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10 Mar 2023  (771 Views)
Housing Development Board
A new approach to pricing HDB flats

1. I read a news report that many applicants did not take up the offer of a new HDB flat (also called BTO flat) because they were unsure about the market condition in a few years time, when the flats were ready. Would the market price drop due to recession, loss of job or high mortgage payments (caused by higher interest rate?

2. It is a bad system when ordinary people have to speculate on future housing prices and make decisions on timing the housing market.

3. I suggest a better system. The government should manage the prices of HDB flats, so that the buyers are confident that the prices will remain stable and affordable.

4. This can be achieved using this approach:

a) The government set set the HDB prices at a level that matches the median income of a working family.

b) HDB should offer various sizes of flats and locations to meet the needs of applications at different income segments. The higher income can apply for a larger flat or a better location. The lower income can apply for a smaller flat at a remote location (but still accessible by public transport).

c) The prices should be adjusted each year to match the changes in the median income level.

5. Using this approach, there is no need to have a complicated system of housing grants and subsidies that differ according to many factors. The current grants and subsidies are incomprehensible and quite arbitrary.

6. The government has a monopoly of the land used to build HDB flats. They can adjust the release of land to match the housing demand of the population. By matching supply to demand, they can "control" the price of the land (which represents half of the total cost) to match the income level.

7. At present, the government (or HDB) appears to use the market price to determine the price of land that is sold to HDB. When the land price is too high (and the HDB flats are too high), the government has to "tinker" with the grants and subsidies to make the flats "affordable". This is complicated and confusing and produces uncertainty.

8. If the government sets the price of land according to the framework that I suggested, the price of HDB flats will remain affordable, and there is no need for grants and subsidies.

9. The construction cost may be volatile, and may affect the prices of the HDB flats. I envisage that the government may have to provide subsidies on the construction cost, if the cost of materials and labor escalate due to shortages and inflation. A better approach is to award the construction contracts during an economic slowdown, when the prices are lower. This may result in completed flats being left vacant for a few years, but the actual cost of the vacant flats is quite small.

10. If the prices of HDB flats can be kept stable, it becomes easier for applicants to decide on the type, location and timing of the flats to meet the needs of their family. They do not need to worry about the uncertainty of the housing market.

Tan Kin Lian


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