Home News Did the government spend or made $28 billion from selling HDB flats?

Did the government spend or made $28 billion from selling HDB flats?

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By: Leong Sze Hian

I refer to the article in the economist titled ‘Housing in Singapore – The high life‘ dated 8 July which referred to the Singapore Government as saying that it paid over $28 billion in grants to Housing & Development Board (HDB) since its founding in the 1960s.

“It is also a good deal for the state. In 2015-16 the treasury put aside S$1.8bn, or 2.4% of the national budget, for housing, which was enough to cover HDB’s annual deficit. (The agency itself had a budget of S$17bn; it benefits from government loans but also borrows from banks and the bond market.) The government says it has paid a little over S$28bn in grants to HDB since its founding in the 1960s.”

Despite questions in Parliament and newspaper forums over the years – Singaporeans have never been given the breakdown of HDB BTO prices into land and construction costs. All we know is that HDB, a statutory board of the Singapore Government, pays market rate for the land it buys from the Singapore Land Authority (SLA), another statutory board of the Singapore Government.

The HDB has said that to “not even to factor in land costs at all for the development of public housing, is tantamount to a raid on Singapore’s national reserves”, but this practice raises the question of if there are any other country in the world which charges land for public housing at market rates.

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But according to the HDB’s annual report 2015/2016, it had capital expenditure (cash outflows) of $4.9 and $5.1 billion for land and buildings. Since the ratio of land to construction costs as indicated in the annual report is 49 : 51 percent – let’s for the purpose of illustration assume that about 49 per cent of the HDB BTO prices are for land (owned by the government).

So, “the S$1.8bn, or 2.4% of the national budget, for housing, which was enough to cover HDB’s annual deficit” – may from a cashflow perspective – actually be kind of like a profit (estimate for the purpose of illustration) in selling HDB BTO flats (if land was not charged at market rates). Similarly, and conceptually – does it mean that the HDB may have made about $28 billion (estimate for the purpose of illustration) since its founding?

In their article, the economist also said: “Handouts linked to housing are one reason Singapore manages to do without a conventional tax-funded pension scheme. The theory is that almost all Singaporeans will own apartments outright by the time they finish working, in addition to having savings of their own. Those willing to downsize upon retirement—or “right-size”, as the government likes to say—do best.”

But this concept of “asset enhancement” may now be demolished by the recent remarks that the value of HDB flats will decline to zero at the end of the typical 99-year lease.

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