Minister Khaw: HDB loses money for every flat it sells

[Chowbotak]

At an ‘Our Singapore Conversation’ dialogue session on housing issues yesterday (25 Apr), National Development Minister Khaw Boon Wan said HDB loses “hundreds of millions” of dollars when constructing HDB flats.

 

He revealed that HDB is losing money for every flat it sells.

 

He said, “Every year, hundreds of millions of dollars of losses were incurred by the HDB and that’s why MOF has to give the HDB an annual grant, otherwise the HDB will be in the red. It cannot be forever in the red, because there’s no way it can make money. Because every unit that we sell, we lose money. HDB loses money. The accounting for the HDB is deficit accounting. So if you incur a $300-million loss, there is a grant of S$300 million that covers it. That is how we operate the HDB.”

 

“Let us not perpetuate this talk about HDB is making money out of building houses because if it was so simple, life would be straightforward, but that’s not the case.”

 

The HDB pays market rate for its land and construction costs. When it prices flats below market rate, it incurs a housing deficit. A recent report indicated that the deficit is now in the region of about $1 billion a year, including other costs such as upgrading.

 

However, what Mr Khaw did not say at the dialogue session is how much money the Singapore Land Authority (SLA) is making. SLA may be selling land to HDB at market rate, causing HDB to lose hundreds of millions of dollars for selling its flats. However, SLA is certainly making much more from the land sale to HDB. Hence, if one were to put SLA and HDB together, overall, the Govt would still be making money and this money would go to the State’s reserves. How do we know this? This came from the mouth of previous National Development Minister, Mah Bow Tan, 2 years ago just before the 2011 GE (‘Mah Bow Tan: Lowering land cost will ‘raid’ our reserves‘).

 

At the time, Mr Mah scoffed at WP MP Low Thia Kiang’s proposal to lower land cost as a way to reduce new HDB flat prices. Mr Mah said that it was tantamount to “raiding” Singapore’s reserves.

 

Mr Mah said then, “This is because all land is sold at prices set by the Chief Valuer, and the land sale proceeds go into the reserves. When he (Mr Low) says that I’m going to finance this by lowering the value of land, basically what he’s doing is taking money from the reserves. It is not a matter of left pocket to right pocket. It’s a matter of taking, dipping into the reserves.”

 

The reserves are, of course, managed by Temasek Holdings and GIC.

 

The Govt will typically use the Land Acquisition Act to compulsory acquire private land at cheap prices but years later, ’sell’ it to HDB at a huge profits. For example, the Govt acquired 131ha of land from Peck San Theng cemetery for $5 million or $0.30 psf [Link]. It was later developed into Bishan new town. It’s not known how much profit (or reserves) was made from this deal by the Govt.

 

During the dialogue session, many participants were concerned about the affordability of HDB flats. Evalyn Khoo, a mother of two, said she is concerned about how the younger generation can actually afford a house for themselves in the future.

 

Some participants at the session were even asking for land costs to be taken out from the pricing of HDB flats so as to make them more affordable.

 

Mr Khaw replied that land is not free. He said, “You need to acquire a piece of land; you need to reclaim a piece of land. All those costs money to taxpayers and we are just trustees of taxpayers and those costs are to be accounted for. And even when you have got that land prepared, land is only valuable when we invest in infrastructure, roads, MRT… And all those costs billions of dollars. So to say that land cost is a pittance and therefore should be excluded from total construction costs… I myself think it is not quite an appropriate argument.”

 

But certainly, instead of giving free land, perhaps the Govt can consider selling the land at a lower price like what MP Low Thia Khiang suggested 2 years earlier, resulting in lower HDB prices. It’s not a matter of ‘raiding the reserves’. It’s more like earning less profits for the reserves but making the lives of our citizens better.

 

Indeed, Mr Khaw seems to be doing that, especially in view of the humiliating loss for PAP in the recent Punggol East by-election. Mr Khaw said he is confident that he can bring down the price of new flats in non-mature estates to 4 times the annual median salary of a buyer – down 30 per cent from the current 5.5 times. But he said there needs to be “distinct differentiation” between the cheaper new flats and those built earlier.

 

He said, “I am fairly confident of being able to do it but some groups already anticipate transitional problems, which is what I got to sort out. If yesterday you bought (a flat) at five and half years’ salary and tomorrow HDB announces a new pricing package, which is only (priced at) four years’ salary, you are going to cry ‘blue murder’ right?”

 

“Therefore, I think we should not be prevented from offering a new pricing model but obviously there must be a distinct differentiation between the two products to explain why one is five and a half years and the one is four years.”

 

He added that MND and HDB will need to sort out this issue over the next few months.

 

http://www.tremeritus.com/2013/04/27/minister-khaw-hdb-loses-money-for-every-flat-it-sells-really/

[tsammyc]

This concept that the Government can make money from cheap land sales doesn't make sense. The Government prints all the money from pieces of paper and plastic. It's the credibility of Singapore's economy with foreigners that give those pieces of paper and plastic a value and allow us to trade our money for foreign goods. It's not much use having lots of pieces of Venezuelan currency or Japanese banana notes.

[Chowbotak]

So hdb lose money. Whose money? ???

[domho8]

So hdb lose money. Whose money? ???

 

Bro our ch everyday lose money dah.  ;D