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ROOT CAUSE of "sky-high" HDB flat prices

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  • David See
    Date: 1 February 2008 To: Editor, Singapore Review From: David See Leong Kit Topic: ROOT CAUSE of sky-high HDB flat prices Note for readers: 1
    Message 1 of 1 , Jan 31, 2008
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      Date:   1 February 2008
      To:       Editor, Singapore Review
      From:   David See Leong Kit
      Topic:   ROOT CAUSE of  "sky-high"  HDB flat prices
       
       
      Note for readers:
      1    Reproduced below is the full text of my letter to TODAY Voices section --- which was rejected(read: censored)  for publication for the obvious reason that I had exposed "The HDB Flat Pricing Scam" (which not many S'poreans are aware of).
       
      2    Key Issue ---  The HDB (under $2m Minister Mah Bow Tan) had used the clever term  "market subsidy" to confuse buyers of HDB new flats into thinking their flats are  "heavily subsidized" (Mah's own words) by the PAP Govt.
      In fact, there is no  "cash subsidy" at all and the HDB is actually raking in a cleverly-disguised profit !
       
      3    For greater public awareness, please help to forward to as many people as possible and ask them to do likewise (for "the multiplier effect").
      More informed voters can then vote appropriately at the next 2011 General Elections to send a strong message to the PAP Govt to provide truly-affordable housing for the people.
       
       
       
      Original Text of my email letter to TODAY newspaper:
        
            In his letter  "Resale flats out of reach" (TODAY Jan 17), Mr Anthony Tan highlighted the problems faced by many first-time HDB flat-buyers.  Allow me to trace the root cause behind their dilemma.
       
            As a 60-year old educated Senior Citizen, I surf the Internet regularly to gauge the true concerns of young Singaporeans, who are mostly hesitant to speak up openly.
       
            I empathise with their growing despair on home ownership.  Many are resigned that private flats are now way beyond their reach.  All they simply want is a basic no-frills inexpensive flat --- with enough money left to decorate it to their own personal taste into a cosy home!
       
            However, even with HDB flats, they are caught between the devil and the deep blue sea --- either wait 4 years for "expensive" new flats or else pay "sky-high" prices for resale flats. They are rightly concerned that a $1 million HDB resale flat may not be that far-fetched.
       
            One worry is that, despite such high prices, few buyers will feel the pinch immediately because up to 90% of the cost can be financed by long-term home loans stretching up to 30 years.
       
            So many seldom give a second thought that if they borrow, say, $300,000 under a 30-year loan, they could ultimately cough up nearly $600,000 in total capital and interest repayments.
       
            Another worry:   If a young couple have to sink so much of their hard-earned income and CPF savings into their brick-and-cement flat, how much monies will there be left to raise a family and sent their children to university --- not to mention providing for their own healthcare and retirement needs in their golden years?
       
       
            In the 1970s, the starting graduate salary was $1000 per month. Then, in the HDB Marine Parade Estate, prices of new  5-rm, 4-rm and 3-rm flats were  $35,000, $20,000 and $17,000 respectively.   In 1990, average price of new 5-rm flats was $70,000.  Such prices then reflected a  "cost-based pricing approach".
       
            Now, starting graduate salary is 3 times higher at $3,000 per month but prices of similar HDB new flats have gone up by 10 times to 30 times. The massive price hikes were largely the result of the HDB switching over to a "market-based pricing approach".
       
       
            Since 2002, many have queried the HDB in newspaper forums on how its new flats are actually priced.  Last December, 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."
       
            This is a simple-to-understand example using data from 2000, when 5-rm new flats were priced upwards of $200,000
       
            However, from actual tendered contracts of HDB Building Contractors,  the  Construction Cost per flat was about $50,000.  Adding on an estimated $70,000 for Land Cost & Other Related Costs, the Total Breakeven Cost per flat was about $120,000 --- which HDB should set as the selling price, since it is supposed to be a not-for-profit, low-cost public housing developer.
       
            But, under the market-based pricing approach, HDB will first look at the then prevailing market price of, say $260,000 of a 5-rm resale flat.  It will then pick a lower figure of, say $200,000 as the selling price for the 5-rm new flat --- never mind if its actual Total Breakeven Cost was only $120,000.
       
            The HDB can then say the new flat buyer is getting a  "market subsidy" of $60,000 arising from the difference between the resale flat price and new flat price.  Notice, under such an approach, there is absolutely no "cash subsidy" granted at all to the new flat buyer.  Instead, the HDB is actually collecting a profit of $80,000 per flat (representing a 67% profit margin).  In contrast, private developers normally earn around 20% profit margin for assuming business risks.
       
            Most importantly, this HDB  market-based pricing approach had resulted in new flat prices and resale flat prices chasing each other in an upward spiral ---- that is financially disadvantageous to buyers of both new and resale flats.
       
            Should HDB deem the above example as simplistic or misleading, the onus lies with it to rebut and substantiate with its own detailed data.
       
            HDB should also provide its public response to this remaining burning question  --- Why is the HDB not really helping first-time buyers of new flats by passing on to them the substantial cost-savings from economies-of-scale in massive HDB developments through pricing new flats on a "cost-based break-even" approach?
                
       
            We have also since moved from  small "pigeon-holes"  to tiny "bee-hives" ---  extremely costly beehives, to be precise!    HDB new flats are now built  smaller, closer and at higher price
       
            The HDB  itself had  stopped building the larger 1200 sq ft 5-room and 1400 sq ft Executive flats.  Current prices of  1000 sq ft 4-rm HDB new flats range from $200,000 (in Senkang) to $400,000 (in Telok Blangah) and up to the whopping $590,000 (in Boon Keng, under Design, Build and Sell Scheme by private developer).
       
       
             Our politicians constantly exhort Singaporeans to treat Singapore as  "home" literally and figuratively. To help solve our Procreation Problem, young couples are also reminded not to delay marriage and have three or more children.   Pray tell us how do you squeeze two parents, three children, one maid and possibly one or two elderly in-laws in a 1000 sq ft "bee-hive"?
       
            When young, educated and mobile Singaporeans are short-changed on such basic  "quality of life"  aspirations as a truly-affordable and decent-size home for their loved ones, is it any wonder many are contemplating to be  "quitters" rather than  "stayers"?
       
       
       
       
       
       


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