Papsicles 2

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.

—, 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.

* * * * *

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.

— ibid.

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.

22 Responses to “Papsicles 2”

  1. 1 Yamasam 17 April 2011 at 18:47

    This further reinforce the need for the Freedom of Information Act as proposed by the WP in their manifesto.

    Only when information of land costs and construction costs are made available will we be able to debate this topic meaningfully.

    But this govt is afraid of releasing such information because they not be able to justify the high land cost, and may even be afraid the opposition is able to come up with a more equitable solution which will embarrass them further.

    • 2 prettyplace 18 April 2011 at 12:44

      Another important factor is to allow the said administration or the current govt to only sell a limited amount of land or 1 National asset in 1 term.
      Currently, they do not practise this approach. This practise is in place in Australia, where the current govt is checked.

      If things keep going this way, Singapore & Singaporeans will be sold out. The cost will only be incurred by us and the next generation.

  2. 3 MrsK 17 April 2011 at 18:48

    //It sits in his large intestine until he agrees to move his bowels.//
    Hilarious, the best summary I’ve read so far! Is that why they keep displaying all that Irritable Bowel syndromes (IBS);-) This is enlightening !

  3. 4 Alan Wong 17 April 2011 at 19:08

    Our unaffordable Housing Minister must have also given the lie away when he kept insisting that his cooked-up housing deficit is S$1 billion yearly. It doesn’t take a genious to realise that the figures for his deficit simply do not reconcile with the no. of units being built each year.

    Unless he is saying that HDB has a whole bunch of expensive idiots whiling their time away when we have less units to build for a particular year, Mah Bow Tan has got to realise that it is so unconvincing to just tell us a deficit when he has no set of books to show it.

    Inevidently, he is also digging his own grave when he challenged WP to produce some forecast info when he himself refused to show us his own actual books. Even if he wants to lie or cheat, remember only the set of figures can tell us the real picture, not his word of mouth.

  4. 5 prettyplace 17 April 2011 at 23:06

    Hahaha, what a final diagram, Naughty you, being yourself again.

    MBT has opened his golden mouth at the most inopportune moment.
    I hope it picks up momentum, because there is a conflict of interest, on the one hand HDB being a provider of public housing.
    On the other hand SLA curcumventing the system to milk the public.

    MBT got the people stuck, now he got the PAP’s into trouble as well.
    Incorprating SERs into this housing equation, it seems MBT forgot to mention much about the long term outlook in the concept plan. The concept plan is a 30 yr plan for Singapore.

  5. 6 VoteOpposition 17 April 2011 at 23:33

    Or someone does a ’24’ Jack Bauer field surgery on him!

  6. 7 Idealist 18 April 2011 at 00:16

    A very well written post, clear in its explanation of govt policies in relation to our housing costs.

    Once a person is locked into such a financial system, he or she will unconsciously want to maintain such a system and vote the party in power because of the innate fear of losing one’s money or assets. In Singapore the reality of Alex’s clear exposition appears to drive Sporeans further into the arms of the ruling party. MBT’s revelation of the link between housing costs and our reserves should wake us up from our slumber.

    I am beginning to see the importance of CSJ’s assertion that the HDB needs to open their books for a full scale and indepth investigation. And this can only be done by a multi party or dual party Parliament.

  7. 8 Idealist 2 18 April 2011 at 01:42

    Well written article. I have a couple of questions for the PAP? How much did the SLA pay for the land which they “own”? Does the land not belong to the Singapore people? Did they not get it pretty cheaply under the Land Recqusition Act?

    Why do we need to pay the elected President $4 million dollars to safeguard our reserves? Cn we not hold a referendum instead whenever the reserves need to be used? If I smart enough to vote the correct party into office (aka PAP), surely i am smart enough to know what to do w the reserves (aka as our/my money)?

    I dont deny that the value of my property goes up, but simply put,i sell expensive, i also buy expensive? What is the purpose of owning a house which is worth millions, but which i can never realize the value of? Simply put, if i sell my house away, where am i suppose to stay now?

    • 9 Anonymous 18 April 2011 at 09:49

      Actually, under the Constitution, we may be “smart enough to vote the correct party into office” but we (or at least more than 90% of the Singapore population) are not “smart enough to know what to do w the reserves”.

      Article 19 which states the qualifications and disabilities of the President makes the financial expertise of a person one of its priority. In fact, the Andrew Kwan incident was over the fact that he was “only” a CFO of JTC but not a CEO which will grant him automatic qualification. Why he gets paid $4million a year is something which baffles me too.

  8. 10 Grace 18 April 2011 at 03:49

    This may be completely off topic, but wait. The late Ong Teng Cheong wanted to know what he was protecting for/from the PAP. Don’t recall him ever finding out.

  9. 11 hahaha 18 April 2011 at 09:27

    This is only the first part. When MBT says your asset value is only going to enhance and increase, it also means that the land value will also continue to increase, and hence more reserves are coming!!! Which means, there will be an even more powerful vacumn cleaner to swipe all Cash and CPFs from Singaporeans, all for the veiled purpose of having a roof that has a 99yr old validity.

  10. 12 Gard 18 April 2011 at 09:52

    The politically correct way of explaining the ‘vacuum cleaner’ is to trade your liquid assets for steel-and-stone.

    The economic speak is, people are giving up their mobility – possibly the most important asset anyone can possibly own in a fast-changing world. Just think about the difference between someone with liquid assets and another tied up in loans and mortages:
    i) freedom to change employment
    ii) freedom to take on risks (of entrepreneurship)
    iii) freedom to invest in diverse assets
    iv) freedom to move geographically to another country
    v) freedom to vote the incompetent out of office becausse he is not holding your assets hostage

    Last but not least:

    vi) freedom to discern that your value in this life is not in how much you own, but how much you invest in other people

  11. 13 botak 18 April 2011 at 12:01

    I wish this article can be published in ST so more people eyes can open big big before deciding which party to vote

  12. 14 More Property Tax 18 April 2011 at 17:02

    I do not want the value of my one and only HDB flat to increase as in the end I have to pay more in property tax!

  13. 15 Chanel 18 April 2011 at 17:59

    LKY recently dug a grave for MBT when he told us that “your HDB flat will NEVER decline in value”. Does this mean that all flat owners are effectively given a free put option???

    Now MBT is building his own coffin by stupidly rebutting WP’s manifesto on housing.

  14. 16 Robert L 19 April 2011 at 20:51

    Very sorry to intrude, dear readers, but all these talk of “Land Cost” and yet no mention that the land is still not owned by the buyers of HDB flats.

    When private developers sell their homes, the buyers collectively own the parcel of land.

    In contrast, when HDB sells their flats, the buyers do not own any part of the land, not even the Lift Lobby or the corridor outside their door. For example, it is well-known that HUDC owners have to pay a land premium if they want to privatise their estate. And note that it is a separate matter which should not be confused with topping up the lease period of their estate.

    For HDB and not HUDC flats, we do not have any example of paying for the land, it is simply not in consideration. In point of fact, the authorities can do anything on that piece of land, as long as it complies with relevant codes. All kinds of things can be added to the void deck or surrounding land without any permission from the owners of the flats sitting on that land. Night market stall-holders can also intrude on the land as well as into the void deck. Payment is made to the Town Councils and not to the flat owners.

    So this issue of Land cost becomes a can of worms that the Minister would prefer to not talk about. Once the Minister gives a figure for the Land cost, residents would take ownership of the land and demand to control the usage of the land and the public areas.

  15. 17 T 20 April 2011 at 16:01

    /// Robert L 19 April 2011 at 20:51

    Very sorry to intrude, dear readers, but all these talk of “Land Cost” and yet no mention that the land is still not owned by the buyers of HDB flats.

    When private developers sell their homes, the buyers collectively own the parcel of land. ///

    Not quite. Only true for freehold or 999-year leasehold, or estate in perpetuity. Most of the private developments are now 99-year leasehold (thanks to the government acquiring the land and selling them off as leasehold). So, they are identical to HDB land – both are 99 years.

    • 18 yawningbread 21 April 2011 at 00:44

      Please get your facts right when you participate in Yawning Bread’s discussion forum. Private 99-year leasehold include land rights, at least for the duration of the lease.

      • 19 Robert L 23 April 2011 at 18:37

        Thank you, Yawningbread.

        That reader who posted that comment on my post is obviously one of many readers who are still fuzzy over the lack of land rights in HDB housing. It is precisely my concern over this lack of public knowledge that made me intrude into this article in YB and pointed out the issue.

        To recap, owners of private housing, no matter whether 99-yrs or 999-yrs, have collective ownership of their estate.

        In contrast, owners of HDB flats have no ownership even of their corridors, staircase, lift lobby, and the roof of their building, let alone the outdoor landscape and parking spaces. Not for 99 years, not for a day, not for a second.

        Got to be crystal clear, sorry to be so long-winded.

  16. 20 Andrew 23 April 2011 at 16:01

    @Gard, I agree with your post on 18 April 09:52 regarding the very tangible benefits of going debt-free. Perhaps the debt that the average HDB leaseholder bears is the ultimate fear that drives him to vote “safely”, keep his head down and hope his children have just enough earnings to get trapped in this “asset enhancement” bull shit.

  17. 21 Eric Lee 1 June 2012 at 02:40

    With the fortune of hindsight, I want to tell you which HDB flat it is that costs $99.8 million to build.

    The development is SERS, Commonwealth 10.$FILE/siteplan.htm


    So total selling cost of 774 units of Commonwealth 10 “Public Housing”, even when taking the lowest selling cost after discount, is:
    47 x 2rm x $127,000 = $5,969,000
    326 x 3rm x $179,000 = $58,354,000
    323 x 4rm x $288,000 = $93,024,000
    78 x 5rm x $445,000 = $34,710,000
    TOTAL: $192,057,000

    How much was the construction contract?

    How much profit HDB made?
    $92,257,000 AT LEAST.

  18. 22 Eric Lee 1 June 2012 at 02:48

    in case you are wondering whether Commonwealth 10 is actually the Queenstown Redevelopment Contract 30, the following is the architectural document for Queenstown RC30:

    inside, the layout of RC30:

    Compare that with Commonwealth 10 site plan:$FILE/siteplan.htm

    Perfect Fit.

    Wonderful thing, internet. 😛

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