Housing Development Board New pricing framework (2)
1. Many people get the impression that the prices of new HDB flats are too high and are unaffordable.

2. This impression is probably wrong, for the following reasons:

a) The posted prices may appear high, but should be reduced by the government grants.

b) The price of a smaller flat (which is what they need now), or located in a new town, is lower.

3. It is a matter of selecting a suitable flat to meet the family budget.

4. This perception is compounded by the confusing and non-transparent pricing structure adopted by HDB and also for the government grants.

5. I suggest the following approach to give a different impression:

a) The price of a HDB flat should be set at 4 years of the family income.

b) A family income of $6,000 a month (excluding employer CPF contribution) will get a 4 room HDB flat of 90 sq m in a new town. This would cost $288,000.

c) The price for other flat sizes will be proportional to the floor area, i.e. $3,200 per sq m. A 3 room HDB flat (65 sq m) would cost $208,000 and a 5 room HDB flat (110 sq m) would cost $352,000. There is an implied subsidy for the smaller flats, as the actual cost is not strictly proportional.

d) The price will vary from the base price, according to height and facing. For a flat located closer to the city, the price will increase by a factor that is based on the market differential (maybe up to 50% more).

e) The price of the HDB flats will be adjusted yearly according to the change in the median income of the population.

f) Under this pricing structure, there is no need to provide government grants to reduce the prices that are deemed to be too expensive.

6. When the prices are determined fairly according to this framework, and the buyers know that the prices in the future will be stable, they do not need to worry about timing their purchase to get a good price. They should focus on selecting the flat size and location to suit their needs. They may also choose the height and facing, but this is likely to be less important.

7. Currently, it takes 2 years for the flat to be completed. (During the pandemic, the waiting time was increased, due to the stoppage of construction work). It should be possible to reduce the construction period to 1 year (instead of 2 years) by adopting more efficient building methods.

Tan Kin Lian


 

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