A new flat's equivalent market price is first determined by looking at the recent transacted prices of resale units nearby.
Adjustments are then made to account for factors like location, finishes of the flat and other attributes. The price reflects the flat's value at the point of purchase and is what people are willing to pay on the open market for such a unit.
The HDB then sells it at a significant discount, which is the subsidy given by the Government. The HDB sells flats based on market price instead of cost as this is the fairest way of pricing new flats.
A market-based pricing approach ensures that all groups of buyers enjoy similar discounts to the market and would be fair to those who are buying other HDB flats today.
It is not tenable for the HDB to price flats according to their development cost, which fluctuates depending on factors such as site conditions, material price and tendered construction price.
Source: Sunday Times, 20 Sep 2009