THIS question has dogged the Housing Board for decades, and has continued to be a source of contention among opposition politicians, Straits Times Forum writers and cyber-critics.
Their main argument is that the HDB’s ‘market subsidy’ system for pricing new flats does not give buyers a real subsidy.
Unlike a typical subsidy in which a discount is given off the cost of a product, the board works the other way around. First, the HDB determines the new flat’s market price by taking into account resale prices of similar flats. Then it gives a ‘discount’ based on this market value.
The main issue is the cost of land. The cost of a flat is mostly made up of the cost of land and construction. In land-scarce Singapore, land cost makes up a major part of a property’s price.
So the questions that arise are: If prime land is acquired cheaply by the state, should prices of flats built on it reflect the cost of acquiring the land or the market value of the land? Who should reap the benefits of capital appreciation when land that was acquired cheaply 10 years ago is now highly coveted?
The HDB’s accounting system ensures that money from capital gains is ploughed back into national accounts. All acquired land is held by the Government, which releases plots to the HDB at market price when it needs land for new flats.
Economist Liu Yunhua from Nanyang Technological University believes that the system is fair, because it ensures that all citizens – and not just those who happen to buy a particular flat – get an equal share of a nation’s wealth.
‘The capital gains should go to the Government, because the money that goes to the Government will be shared by the whole country,’ he says.
Professor Kim Kyung-Hwan, a visiting professor at the School of Economics at Singapore Management University, has no doubt that the HDB hands out real subsidies.
But he adds: ‘It’s not the way it is priced; what really matters more is the amount of the subsidy.’
If the HDB wants to make its flats affordable, all it has to do is to increase the subsidy, he points out. ‘Whether deeper subsidies are socially justifiable is a separate issue.’
Still, some quarters question the transparency of the HDB approach, noting that it is the board which ultimately determines the market value of its new flats. This is because there is no equivalent entity that produces similar homes – and on such a massive scale – in Singapore.
Prices of new HDB flats are known to be ’sticky’ – in the sense that they are not prone to major fluctuations because their movements have an impact on the net wealth of the home-owning population.
To try to give home-seekers a yardstick for comparison, the HDB has been publishing prices of resale flats with similar attributes to those of its new flats whenever it launches a project.
For Punggol Spectra, launched earlier this year, four-room flats were priced at $234,000 to $293,000 each. The HDB put the price of comparable seven-year-old resale flats at $310,000 to $357,000.
This is, of course, still a stretch from saying just how much it costs to actually develop a flat. The president of the Society of Financial Service Professionals, Mr Leong Sze Hian, spoke for many when he tells Insight that the HDB should still publicly disclose the cost breakdown of new HDB flats.
Not that the Government has never done so. Back in 1981, then National Development Minister Teh Cheang Wan disclosed the land and construction cost, as well as subsidy and selling price, of the various flat types in six districts.
A three-room flat in the central core region, for example, cost $53,700 to construct and incurred a land cost of $40,000. It was sold at $57,100. These days, the authorities are more guarded with the figures.
Despite repeated calls, the HDB has not revealed the breakdown of the prices of its flats, and it again declined when Insight asked the board to provide the figures for one unit.
Instead, it cites the example of Punggol Spectra, which has two- to four-room flats priced at between $89,000 and $293,000 each. If flats there were priced at cost, it says, ‘HDB’s selling price will be raised by an average of $40,000 to $60,000′.
‘Cost-based pricing does not necessarily mean cheaper flats,’ it notes. This is because the development costs of some projects can be driven sky-high by expenses such as land reclamation work.
In short, the experts have no doubt that the market-based pricing approach is a sound and fair one. But the sceptics will believe otherwise and continue to raise the issue again and again and again until the HDB takes the bull by the horns and tells all.
Source: Straits Times, 17 Oct 2009
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