ns said...

Thank you for another essential article. Where else could anyone get that kind of information in such a complete way of writing? I have a presentation incoming week, and I am on the lookout for such information.
UEFA Live Stream | Live Stream Today | Live Streaming Free TV Channels Online | Technology News | EPL Live Stream

rocky case said...

Stephen Stapinski

Really your blog is very interesting.... it contains great and unique information. I enjoyed to visiting your blog. It's just amazing.... Thanks very much for the share.