By Leong Sze hian

According to the Housing Development Board’s annual report, the deficit for FY2008/2009 has almost doubled to $2.12 billion from $1.08 billion in FY2007/2008 – due mainly to an increase in Expenditure from $4.25 billion in FY2007/2008 to $5.23 billion in FY2008/2009.

I am puzzled by the Income Breakdown chart and table on page 4 of the financial report as there appears to be no item that reflects the sales proceeds of flats – shouldn’t this possibly be the largest item of income?

What does the Sale Proceeds figure on page 14 amounting to $1.2 billion represent? The segmental information on page 57 ‘explains’ this as being made up of Home Ownership ($1.06 billion), Residential Ancillary Functions ($149 million) and Agency and Others ($8 million). This figure appears to be quite small though, considering the number of flats and commercial properties that the HDB sells.

What is the Cost of Sales (page 14) amounting to $1.15 billion made up of? Is it the cost of construction, land and so on? Again, the segmental information on page 57 only offers the breakdown as Home Ownership ($993 million), Residential Ancillary Functions ($194 million) and Agency and Others ($8 million) – with a recovery of $43 million in Eliminations.

Page 57 of HDBs Annual Report


Page 57 of HDB’s Annual Report

The item with the largest increase in expenditure according to the report (page 5) was the cryptic ‘Provision for foreseeable/unrealised loss for properties under development/for sale’ which increased from $784 million in FY2007/2008 to $1.24 billion in FY2008/2009.

How is it possible for the HDB to suffer losses when it develops properties (flats) expressly for sale?

It is interesting that on page 7 it says, “The Mortgage financing segment reported a deficit of $18 million this year, as compared with a surplus of $37 million last year. The change from a surplus last year to a deficit this year was mainly due to the increase in allowance for impairment losses made in respect of non-performing mortgage loans.

So what exactly does this mean? Has the number of people who could not pay their HDB mortgages sky-rocketed? So then how many are in arrears? How many have defaulted and have either had their flats repossessed or been forced to sell in the open market?

It would appear that the HDB does not account for the proceeds of flat sales as income, like say a commercial developer, but instead only considers the interest of 0.1 percent on the loans given to flat buyers – i.e. 2.6% HDB concessionary loan minus the 2.5% CPF Ordinary Account interest rate that at which it borrows from the Government (as well as other loans from the Government).

Is this one of the reasons possibly why the HDB is perpetually in deficit? Grants to home buyers are shown as expenditures, but if the price of flats increases more than the grant amount, is it really a grant or subsidy?

The Government gives grants to HDB in order to fully offset its deficits. However, without the specific breakdown of the cost of building flats, the cost of land, and other additional costs, it may be impossible to determine how much profit, if any, the HDB makes from the sale of flats.

Similarly, under Capital Expenditure (page 6), the largest amount incurred was for the purchase of Land at $1.72 billion. However, without the benefit of matching actual land costs to construction costs, other costs, and the actual sales proceeds it provides hardly any meaningful information. For illustrative purposes – if the $1.72 billion for the purchase of land in FY2008/2009 actually refers to land costs to build flats, with estimated flat sales in the billions of dollars a year, is the HDB actually taking ‘profit’ under the guise of its so called ‘market subsidy’ pricing policy?

On page 47, it says that the ‘Cost of Flats’ was $539 million – does this mean that the construction cost of flats was only this much? If so, then relative to the purchase of land at just $1.72 billion, does it mean that the HDB, in a sense, takes a ‘profit’ from the sale of flats in this regard? In this connection, the land costs may very well be an arbitrary figure dependent on how much the government decides to price the land that it sells to the HDB for public housing.

Page 47 of HDBs Annual Report


Page 47 of HDB’s Annual Report

The ‘Late payment charges for mortgage loans’ on page 41 of about $44 million in FY2008/2009 is also noteworthy. What does this mean? Either there are a lot of people who make their payments late or the late payment charges may be quite high. Shouldn’t we have the breakdown as well for more details?

Page 41 of HDBs Annual Report


Page 41 of HDB’s Annual Report

In the accompanying document to the financial report, entitled Key Statistics for FY2008/2009, ‘Approved applications for financial assistance measures’ was tallied at 5,236 applications. How many applications were not approved? How many flat dwellers in total (including existing and not just the 5,326 new applications approved in just one year) are under ‘financial assistance measures’?

Page 6 of Key Statistics of HDBs Annual Report


Page 6 of Key Statistics of HDB’s Annual Report

Finally, what incentive is there for the HDB to be run more efficiently if its deficits are always offset by Government grants – to the tune of about $20 billion since its inception in 1960?

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