Updated: 04/27/2013 09:59

HDB is not making money out of building homes, says National Development Minister Khaw Boon Wan

HDB is not making money out of building homes, says National Development Minister Khaw Boon Wan

by Imelda Saad

National Development Minister Khaw Boon Wan has said that the government loses "hundreds of millions" of dollars when constructing public flats.

He made the point at a Our Singapore Conversation dialogue session on 25 April 2013 on housing issues.

This comes amid calls from some quarters that land costs be taken out from the pricing of public flats, to make them more affordable.

Mr Khaw also hinted at several other changes to come - among them, subsidies for Executive Condominiums. 

The conversation on housing issues was free flowing.

And many of the participants like Evalyn Khoo were concerned about the affordability of home prices.

"I'm concerned about the home asset value I'm also concerned about how the younger generation can actually afford a house for themselves in the future."

On calls for price of new Build-To-Order (BTO) flats to be de-linked from land costs, Mr Khaw said it may be politically easy to say land is free because it belongs to everybody.

But that's not the case.

He said the price of land is tied to acquisition costs, reclamation and the building of infrastructure around it:

"You need to acquire a piece of land , you need to reclaim a piece of land. All those costs money to tax payers and we are just trustees of tax payers and those costs are to be accounted for. And even when you have got that land prepared, then land is only valuable when we invest in infrastructure, roads, MRT, etc etc. And all those costs billions of dollars. So to say that land cost is pittance and therefore should be excluded from total construction cost, I myself think it is not quite an appropriate argument."

He also revealed that the Housing and Development Board, which is the developer for public housing, is in fact losing money for every flat it sells:

"Every year, hundreds of millions of dollars of losses were incurred by the HDB and that's why MOF has to give the HDB an annual grant, otherwise the HDB will be in the red. Because every unit that we sell, we lose money, HDB loses money.  So let us not perpetuate this talk about, HDB is making money out of building houses because if it was so simple, life would be straight forward, but that's not the case."

The HDB pays market rate for its land and construction costs.

So, when it prices flats below market rate, it incurs a housing deficit.

A recent report said the deficit is now in the region of about $1 billion a year, including other costs such as upgrading.

One area where subsidies are being reviewed is that for Executive Condominiums.

The current household income ceiling for  executive condominiums (ECs) is $12,000.

Mr Khaw again.

"Should we continue EC in the current form? Or should we introduce some restrictions? We like the idea that taxation and whatever - rich people pay more taxes than lower income people and lower income people should get more subsidy than higher income people and EC, because the upside in the current property market is so big that the subsidy they earn in getting EC compared to what a lower income family will get in a three-room flat, four-room flat, or even five room flat BTO, there's a substantial gap. So there is this sense of inequity here that the lower income is getting less subsidy than somebody who is earning $12,000 so something is wrong somewhere and therefore I think we cannot carry on the EC in this current mode."

Mr Khaw also said he's confident that he can bring down the price of new flats in non-mature estates to four times the annual median salary of a buyer - that's down 30 per cent from the current 5.5 times.

But he's wary of some "transitional problems".

So he said there needs to be "distinct differentiation" between, the cheaper new flats and those built earlier.

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