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Thread: HDB contibuting to price spiral

  1. #1
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    Default HDB contibuting to price spiral

    http://www.businesstimes.com.sg/sub/...84436,00.html?

    Published June 20, 2008

    LETTERS TO THE EDITOR

    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

  2. #2
    Keynes
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    Today issue is not about affordability, but market sentiment. Ppl don't buy not becasue they don't hv money, but because they believe that ppty prices will drop. That makes a lot of different. It's not fundamental issue but market sentiment.

    Therefore, your waiting for the market price to drop is futile.

  3. #3
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    I agree with the article....nowadays new flat cost plus reno cost = resale hdb cost....so where is the subsidies?

    So if you want your new house quickly, then go find a well reno hdb and buy that....dun wait for a new hdb, there is no difference cost wise....

  4. #4
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    Default HDB approach reflects true subsidy

    http://www.businesstimes.com.sg/sub/...86043,00.html?

    Published July 2, 2008

    LETTER TO THE EDITOR

    HDB approach reflects true subsidy


    WE refer to Mr See Leong Kit's comments on the pricing of HDB flats in his letter 'HDB contributing to price spiral', (BT, June 20).

    HDB adopts a market-based pricing approach so as to reflect the true subsidy that buyers are enjoying. Under this approach, HDB determines the market value of the flat, based on its location, the finishes 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 flats in the open market, they are allowed to do so at the prevailing market value, not at their cost of purchase of the flat.

    We also wish to highlight that under this approach, the current sharp escalation in construction costs does not directly affect the selling price of HDB flats.

    Currently, a new 4-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 4-room flat sold by HDB at about $200,000-$260,000.

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

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