Singapore Pricing of new HDB flats
There is a lot of controversy over the pricing of new HDB flats (also know as built-to-order or BTO flats).

Recent figures released by the government showed that the land cost comprises about 60% of the total cost, while construction and other costs takes up the remaining 40%.

The government provides a "subsidy" and prices the new HDB flats at below cost. I do not know how much is the subsidy, but it appears to be less than 15%. After the subsidy, many people still complained that the prices are too high and unaffordable.

The government also provides additional grants to eligible home buyers, based on a complex system that depend on many factors peculiar to the individual buyers.  I find it difficult to follow and understand the grants. But the figures released by government, after applying the appropriate grants, show that the actual prices are "more affordable".

Some people, which I will describe as "the other side", argued that the government should not apply the market value of the land, as the land were acquired at extremely low cost in the past.

The government ministers argued that it would be unfair to use a lower value, as it would badly impact the value of the existing HDB flats already owned by the earlier buyers.

It appears to me that "the other side" wants the new HDB flats to be priced lower, so that they can enjoy a capital gain when they sell the flat in the future, as the previous generation had enjoyed. 

To make the issue more complicated, some people argued that the "owners" do not "own" the flats, but they are just "lessees". I find this argument to be not helpful.

I will now give my personal view on this controversy. I do not wish to take any side - not for the government, nor for the "other side". 

I want to suggest that both sides are giving answers to the wrong question, which is "what is a fair price for a new HDB flat".

In my view, the correct question should be - how can the government provide affordable housing to the people.

It should not be the role of government to help people to make a capital gain on "owning" a HDB flat. This was the approach taken in the past, but it is the source of the current controversy.

To provide affordable housing, the government should offer suitable flats on rental that takes up 20% (say) of the median family income. The rent can be adjusted every one or two years according to changes in the median family income. The rent is market related, minus the speculation in property prices. 

As the government owns most of the vacant land in Singapore, they can build the affordable rental flats to meet the demand of the population, especially to the young people who start families every year. 

The rentals can still yield an attractive source of recurring revenue for the government. It is not as large as land sale, but it is more sustainable and stable.

People who believe passionately in investing in property can still opt to buy a HDB flat or private property and pay the market rate. They cannot complain that it is unaffordable, as they have the choice of renting an affordable HDB flat. 

I wish to offer this idea as a solution to the controversy.

Tan Kin Lian
 

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