Reflecting on “Reflections” – A review of Mah Bow Tan’s book (Part 2 of 9)

This is a review from a statistical perspective, wherever possible, of the book “Reflections on housing a nation”, launched on 22 March. (You can read it here for free and save yourself ten dollars. – Editor)

Leong Sze Hian/

In Part Two (Housing Supply: Maintaining a Fine Balance), the Minister for National Development writes:

“ In response to the sharp recovery, HDB rapidly increased the offer of new flats from the earlier plan of 6,000 to 9,000 in the second half of 2009. For 2010, HDB raised its planned output by more than 30 per cent, from 12,000 to 16,000 new flats.

It is also prepared to launch up to 22,000 in 2011. At this rate, in just two years, we will offer more flats than what is currently available in Toa Payoh”

Build to order only?

In my view, perhaps the problem with the HDB may be that it is living in a world somewhat detached from reality.

Let me explain. If you are a property developer, and you want to wait until buyers buy all the units in your property, before you will start to build it – you may have gone out of business long ago!

In this connection, according to the National Development Minister’s interview with the Straits Times (‘33,000 is hell of a lot of unsold flats’, ST, Mar 23) – “There are about 33,000 uncompleted units that remain unsold, and that is ‘a hell of a lot of flats, said Mr Mah, enough to tide over the private property market for three years’”.

If private property developers adopt the HDB’s unique ‘no need to project for demand and supply’ BTO approach, the private property market may have exploded (in price) long ago.

Thus, the HDB’s BTO only, no ‘build to projected demand’ policies, may be one of the main contributing factors to our sky-rocketing HDB prices.

No need to project demand?

In any public or private goods or services, there must be planning to project demand and supply into the future, especially in the case of property, as it is now taking as long as five years to build a HDB flat.


Under the section “Provide Affordable Housing To The Masses”, The Minister wrote:

“Meeting first-timer needs: The Government’s commitment remains clear and constant –to provide affordable housing to the masses”

How can HDB flats be “affordable” when prices have more or less increased by double digits in each of the last three years, when the real median wage growth was negative in 2008 and 2009, and only 0.5 per cent last year?

The HDB Resale Price Index increased by 6 per cent , in the last four years, from 103.6 in 2007 to 172 in 2010.

The Minister went on to claim:

“HDB supports them (first-timers) by providing a CPF grant of $30,000 to $40,000 and a loan subsidy. Those with lower income can also qualify for an additional grant of up to $40,000”

You may have noticed that whenever grants are increased, the flat price is almost invariably increased more than the grant.

So, is the grant a subsidy?

With the HDB loan rate at 2.6 per cent, and HDB bank loan rates at typically around one per cent, how can a HDB loan still be called a ‘loan subsidy’?

Moreover, the maximum grant of $80,000, only applies to households with income not exceeding $1,500 buying a resale flat staying, with your parents or near them. How does a low-income family come up with the cash to pay for the cash-over-valuation (COV)?

Despite all the recent cooling measures, the median COV in the fourth quarter of last year was $23,000. Even the 2 and 3-room COV was $20,000.

“HDB must focus on helping young couples buy their first flats. But this does not

mean that we need to build a new flat for every new household. Why? Because some

households may buy resale flats instead of new flats for various reasons, such as location

and flat type”

The main reasons why even first-timers buy resale flats may be because of the HDB’s “never plan to project demand in the future” policy, applications always exceed flats launched, having to wait for at least about five years, for the delivery of your flat, etc.

Various HDB policies may also ‘force’ first-timers to buy resale flats, like exceeding the income ceiling, 30 months time bar if any occupiers had private property before, added your name to your parents’ HDB flat, etc.

Buffer flats?

The Minister then added:

“Some might suggest that HDB could go further and build a much larger buffer, or build ahead of demand to deal with market fluctuations“

The fact is that HDB has not had any buffer flats for many years!

“Ultimately, whatever the system of flat application, trade-offs have to be made between supplying too little to meet home buyers’ needs and supplying too much to the detriment of existing home owners or taxpayers”

How can HDB even use the statement “supplying too much”, when every flat launch is over subscribed, and every cooling measured it has tried, has failed to moderate rising prices?

All recent BTOs were oversubscribed – Punggol (7 times), Yishun (3 times), Choa Chu Kang (13 times), Sengkang (6 times), etc.

The ‘to the detriment of existing home owners’ may be overly cautious, as a new BTO flat will take about ten years to go into the resale market.

So, how would reducing BTO prices gradually under a cost-plus pricing policy, instead of its current market subsidy pricing policy which pegs new flat prices to rising resale prices, affect the overall resale market significantly in the short term, and cause prices to crash?

In my view, perhaps the crucial trade-offs is for the HDB to not try to have its cake and eat it too – make money by selling new flats at higher and higher prices and refuse to project demand and supply into the future, for fear that it may end up with unsold flats again like in the late 1990s.

Built wrong type of flats?

Arguably, the glut of unsold flats then, was primarily due to poor planning in having built the wrong type of flats – 5-room and executive flats. Had it built more 2 and 3-room flats instead, we may never have had the over-supply which contributed to one of the longest bear residential property market historically in the world, from 1996 to 2010.

End of Part 2

Also read Part 1 here

Mr Leong has beaten Mr Mah by publishing a book in 2008. It has no pictures but at 186 pages (with Chinese translation), is more value for money. You can buy it here!

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