HDB gives BTO cost breakdown; says pricing not linked to development cost

THE pricing of new public housing flats is “separate and independent” of development costs and does not provide for a profit margin as a private residential project would, the Housing and Development Board said on Wednesday (Dec 7).

Instead, built-to-order (BTO) flats are priced to ensure they are affordable in relation to residents’ household incomes and their mortgage servicing ability, HDB said.

The statement, jointly issued by the Ministry of National Development and the HDB, follows queries from the media and questions raised in parliament over the affordability, pricing and development costs of new HDB flats.

For the latest financial year FY2021/22, HDB incurred S$3.17 billion in land costs for new flats completed in the year, 74 per cent higher than the S$1.82 billion chalked up in FY2020/21. Building development costs stood at S$2.08 billion in FY2021/22, about 80 per cent more than the S$1.16 billion in the previous year.  

The total cost of flats sold and completed (that is, with keys issued to buyers) stood at S$5.35 billion for 13,506 units in the latest financial year (including S$102 million spent on acquiring flats from ex-flat owners). This was up from S$3.07 billion for 8,124 units in the year-ago period (after S$88 million in flat acquisition costs). 

Calculations by The Business Times based on the HDB data released on Wednesday (Dec 7) put the average cost per unit of a completed BTO flat at S$396,000 for FY2021/22. The average cost for newly completed BTO flats in FY2020/21 was S$377,000, and for FY2019/20, about S$352,000.

The data also points to average construction costs of about S$154,000 per BTO flat completed in FY2021/22, compared to about S$143,000 in the year before, and roughly S$138,000 for FY2019/20.  

In its statement, the board said it pays “fair market value” for land earmarked for public housing, and at a price that is lower compared to the land price of private housing in the same area.

“There are differences between land used for public vis-à-vis private residential use,” HDB said. “Land used for public housing is meant for providing affordable homes to Singaporeans, and buyers of public housing flats are subject to more restrictions than flats sold in private residential projects. It is lower compared to the land price for private housing in the same locality.”

In pricing new BTO flats, HDB said it first establishes the “market value of the flats by considering the prices of comparable resale flats nearby”. This is influenced by prevailing market conditions and the flat’s individual attributes, it said. 

A “significant subsidy” is then applied to the assessed market value to ensure that the new flats are affordable for flat buyers, keeping its price “totally separate and independent from the BTO projects’ development costs”, added HDB.

“This was the case even in the past two years where construction costs had increased by almost 30 per cent,” it said.

The average selling price of BTOs in non-mature estates rose by 16 per cent between 2012 and 2022, from S$311 per square foot (psf) to S$362 psf; while that of mature estates climbed 22 per cent in the past decade, from S$479 psf to S$584 psf. 

In that time, the median resident employed household income also grew by 26 per cent. This shows that the increase in BTO flat prices kept within the growth in resident household incomes, said HDB. 

Nicholas Mak, ERA Realty’s head of research and consultancy, noted that while this is true, the progressive income eligibility for the Enhanced CPF Housing Grant (EHG) remains the same - meaning that a couple with a monthly household income of above S$9,000 would not be entitled to any EHG for their BTO flat.

“Over time, as household income increases, fewer households will be eligible for the EHG. This begs the question of whether HDB should raise the income ceiling for the housing grant,” he said.

New flat prices will also differ across the various housing estates and “will not be uniform”, taking into account attributes and location, HDB said. “This also ensures fairness for the different buyers as these HDB flats can be bought and sold in the resale market after the 5-year Minimum Occupation (MOP) period, and the locational and other flat attributes will be reflected in the resale prices then and any benefits will accrue to the flat owner/seller.”  

In the latest BTO exercise in November, where a bumper 10,000 flats were offered for sale, indicative prices varied from a S$248,000-S$312,000 range for a 4-room flat in the non-mature estate of Yishun; to S$551,000-S$695,000 for a 4-room flat in the popular Queensway neighbourhood. Four-room flats offered under the Prime Location Housing model at Ulu Pandan were priced in the S$546,000-S$725,000 range.

In its statement yesterday, HDB reiterated that the total development cost, including construction and land costs, cannot be fully covered by the selling prices of flats since flat prices are highly subsidised. “That is why HDB incurs significant deficits every year in its home ownership programme,” it said. 

In its latest financial report for FY2021, HDB posted a record high deficit of S$4.4 billion, driven by a shortfall on its public housing programme that amounted to S$3.9 billion. 

Huttons senior director of research Lee Sze Teck noted that this also means that as HDB ramps up its BTO flat-building programme in 2022 and 2023, its losses or deficits are expected to mount further.

HDB said that affordability is determined through benchmarks such as the mortgage servicing ratio (MSR) – which indicates the proportion of monthly income used to service mortgage instalment payments – and resident household income. 

The agency noted that in the first half of 2022, 90 per cent of flat buyers who collected their keys to their new flats in non-mature estates as well as 80 per cent of these buyers in mature estates had an MSR of 25 per cent of lower – meaning that a vast majority of buyers can service their HDB loans using their monthly Central Provident Fund contributions, with little or no cash outlay. 

“HDB will continue to monitor housing market conditions closely and remains committed to keeping public housing affordable and accessible to support the home ownership aspirations of Singaporeans,” it said.

ERA’s Mak highlighted that HDB’s pricing approach means that new flats will remain affordable for buyers, and this has proven true so far with around 80 per cent of the population living in Singapore’s public housing.

But this will only hold if the government continues to provide subsidies, or market discounts, for new flats, he added. “How long will this continue though? What if the government one day decides to scale back on these subsidies?”