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HDB paid $2,000psm for land for public housing in mature estates

by • February 25, 2019 • HDB home loanComments (0)1086

The Minister for National Development in responding to a parliamentary question by a Workers’ Party (WP) member, has revealed that the HDB paid $2,000psm for land for public housing in mature estates.

The Minister was responding to WP Member of Parliament (MP) Muhamad Faisal Abdul Manap who asked the Minister:

“from 2015 to 2018, what is the average sale price for land sold to private housing developers and HDB for development of public housing in mature housing estates, respectively.”

The Minister in responding to the WP MP on Feb 13, said:

“The Government sells residential land to private residential developers through the Government Land Sales Programme. For public housing developments, state land is sold to HDB at the market value assessed by the Chief Valuer. The valuation is done in accordance with market conditions and established valuation principles.

Land for public housing has a lower valuation compared to land zoned for private housing. Excluding the Core Central Region (CCR), the average price of land paid for private housing developments bought through the Government Land Sales Programme between 2015 and 2018 was about $7,000psm. In the same period, HDB paid an average of about $2,000psm for land for public housing in mature estates.”

The parliamentary answer is a rare one where the Government revealed what HDB paid in average sale price for land sold for development of public housing.

HDB paidThe last time the Government released such figures on what HDB paid in average sale price for land sold for development of public housing was about 30 years ago, in 1988.

Then-Minister for National Development, Mr S Dhanabalan said the HDB paid $940psm in average sale price for land sold for development of public housing in Toa Payoh – a mature estate. At that time, the Minister was under intense pressure from opposition politician Mr Chiam See Tong who had charged that the HDB used market value to make profits after compulsorily acquiring land “very cheaply”.

In 30 years, what HDB paid in average sale price for land sold for development of public housing in mature estate has gone up significantly – from $940psm to $2,000psm.

The ticking time bomb of the 99-year-leasehold HDB flats

After Singapore separated from Malaysia in 1965, the Government bought up all vacant land at rock bottom prices. Before 1985, HDB paid for and acquired its own land to develop.

But in 1985, HDB made a major change to its accounting system which resulted in the board returning all undeveloped land it was holding to the Singapore Land Authority (SLA), which manages all state land. HDB then started its practice of buying state land at market rates, which continues today. The rationale given was that it made transparent the value of government subsidies for public housing.

What became contentious after HDB adopted this new accounting system were the questions of how SLA determined how much HDB should pay to build new flats, and why not use a cost-plus model.

Those that opposed the new accounting system for undeveloped land for public housing contended that if land cost is reduced, new HDB flats can indeed be cheaper. This would benefit young couples and new flat-owners, but could disadvantage existing HDB owners, as it would have an impact on prices of completed flats.

HDB chief suggests buyers should pay less for resale flats with shorter leases

A study by property consultancy DTZ in 2013 revealed that land price now makes up about three-fifths of development cost on average, up from two-fifths in 2008. The study added that increasing land price outpaced the rise in both home prices and household incomes. In noting that land prices have also risen faster than salaries, DTZ cautioned that if land costs keep soaring, the trend could push up selling prices of homes.

In November last year, the Minister for National Development, Lawrence Wong, failed to give a straight answer to Mr Faisal’s parliamentary question of how land cost amount (which is included in the sale price of a new HDB flat) is tabulated.

In his reply, Mr Wong said:

“The key consideration in the pricing of HDB flats is to keep public housing affordable. That is why new HDB flats are priced substantially below the prices of comparable resale flats. In particular, the average monthly instalment to income ratio for first-timer families buying new flats in non-mature estates is less than a quarter of applicants’ monthly income. This means that homebuyers will require little or no cash outlay.

The selling prices set by HDB for new flats cannot cover their development costs, which include construction and land costs. That is why HDB incurs significant deficits every year in its home ownership programme.

On top of the subsidised selling price, HDB also provides housing grants of up to $80,000 to give more help to lower and middle income families buying their first home.”

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