"The HDB Flat Pricing Scam" - Good read!

The HDB (under $2m Minister Mah Bow Tan) had used the clever term "market subsidy" to confuse buyers of HDB new flats into thinking their flats are "heavily subsidized" (Mah's own words) by the PAP Govt.In fact, there is no "cash subsidy" at all and the HDB is actually raking in a cleverly-disguised profit !
Here's why:

Since 2002, many have queried the HDB in newspaper forums on how its new flats are actually priced. Last December, 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."This is a simple-to-understand example using data from 2000, when 5-rm new flats were priced upwards of $200,000.

However, from actual tendered contracts of HDB Building Contractors, the Construction Cost per flat was about $50,000. Adding on an estimated $70,000 for Land Cost & Other Related Costs, the Total Breakeven Cost per flat was about $120,000 --- which HDB should set as the selling price, since it is supposed to be a not-for-profit, low-cost public housing developer.

But, under the market-based pricing approach, HDB will first look at the then prevailing market price of, say $260,000 of a 5-rm resale flat. It will then pick a lower figure of, say $200,000 as the selling price for the 5-rm new flat --- never mind if its actual Total Breakeven Cost was only $120,000.

The HDB can then say the new flat buyer is getting a "market subsidy" of $60,000 arising from the difference between the resale flat price and new flat price. Notice, under such an approach, there is absolutely no "cash subsidy" granted at all to the new flat buyer. Instead, the HDB is actually collecting a profit of $80,000 per flat (representing a 67% profit margin). In contrast, private developers normally earn around 20% profit margin for assuming business risks.




In the 1970s, the starting graduate salary was $1000 per month. Then, in the HDB Marine Parade Estate, prices of new 5-rm, 4-rm and 3-rm flats were $35,000, $20,000 and $17,000 respectively.

In 1990, average price of new 5-rm flats was $70,000. Such prices then reflected a "cost-based pricing approach". Now, starting graduate salary is 3 times higher at $3,000 per month but prices of similar HDB new flats have gone up by 10 times to 30 times. The massive price hikes were largely the result of the HDB switching over to a "market-based pricing approach".