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16 Mar 2024  (2588 Views) 
Tan Kin Lian - Perspectives

Build HDB flats in advance of demand
Between 1960 to 1980, the HDB flats were sold at affordable prices and the owners had to sell back the flats to HDB at the posted prices. The HDB posted prices reflect the economic situation, for example, changes in income level, but do not reflect market fluctuations due to market supply and demand. That was a good system.

After 1980, the owners were allowed to sell the HDB flats in the market to eligible buyers after the owners have occupied the flat for a certain period.

This had created a spiral of prices as the HDB flats became a source of profit to the owners. The prices have now increased to a level that is unaffordable to most people, so a complicated system of subsidy and grants was introduced to make them affordable.

The problem was exacerbated with the Build to Order (BTO) system which created an artificial shortage of HDB flats and a long waiting period. This caused the market price to spiral further.

One solution is to return to the old system of requiring HDB flats to be sold back to HDB at the posted prices. However, this solution may be too drastic and too difficult to handle now.

Another solution is for the HDB to increase the supply of flats, so that the prices will fall to its "fair" value. This fair value is reflected by the ability of the owners to pay from the flat based on their earnings. It could be about 3 to 4 times of the annual earnings.

The HDB flats will not fall below the fair values as the HDB can afford to keep the unsold flats, without unloading them on a weak market. They also have the option to rent out the flats.

The solution to the HDB dilemma could be just to increase the supply of flats, i.e. to build the flats in advance of demand.

As the prices fall to their fair values, the government can reduce the subsidy and the grants. This process can work out quite smoothly over time. Eventually, there will be no need for the subsidy and grant.

People who wish to speculate can buy a private property or go to the stock market. They should not speculate on the HDB market.

This solution does not require the HDB to change its current practice drastically. It allows the market mechanism to work its way to solve the current problems.

I hope that this approach will solve the HDB dilemma.

Tan Kin Lian

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