November 19, 2008 Wednesday

Market-based pricing fairest for new HDB flats: Mah

By Aaron Low

WHEN pricing a new HDB flat, costs are not taken into account. Its price is based on what the unit is worth at the point of purchase.

Calling it a market-based approach, National Development Minister Mah Bow Tan said it was the fairest way of pricing new flats.

'It reflects what the flat is worth at the point of purchase, which may have no relation to what it cost to build,' he added.

Mr Mah gave this response in Parliament yesterday to Mr Liang Eng Hwa (Holland-Bukit Timah GRC), who had asked if the Government would consider pricing flats according to costs.

The minister also said that as the HDB did not take into account costs, its building programme suffered losses of $530 million a year over the last three years.

He said a typical four-room flat in Sengkang costs more than $300,000 to build. This is above the $200,000 to $260,000 price at which HDB sells it.

He noted that there were concerns over the high prices of premium flats like those in [email protected], with prices ranging from $457,000 to $645,000.

But the prices reflected the value of the flats, which are located in Tanjong Pagar. For every unit on sale, seven people wanted to buy it, said Mr Mah.

It shows people are willing to pay for flats with good value, he added.

That the market is the main driver of prices of resale HDB flats was also highlighted by Senior Minister of State for National Development Grace Fu.

Madam Ho Geok Choo (West Coast GRC) had asked why the cash that a buyer pays on top of the official valuation of a flat - known in the industry as cash- over-valuation (COV) - is proportionately so high for two- and three-room flats. Latest figures show the median COV for a two-room flat is $16,000 and for a three-room unit, $19,000.

Ms Fu said COV is based on several factors and varies in different segments of the HDB market.

COV also depends on market conditions and how much each buyer is prepared to pay, she added, noting it could drop and enter negative territory.

However, it is often positive. For instance, the median COV for two-room flats range from $4,100 in Ang Mo Kio to $23,000 in Bukit Merah.