HDB contibuting to price spiral

HDB contibuting to price spiral

 

I REFER to the article ‘HDB pricing policy limits impact of rising costs’ (BT, June 11).

 

As a 60-year-old Singaporean, I empathise with the growing despair of young couples when it comes to such a basic aspiration as home ownership. Private property is mostly beyond their reach. Even for HDB flats, they are caught between waiting as long as six years for new flats or paying exorbitant prices for resale flats.

 

In the 1970s, a graduate’s starting pay was around $1,000 per month. Then, in HDB Marine Parade Estate, prices of 3-room, 4-room and 5-room new flats were $17,000, $20,000 and $35,000 respectively. By 1990, the average price of 5-room new flats was $70,000. Such prices then reflected a ‘cost-based’ pricing approach.

 

Now, graduate starting pay is three times higher than in the 1970s, but prices of new similar HDB flats have gone up 10-30 times.

 

These massive price hikes are largely due to the HDB switching over to a ‘market-based’ pricing approach, following the 1994 property bull run.

 

In 2007, 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’ . In 2000, the total break-even cost for a 5-room new flat was an estimated $120,000.

 

But, under the market- based pricing approach, the HDB first looks at the prevailing market price of, say, $260,000 of a 5-room resale flat. It will then pick a slightly lower figure of, say, $200,000 as the selling price for the 5-room new flat (despite its $120,000 break-even cost).

 

HDB will then say the new flat buyer is getting a so-called ‘market subsidy’ of $60,000, arising from the difference between the resale flat market price and new flat selling price. There is thus no actual ‘cash subsidy’ given at all.

 

This market-based pricing approach had resulted in new flat prices and resale flat prices chasing each other in an upward spiral, affecting buyers of both new and resale flats. It has also led to current prices of 4-room new flats varying so much from $200,000 (Sengkang) to $400,000 (Telok Blangah) and a whopping $590,000 (Boon Keng).

 

HDB is supposed to be a low-cost public housing developer. Why then is it not passing on to flat buyers the economy-of-scale cost savings in its huge developments by pricing its new flats on a cost-based break-even basis?

 

See Leong Kit

Singapore

 

Source: Business Times

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s