This is a controversial topic as most Singaporeans are puzzled at how HDB can incur losses when it actually sells the flats at fairly high prices for public housing. Let’s dive a little deeper and try to uncover the mechanics behind it.
1. HDB Has To Buy The Land From Singapore Land Authority (SLA)
While both are technically government entities, there is a formal procedure to follow as SLA manages the land bank of Singapore. For private housing development land, developers go through a closed bidding process and typically the highest bidder wins the land parcel. When it comes to public housing sites, HDB buys the state land from SLA at market prices determined 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 than land zoned for private housing.
2. How does HDB price the new BTOs?
HDB determines the prices based on 3 main factors which are project location, flat attributes and timing. Hence the more favourable the conditions, the higher the prices will be. However, regardless of those conditions, HDB is committed to price the new flats below comparable resale flats nearby.
3. Subsidised flat prices from CPF housing grants
First timers are eligible to get up to $80,000 in housing grants for BTOs and up to $160,000 for resale HDB flats. These grants will help homeowners to further reduce their financial burden. For example in the recent Central Weave @ AMK BTO, some $20 million in housing grants were extended to eligible buyers.
HDB pays a lower land price of $2,000psm for public housing land plots with a difference of $5,000psm in the period of 2015 and 2018. compared to land for private housing development. As HDB buys the land at market rates, we are already seeing 5-room flats at the recent BTO launch, Central Weave @ AMK, priced close to $900,000. Without factoring in the land cost, HDB’s profit would be about $230 million for the mentioned BTO project otherwise its overall loss is approximately $270 million.
Summary - Is HDB a Loss Making Entity?
HDB is a government entity with more than 5,000 employees, so how does it pay for operating expenses if it incurs huge deficits annually? The answer is HDB receives a Government grant to cover its deficits and expenditures. With the grant, HDB is able to balance its finances and continue to operate viably.
So folks, don’t get too uptight when HDB reports a deficit every year.