Singapore’s public housing policy is like a giant vacuum cleaner that sucks up personal reserves from citizens in order to fatten the state’s reserves. This was revealed by none other than Minister for National Development Mah Bow Tan. Personal savings are depleted so that national savings continue to grow.
Lowering the cost of land as a way of reducing the prices of new Housing Board flats is akin to taking money from Singapore’s reserves, said National Development Minister Mah Bow Tan yesterday.
— Sunday Times, 17 April 2011, ‘Bad idea to lower cost of land’
The Workers’ Party’s recently-released manifesto proposes to peg the prices of newly-built public housing to the median income of eligible buyers. It is the party’s response to widespread unhappiness about home prices rising to unaffordable levels.
Workers’ Party chief Low Thia Khiang had accused the minister of not painting the full picture on costs. Specifically, he pointed to the cost of land. Although a statutory body in itself, the Housing and Development Board (HDB) has to pay the Singapore Land Authority for the land it uses for public housing.
Mr Low believes land costs make up the bulk of the board’s expenses in building flats. And if that is lowered by the Singapore Land Authority, HDB would not have to suffer such a loss, and the savings could be passed on to first-time home buyers.
The key is if the Government is prepared to collect less money from land sales. ‘It is a question of taking your money from the left pocket and putting in the right pocket. So, let us know what is the land cost,’ he pressed.
The money from land sales on long lease is not included as part of the budget for current government spending, but goes into the reserves, he added, citing a previous official reply in Parliament.
— Straits Times, 16 April 2011, Mah not giving full picture of costs: Low
While Low was speaking about taking money from the government’s left pocket and putting it into its right pocket, that metaphor only captures a part of the picture. Looking at the situation from a total perspective, it is taking money from the individual’s pocket and putting it into the state’s pocket, as I will explain below.
First however, we need to pin down a few facts, or rather a few things as close as fact as we can get in the absence of the government releasing data. The refusal to release data breaking down costs of building public housing has characterised this government for as long as anyone can remember.
Thanks to business weekly The Edge, PropertyGuru and Lucky Tan’s blog, we have a nugget of information dating from a year ago.
HDB has awarded a contract worth $99.8 million to Sim Lian Construction Co. for the building works at Queenstown Redevelopment Contract 30, which will have a total of 774 housing units, according to business weekly, the Edge.
The contract, which translates to a construction cost of $129,180 per unit, is slated to begin in March 2010 and is expected to be completed by February 2013.
The statutory board Singapore Land Authority owns the land parcel.
Once completed, the flats are likely to fetch over $300,000 per unit, as the project is located in the prime district of Queenstown.
— PropertyGuru.com.sg, blogpost dated 1 Feb 2010, Link.
We still need to bear in mind a few things: the contract value per flat given to Sim Lian is not the only cost, although it is very likely the bulk of it. There may be other smaller contracts for ancillary works. There is also, undoubtedly, overhead costs at the HDB itself in designing the flats and associated civil works. Let’s say then that the total cost of building these flats work out to about $150,000 each. If the selling price per flat averages $300,000, then HDB’s gross profit appears to be the other $150,000.
Yet, Mah says the HDB generally makes a loss, which indeed is what the HDB’s annual financial report shows. Whether or not this will be the case with these particular flats in Queenstown is unknown, but let’s assume that these costings are typical. In that case, HDB’s cost per flat, on an accounting basis, must be higher than the flats’ selling prices of $300,000, but since we estimate (from the above paragraph) that design and construction costs comes to about $150,000, then HDB must be paying more than $150,000 for land from the Singapore Land Authority.
Or not. It is also possible that this is a Selective En-bloc Redevelopment Scheme (SERS) project, in which case, a good part of the cost would come from buying out the existing residents in the area to repossess the site, plus costs associated with demolishing the old buildings. In such a case, HDB would pay only a top-up Development Charge to the Singapore Land Authority to intensify the use of the land. If we make this assumption that it is a SERS project, the costing gets a lot more complicated; too complicated to discuss here without having to make innumerable assumptions. This, frankly, is yet another reason why HDB’s refusal to release details is a blatant case of frustrating public debate and accountability.
Either way, whether HDB is paying for a fresh piece of land or paying a top-up charge to intensify land use, a biggish sum of money goes to the Singapore Land Authority. Mah admits as much:
In a fresh rebuttal yesterday, Mr Mah said Mr Low is “well aware” that land in Singapore is valued by the chief valuer and the proceeds go into Singapore’s national reserves.
“We are very careful in how we manage the value of land,” he said.
— Sunday Times, 17 April 2011, ‘Bad idea to lower cost of land’
There you have it. It works like this: When you buy a new flat from the HDB, you deplete your present and future savings paying for your flat. The money you pay goes to the HDB. Part of it goes to pay for the actual construction of the block, but a large (though indeterminate because of lack of data) part of it goes ultimately to the Singapore Land Authority based on a notional value of the land your block sits on. That money that is paid to the land authority is considered part of the national reserves.
In short, your personal savings have been sucked out and piled onto the state’s savings.
Low’s query is over how that notional value is arrived at by the Chief Valuer. The government says it is based on “market value”. The consequential questions would naturally be (1) how is “market value” determined, and (2) should it be based on market value? That’s another extremely complicated debate which I won’t go into here.
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Of course, the government is never going to admit that they have sucked away all your savings. What they say instead is that your liquid savings (present and up to 30 future years’ worth depending on the term of your mortgage) has been exchanged for an asset.
There is nothing wrong with giving Singaporeans an asset, and even less so in making sure that asset grows in value, said the minister, who has been in charge of housing since 1999.
‘I want to say we are proud of the asset enhancement policy. The policy is what has given almost all Singaporeans a home of their own, a home that is also an asset.
‘It is an asset that grows in value over time, with the growth of the economy and also with all the upgrading programmes that the Government has put in place,’ he said.
— Straits Times, 15 April 2011, WP’s housing proposal irresponsible, says Mah
Here we go again. I argued recently that 99-year leaseholds cannot keep rising in value indefinitely. For a minister to make this claim once again is in fact the irresponsible thing to do. When the HDB says your money buys this “asset” that will keep going up in value, it is nothing less than an invitation to walk into a chamber of smoke and mirrors.
There is one last bit that I think is also worth mentioning. The Sunday Times quoted Mah as saying:
“That is precisely what the elected presidency was meant to do, to protect our reserves and prevent political parties, during election time, from coming up with all sorts of promises.”
Mr Mah noted that WP’s manifesto also proposes that the elected presidency be abolished.
I will humbly suggest that there is another way to look at it: After the giant vacuum cleaner known as HDB has sucked out all your personal savings and deposited it into the national reserves, the key to all this hijacked money is given to the elected president who swallows it. It sits in his large intestine until he agrees to move his bowels.