Market-based pricing has cost buyers dearly

http://www.straitstimes.com/ST%2BFor...ry_255323.html

July 7, 2008

HDB FLATS

Market-based pricing has cost buyers dearly


I REFER to the Insight interview with National Development Minister Mah Bow Tan ('HDB neighbours from hell? This minister knows all about it', June 27).

Private property is mostly beyond the reach of young couples. Even with HDB flats, they are caught either waiting as long as six years for an expensive new flat or paying an exorbitant price for a resale flat.

In the 1970s, graduate starting pay was $1,000. Then, in Marine Parade, a new three-, four- or five-room HDB flat cost $17,000, $20,000 and $35,000 respectively. By 1990, the average price of a new five-room flat was $70,000. Such prices then reflected a 'cost-based' approach to pricing.

Now, graduate starting pay is three times higher at $3,000, but prices of similar new flats have gone up by 10 to 30 times.

These massive price hikes were largely due to the HDB switching to a 'market-based' approach to pricing, following the 1994 property bull run.

In an ST Forum reply last year, 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 breakeven cost (comprising construction cost, land cost and other related costs) of a new five-room flat was an estimated $120,000.

However, under the market-based pricing approach, the HDB will first look at the prevailing market price of, say, $260,000 of a five-room resale flat. It will then pick a slightly lower figure of, say, $200,000 as the selling price of the new five-room flat - regardless of its $120,000 breakeven cost.

The HDB will then say the new flat buyer is getting a so-called 'market subsidy' of $60,000, the difference between the resale flat market price and new flat selling price. There is thus no actual 'cash subsidy' given to the flat buyer.

This market-based pricing approach caused new flat prices and resale flat prices to chase each other in an upward spiral, affecting buyers of both new and resale flats.

It has also caused current prices of 1,000 sq ft four-room new flats to vary so much - from $200,000 in Sengkang to $400,000 in Telok Blangah.

As a low-cost public housing developer, the HDB owes Singaporeans a proper reply on why it does not pass on to flat buyers the economy-of-scale cost savings in its huge developments through pricing new flats on a cost-based breakeven basis.

See Leong Kit

why these people keep grumbling & complaining, cannot face the reality.
Such a small matter, work hard, they can afford it.
If couple work for 3 years, how low their salary is , combined income of $4k, they can easily afford a re-sale 3 rm at $160k in Woodland.
After they buy, they will start to scream for HDB to surge to sky, it's all about greed.
There is fresh graduate making $8-$10k/m, very rare, but there is.
Average pay of $3-$4k these days, a fresh graduate couple already have income of $6-$8k/m, what is the problem? >50% of youngster these days with degree or diploma.
There is so many construction workers from Mynmar, Blangadesh, China....work in Spore, Malaysia, ME, Taiwan.....just for $300-500/m, they have to leave their family, just married wife...only able to meet once a year or 2 years. Our ypoungster here just complaining on what they have here, I can only say 1 generation is worse than last generation.

Quote:

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Originally Posted by Taiko

why these people keep grumbling & complaining, cannot face the reality.
Such a small matter, work hard, they can afford it.
If couple work for 3 years, how low their salary is , combined income of $4k, they can easily afford a re-sale 3 rm at $160k in Woodland.
After they buy, they will start to scream for HDB to surge to sky, it's all about greed.
There is fresh graduate making $8-$10k/m, very rare, but there is.
Average pay of $3-$4k these days, a fresh graduate couple already have income of $6-$8k/m, what is the problem? >50% of youngster these days with degree or diploma.
There is so many construction workers from Mynmar, Blangadesh, China....work in Spore, Malaysia, ME, Taiwan.....just for $300-500/m, they have to leave their family, just married wife...only able to meet once a year or 2 years. Our ypoungster here just complaining on what they have here, I can only say 1 generation is worse than last generation.

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Our younger generation should understand this ---> "If you don't have a big head, don't wear a big hat". Always save enough for the future, don't overspent on luxury goods, car and things which you can do without with.

Stay with yours parents if you can't afford a property. When your savings and CPF grow larger and plan to start a family, work closely with your future spouse in deciding what property to buy (3-rm, 4-rm, 5-rm or condo). Always do things within your limits and you'll be safe. When the market is good and your combined salaries are sufficient, upgrade to a condo.

Above is not something which I just cook up. It's actually my own story. Today I own two condo, but I still don't drive a car. Car is never a necessity in my dictionary. If I have spare cash, I'll buy my 3rd property and start planning for my retirement.

http://www.straitstimes.com/ST%2BFor...ry_258036.html

July 16, 2008

How HDB flats are priced affordably


I REFER to the letter from Mr See Leong Kit, 'Market-based pricing has cost buyers dearly' (July 7).

HDB adopts a market-based pricing approach so as to reflect the true subsidy that buyers enjoy. Under this approach, HDB determines the market value of the flat, based on its location, finish and other attributes. Then, it sells the flat at a discount to the market value. HDB buyers understand this, and appreciate that new HDB flats are priced lower than resale flats. Similarly, when they want to sell their flat in the open market, they do so at the prevailing market value, not at their cost of purchase of the flat.

We also wish to highlight that this approach has enabled HDB to continue to price its flats affordably despite the current sharp escalation in construction costs. Currently, a new four-room flat can cost close to $300,000 to develop, taking into account land, building and other costs. This is significantly higher than the subsidised price of a four-room flat in Punggol/Sengkang sold by HDB at about $200,000 to $260,000.

Through the market-subsidy approach to pricing, HDB has been able to keep its flats affordable for Singaporeans. On average, first-time flat buyers need to pay only about 20 per cent of their monthly household income to service their housing loan. This is well within the 25 to 30 per cent that is commonly cited internationally as the benchmark for affordable housing. Lower-income households can enjoy additional help in the form of the Additional CPF Housing Grant.

Mr See commented that young couples have to wait as long as six years for new flats. This is incorrect. New Build-To-Order flats take about three years to complete from time of registration. Those with urgent housing needs can consider the resale market where there is a wide range of resale flats to match the preference and budget of buyers. Eligible first-time buyers can also enjoy a CPF Housing Grant of $30,000/$40,000.

Kee Lay Cheng (Ms)
Deputy Director (Marketing & Projects)
for Director (Estate Administration & Property)
Housing & Development Board