In its annual report released yesterday (22 Oct), the HDB said it incurred an overall deficit of $1.717 billion in the financial year of 2017/2018, up from $1.189 billion in the previous financial year.
The major deficit came from an increase in the deficit for HDB’s home ownership programme, from $861 million previously to $1.383 billion in the last financial year.
HDB attributed this increase to more residential units being awarded and more sales completed. In other words, HDB is saying that the more HDB units sold, the more they would lose money. In the last FY, HDB sold 26,857 units – 5,407 more than in the previous FY.
Also, with more HDB units being upgraded under Home Improvement Programme, Neighbourhood Renewal Programme and Lift Upgrading Programme, HDB said that it now saw a bigger deficit of $639 million incurred in these programmes, compared with $482 million the previous FY.
As with every year, HDB will receive a grant from the Ministry of Finance to make up for the deficit.
In the report, it also said that as of March 31, it has helped 62 families in its Fresh Start Housing Scheme. This scheme is to help families with at least one child below the age of 16, who live in public rental flats to buy a two-room flexi flat.
HDB pays for land costs
HDB incurred “big losses” mainly because it has to pay for the land costs to the government.
This was revealed by then National Development Minister Khaw Boon Wan in 2013.
At the time, Singaporeans were calling for price of new Build-To-Order (BTO) flats to be de-linked from land costs.
Mr Khaw said it may be politically easy to say land is free because it belongs to everybody, but that is not the case. He said the price of land is tied to acquisition costs, reclamation and the building of infrastructure around it.
He said, “You need to acquire a piece of land; you need to reclaim a piece of land. All those costs money to taxpayers and we are just trustees of taxpayers and those costs are to be accounted for. And even when you have got that land prepared, land is only valuable when we invest in infrastructure, roads, MRT… And all those costs billions of dollars. So to say that land cost is a pittance and therefore should be excluded from total construction costs… I myself think it is not quite an appropriate argument.”
“Every year, hundreds of millions of dollars of losses were incurred by the HDB and that’s why MOF (Ministry of Finance) has to give the HDB an annual grant, otherwise the HDB will be in the red. It cannot be forever in the red, because there’s no way it can make money. Because every unit that we sell, we lose money, HDB loses money. The accounting for the HDB is deficit accounting. So if you incur a S$300-million loss, there is a grant of S$300 million that covers it. That is how we operate the HDB,” he added.
“Let us not perpetuate this talk about HDB is making money out of building houses because if it was so simple, life would be straightforward, but that’s not the case.”
Hence, HDB pays market rate for its land and construction costs. When it prices flats below market rate, it incurs a housing deficit.
Later Khaw confirmed with CNA, “The cost of building HDB flats includes the cost of land, design, construction, financing and other project-related costs. It varies from project to project and year to year.”
Money paid to buy land goes to reserves
So, where does the money goes to after Singaporeans pay HDB to buy a public flat, which was built on land purchased by HDB from government?
This statement from MOF may shed some light:
“The Overall Budget Balance excludes proceeds derived from the (Govt’s) sale of land, as these are not available for spending and are part of Past Reserves. This is because the sale of land converts a land asset into a financial asset, with both comprising part of Past Reserves. To spend the financial proceeds from land sales will mean drawing down Past Reserves.”
Simply, a large part of your money buying a HDB unit goes to the reserves as land sales. And of course, these reserves would be available to state entities like GIC to invest with.