How papist leegime cheated Singaporeans in land and housing

http://www.temasekreview.com/2010/02/02/why-is-hdb-able-to-reveal-breakdown-cost-of-their-flats-publicly-in-1981-and-not-now/
February 2, 2010 by Our Correspondent
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OPINION

The exact breakdown cost of HDB flats is one of the biggest mysteries
waiting to solved in Singapore.

Despite the government's repeated claims that HDB flats are "heavily
subsidized" for Singaporeans, many Singaporeans remain unconvinced.

When HDB revealed in its annual report that it suffered a loss of $2 billion
dollars last year as a result of subsidizing first-time home buyers, few buy
its story.

In November 2009, Member of Parliament Chiam See Tong asked how much HDB
flats cost and the profit margin added to the cost when selling the flats to
which National Development Minister Mah Bow Tan replied in Parliament:

"The total cost of building flats varies based on when we build, where we
build and what we build. It includes cost of land, as well as cost of
construction of the flats and ancillary services. It varies from $230,000
for a 3-room flat in Punggol to $530,000 for a 5-room flat in Tiong Bahru."

He added that HDB does not price its flats based on cost-plus-profit, but at
a discounted market price. Together with the Additional Housing Grant, which
varies from $5,000 to $40,000, the subsidies amount to about 20 per cent of
the market price for 4-room flats, on average.

[TODAY, 24 November 2009]

The picture will become clearer if Mr Mah provides us with the exact
breakdown of the construction and land cost of the flats which he has
declined to do so.

Neither did HDB provide the figures in its annual financial reports nor on
its online portal HDB Infoweb which contains other detailed information such
as the resale price indices from 1990 till now.

One may attribute Mr Mah and HDB's reticence to do so to the possibility
that the information is covered under the Official Secrets Act, but it is
not.

In 1981, HDB published the construction cost, land cost, selling price and
subsidy of old and new 3 room and 5 room flats in The Straits Times:

3 room flats:



5 room flats:



[Credit: Forumer "Zack" from SPUG forum]

As we can see easily from the above figures, HDB did provide a substantial
subsidy for its flats back then.

For example, the cost price (construction + land cost) of a 3 room flat in a
new town is $61,500 per unit. The selling price is $32,800 as HDB provided a
housing subsidy of $28,700 to the home buyers.

The prices of new HDB flats have sky-rocketed in recent years. 4 and 5-room
flats in a recent BTO project at Queenstown fetch more than $400,000 and
$500,000 respectively.

What is the construction cost, land cost and total cost per unit built? Is
HDB selling them to Singaporeans at below cost price or is it making a
profit?

While the land cost is not revealed by the government, we are able to
estimate the construction cost of new flats based on figures provided by the
deveopers.

According to business weekly, the Edge, Sim Lian Construction Co. has been
awarded a contract worth $99.8 million by the Housing & Development Board
for the building works at Queenstown Redevelopment Contract 30 with a total
of 774 dwelling units which amounts to a construction cost of $129,180 per
unit.

As we do not know the size of the flats, let us assume that they will be
sold at $300,000 for a three-room flat which will amount to a land cost of
between $170,820 per unit if they are indeed sold at cost price:

Construction cost ($129,180) + Land Cost ($170,820) - HDB subsidy ($40,000)
= Selling price ($260,000)

Since Singapore is a small island with limited land, it is hardly surprising
that land prices are going up, but who owns the land to build the HDB flats
in the first place?

It turns out that most, if not all are owned by the Singapore Land
Authority, a statutory board under the Ministry of Law formed on 1 June 2001
by the merger of the Land Office, Singapore Land Registry, Survey Department
and Land Systems Support Unit. (Source: SLA)

In short, the land belongs to none other than the state - the Singapore
government!

How did the Singapore government manage to own so much land? Did they
acquire them at market rates? Apparently not.

In 1966, the PAP government introduced a draconian law known as the Land
Acquisition Act which "basically compelled all private landowners to give up
whatever land or property they owned when the government required them for
public purposes."

This law gives the government the power to acquire land at a price which is
"not higher than what the land would be worth had the government not carried
out development in the area" or in other words, way below the market value.

By 1976, 10 years after the act came into affect, the percentage of
state-owned land went up to 67 per cent, from less than 50 per cent in 1959.
By 2004, about 90 per cent of the land was owned by the government and its
statutory boards, according to the Singapore Land Authority.

[Source: Men in White, page 621]

In summary, the Singapore government acquired the land in Singapore from
private landowners at a low price. It then "sells" it to HDB via Singapore
Land Authority and other statutory boards at "market price" to build HDB
flats.

HDB then sells these flats to Singaporeans at "cost price" while providing
housing subsidies of between $5,000 to $40,000 to first-time home buyers.

Technically speaking, HDB is making a "loss" as on top of paying for the
construction and land costs, it still has to "subsidize" Singaporeans by
selling them at below cost price.

However, since the land is not sold to HDB at the price which is paid for
when the state acquired the land, the ultimate beneficiary is the Singapore
government - a situation akin to "money going from one's left to right
pocket."

HDB should come clean with Singaporeans on the exact construction and land
costs of its recently launched BTO projects in Punggol, Sembawang, Choa Chu
Kang and Queenstown like what it did in 1981.

The owners of these land, be it SLA or other statutory boards should reveal
the prices they pay for the lands under the Land Acquisition Act. Some of
them may already belong to the state while others are acquired at very low
prices in the early 1970s and 1980s.

The next important question to ask is: if the Singapore government has been
making a "profit" from these land sales to HDB, where are the profits going
to?

At the end of the day, it is Singaporeans who are paying for the HDB flats,
not HDB itself never mind whether it did "subsidize" home buyers or not.

Public housing is supposed to be easily affordable to ordinary Singaporeans
like in the 1970s and 1980s. The prices of new HDB flats should be pegged to
the median wages of ordinary Singaporeans instead of that of resale flats.

In 1981, a brand new 3-room flat costs only $32,800. Today, it costs more
than 7 times, but our salaries have not increased by that much.

The Singapore government can easily reduce the cost price of new HDB flats
by selling the land at a lower price to HDB for constructing them.

Perhaps SLA and other statutory boards should consider "subsidizing"
Singaporeans for HDB flats by selling the land to HDB at a lower than market
price just like when it first acquired the land years back.

After all, as land prices have sky-rocketed in the last few decades, SLA
will still able to make a "profit" even if it sells the land at a couple of
thousands of dollars less than its market price to HDB.

So when HDB says it is selling flats to Singaporeans at cost price with
subsidy, it is technically correct. However, it fails to mention that it is
buying the land from SLA and other statutory boards at market price.

With public anger fast rising over the escalating HDB flat prices, it is
time Singaporeans exert pressure on HDB and other relevant agencies to
reveal the truth of the matter - the exact constuction and land costs of HDB
flats for us to judge for ourselves if HDB flats are indeed heavily
"subsidized" by HDB and if they are worth the price we are paying for.


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