The Housing and Development Board (HDB) reported an annual deficit of $1.99 billion for the 2018/2019 financial year, an increase from the previous year’s S$1.7 billion deficit.
The HDB annual report released on Wednesday (23 October) noted that the deficit of S$2.4 billion from housing programmes was offset by a S$462 million surplus from “other activities” including rental and other commercial business, resulting in the nearly S$2 billion deficit.
The report cited a decrease in sales of new flats as a reason for the increased deficit. Last year HDB sold 26,857 new flats while this year a 38% decline with only 16,608 new flats sold.
In terms of development, there were 15,3000 new flats introduced this year across 18 projects. Also on sale were 6,4000 flats under the Sale of Balance Flats scheme and 1,3000 under the Re-Offer of Balance Flats scheme.
While sales of new flats declined, the number of resale flats sold saw a 7% rise to 23,476 flats sold this financial year compared to 22,005 in the previous period.
The bulk of HDB’s deficit hangs on the home ownership sector which covers the development and sale of public housing flats. This sector incurred the same amount of deficit this year as the previous, at S$1.4 billion which includes the loss from sale of flats, CPF housing grants, and expected losses on flats currently in development.
HDB’s deficit isn’t surprising to analysts who say that the deficits racked up could be seen as HDB giving bigger discounts on built-to-order (BTO) or new flats. The delay in launching recent BTO flats might have also contributed to this year’s higher deficit.
Chairman of real estate consultancy VestAsia Group and Adjunct Associate Professor at the National University of Singapore’s School of Design and Environment Dr Steven Choo was quoted by Channel NewsAsia as saying that a deficit like this is a recurring and unsurprising thing given HDB’s social mission.
It’s worth noting that the HDB incurs a deficit every year and that it is fully covered by the Ministry of Finance (MOF) via a grant.
How does the government fare with HDB’s deficit?
The thing is though, HDB doesn’t provide any sort of breakdown on the construction costs of its projects. Despite multiple questions in parliament by MPs and in the media, HDB has stayed mum on the breakdown, meaning we don’t know how much HDB spends on obtaining land and then developing it into public housing.
In 2018, Worker’s Party MP Faisal Manap posed a question in Parliament about how the land cost amount which is included in the sale price of a new HDB flat is tabulated.
Minister for National Development Mr Lawrence Wong did not quite answer the question. Mr Wong said that affordability is a key consideration when pricing HDB flats, which are substantially cheaper than comparable resale flats.
He also said, “The selling prices set by HDB for new flats cannot cover their development costs, which include construction and land costs. That is why HDB incurs significant deficits every year in its home ownership programme.”
He also noted that HDB provides housing grants of up to S$80,000 to help lower and middle-income families purchase their first homes.
So there’s no answer there.
What we do know is that the land is paid for by HDB to the Singapore Land Authority (SLA) at market rates. In 2011, former Minister of National Development Mah Bow Tan, in his response to Worker’s Party’s Low Thia Khiang’s proposition to lower cost of HDB flats, confirmed that HDB buys state land from SLA at market price.
Mr Mah emphasised that land makes up Singapore’s national reserves, so lowering the value of land is simply taking money from the reserves.
He said, “It is not a matter of left pocket to right pocket, it’s a matter of taking, dipping into the reserves.”
In 2013, then-Minister for National Development Khaw Boon Wan said that HDB pays the government for land to build HDB flats, explaining that the price of a piece of land is tied to acquisition costs, reclamation and building infrastructure around it.
“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,” he said.
He went on to say, “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,” referring to HDB’s annual deficit which the MOF covers via an annual grant.
The thing is though, while HDB might be losing money, the government itself is not.
In a breakdown from a previous TOC article (Why would the government lose money in sale of HDB flats?, 2018), it was illustrated how the government would have made a profit out of HDB’s buying land and developing it into HDB flats.
One example noted was the Bishan HDB estate which was built from cemetery land acquired by the government in the 1980s. At the time, the government paid the landowner, the Kwong Wai Siew Peck San Theng temple, S$4.9 million in compensation. That’s only about S$0.38 per square feet.
We know that the government sells the land back to HDB at market rate. Clearly this means they’re making a hefty profit from those sales.
The Revenue and Expenditure Estimates in the latest government budget statement indicates that the proceeds from land sales rose from S$14.8 million in the financial year of 2017 to S$16.9 billion in 2018. That’s a 14.2% increase.
So the question is that while HDB is reporting a deficit, if most of the money goes into purchasing land at market rates, then isn’t that just funds going from one governmental pocket to the next?
As Mr Mah said, HDB’s proclaimed loss is not really a loss per se as the money is just being earned as land sale and stored in the reserves.