Why We Peg To Market Rates

[trulysingapore 0]

I refer to the letter “Why we peg to market rates” published in Today on 25 Sept 2009.

Mr Lourdesamy wrote that the HDB incurred an average deficit of $1,045 million a year on home ownership programmes. However, if we refer to Page120 of HDB’s 2008 annual report, $625,102,000 was spent on “upgrading, improvements and demolition”. Surely upgrading doesn’t count as home ownership but perhaps home improvement instead? It gives the false impression that the HDB is subsidising new homes at a cost of $1,045 million when in actual fact the amount is much less.

On the same page is another $783,757,000 item called “provision for loss for properties under development / for sale”. Presumably, HDB foresees the price of unsold HDB flats to fall short of construction costs by $783,757,000. But by claiming to price HDB flats at market levels, its hard to imagine how HDB can foresee prices of unsold HDB flats to dip below costs by so much.

If we put these two items aside, HDB actually made a profit of $363,859,000 instead.

Instead of repeating its market pricing rationale yet again, it would be more helpful if HDB can address the issue of positive feedback between resale flat price and new flat price. As market price of resale flats soar, so too does the price of new HDB flats since the latter are pegged to market prices. But the increasing price of new flats makes them less attractive to buyers and does nothing to abate the demand for resale flats and so demand for resale flats continues and the whole cycle repeats itself.

The price of many resale flats have jumped by $100,000 in a matter of one, two years. Can HDB explain why the $30,000 government subsidy is considered ’significant’ compared to a typical $100,000 rise in flat prices? HDB claims that market pricing allows all to receive similar subsidies regardless of market movements. But the $30,000 subsidy is not even enough to make up for the loss incurred by a would be buyer when the market goes up by $100,000.

HDB claims it is illogical for Mr See to attribute property price increases to the HDB because the recent asset appreciation is not unique to Singapore. This is like saying that the banks in Singapore are not responsible for losses arising out of the recent Lehmann Brothers collapse since similar losses have occurred elsewhere too. But banks here have been ordered to put their houses in order. Surely there is something that the HDB can do as well?

HDB should explain what being below the international benchmark of 30% means in terms of how much one gets to keep in one’s pockets. For example, HDB has demonstrated that a 3-room flat costing $150,000 and sold to a household with income of $2,000 only requires a monthly instalment of $460 and a resulting ratio of 23%. But for a typical family of four with a monthly sustenance need of $500 each perhaps, the total cash required is already $2,000. Where is the family going to find money for the $460 monthly instalment? So the 23% ratio is meaningless as far as one’s own pockets are concerned.

[Kalidor 0]

OK... I agree with the last part about the ratio being meaningless.

Edited October 25, 2009 by Kalidor

[trulysingapore 0]

OK... I agree with the last part about the ratio being meaningless.

try to go through the other parts too. they make sense too. you can check their annual reports yourself. the figures are all there for us to see.