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Why we peg to market rates: HDB
Why we peg to market rates: HDB
Letter from Ignatius Lourdesamy Deputy Director (Marketing & Projects) for Director (Estate Administration & Property), Housing & Development Board
05:55 AM Sep 25, 2009
I REFER to the letter "It's not all about the numbers", (Sept 16) by Mr See Leong Kit.
It is misleading for Mr See to use the example of flats at Pinnacle@Duxton to conclude that HDB is profiteering from the sale of public housing flats. HDB is able to recover the cost for some projects, while incurring significant losses for others. Overall, in the last three years, HDB incurred an average deficit of $1,045 million a year in its home ownership programme. This cost subsidy, which has to be financed by the Government, is reported in HDB's audited financial statements.
Why does HDB benchmark its flat prices to market in spite of these huge deficits? Because this is the fairest way of pricing new HDB flats while ensuring equitable distribution of subsidies.
How is this done? HDB first determines a flat's equivalent market price by taking into account various factors such as location, finishes for the flat and other attributes. This price reflects the flat's value at the point of sale. It is what people are willing to pay in the open market. HDB then sells the flat at a significant discount, which is the subsidy given by the Government.
Market-based pricing is fairer to all buyers because it allows buyers to receive similar levels of subsidy regardless of market movements and fluctuations in development costs. Mr See states that the Pinnacle@Duxton flats were re-launched at an average selling price "which is $180,000 higher than initial launch prices (in 2004)". If HDB were to sell those flats at 2004 prices as Mr See suggests, it would be giving Pinnacle buyers today an additional subsidy of $180,000. This is not fair to those buying other HDB flats today, or indeed to all taxpayers.
A market-based pricing approach ensures that all groups of buyers at any point in time enjoy similar subsidies, and balances the demand for new and resale flats.
It is illogical for Mr See to attribute the increase in property prices to HDB, because the recent appreciation in asset and equity values is not unique to Singapore. Nonetheless, flats remain affordable - first-time flat buyers use 17 to 29 per cent of household income for their loans, below the international benchmark of 30 per cent.
HDB is ramping up new flat supply, up to 8,000 Build-To-Order (BTO) flats this year. HDB's latest BTO project, Punggol Spectra, offers smaller two- and three-room flats with affordable prices that start from $89,000 and $151,000, respectively. HDB will continue to ensure that flats remain affordable.
Letter from Ignatius Lourdesamy Deputy Director (Marketing & Projects) for Director (Estate Administration & Property), Housing & Development Board
05:55 AM Sep 25, 2009
I REFER to the letter "It's not all about the numbers", (Sept 16) by Mr See Leong Kit.
It is misleading for Mr See to use the example of flats at Pinnacle@Duxton to conclude that HDB is profiteering from the sale of public housing flats. HDB is able to recover the cost for some projects, while incurring significant losses for others. Overall, in the last three years, HDB incurred an average deficit of $1,045 million a year in its home ownership programme. This cost subsidy, which has to be financed by the Government, is reported in HDB's audited financial statements.
Why does HDB benchmark its flat prices to market in spite of these huge deficits? Because this is the fairest way of pricing new HDB flats while ensuring equitable distribution of subsidies.
How is this done? HDB first determines a flat's equivalent market price by taking into account various factors such as location, finishes for the flat and other attributes. This price reflects the flat's value at the point of sale. It is what people are willing to pay in the open market. HDB then sells the flat at a significant discount, which is the subsidy given by the Government.
Market-based pricing is fairer to all buyers because it allows buyers to receive similar levels of subsidy regardless of market movements and fluctuations in development costs. Mr See states that the Pinnacle@Duxton flats were re-launched at an average selling price "which is $180,000 higher than initial launch prices (in 2004)". If HDB were to sell those flats at 2004 prices as Mr See suggests, it would be giving Pinnacle buyers today an additional subsidy of $180,000. This is not fair to those buying other HDB flats today, or indeed to all taxpayers.
A market-based pricing approach ensures that all groups of buyers at any point in time enjoy similar subsidies, and balances the demand for new and resale flats.
It is illogical for Mr See to attribute the increase in property prices to HDB, because the recent appreciation in asset and equity values is not unique to Singapore. Nonetheless, flats remain affordable - first-time flat buyers use 17 to 29 per cent of household income for their loans, below the international benchmark of 30 per cent.
HDB is ramping up new flat supply, up to 8,000 Build-To-Order (BTO) flats this year. HDB's latest BTO project, Punggol Spectra, offers smaller two- and three-room flats with affordable prices that start from $89,000 and $151,000, respectively. HDB will continue to ensure that flats remain affordable.
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