by Leong Sze Hian
I refer to the Straits Times article, “Drastically lowering BTO prices without regard for land costs will end up hurting S’poreans: Sim Ann” (12 Dec).
It is reported that Senior Minister of State for National Development Sim Ann said that the drastic lowering of Build-To-Order (BTO) flats to the extent of disregarding land costs, would end up hurting all Singaporeans instead of helping them.
1. Hurting More Singaporeans When BTO Prices Hit A Record High
But arguably, aren’t we, in a way, “hurting” more and more S’poreans “instead of helping them” when BTO prices keep hitting record highs?
2. Gradual Reduction And Not Drastic Reduction
Also, we are not talking about “drastically” reducing prices, but rather a gradual reduction in the land costs component over time in the future.
The breakdown by the Housing Development Board (HDB) just recently showed that land costs take up over half of the development costs for the HDB BTO flats.
This is a huge difference compared to twenty years ago when land costs took up less than the construction component, and subsidies from the Government catered for this aspect of cost.
3. State Land Returned At End Of Its Lease
Ms Sim said in her Facebook post on Sunday evening that as state land forms part of the nation’s reserves, not paying back the fair market value of the land would, in effect, run down the value of the reserves, “to the detriment of current and future generations”.
Since the land is eventually returned to the state at the end of the lease (99 or 15 to 45 years), we are, therefore, not running down the reserves as Ms Sim claims.
4. Estimated S$1.84 Trillion Of Reserves
Moreover, there is an estimated total of $1.84t (Official Foreign Reserves S$388 billion (US$282 billion October 2022)+ Temasek Holdings’ portfolio of $403 billion (March 2022)+ GIC $1,046b (estimated US$744 billion)
So, a gradual reduction in the quantum derived from the Sale of Land revenue (S$11.2b FY2022 estimate) may only have a minimal impact on the growth of the above-mentioned S$1.84 trillion worth of reserves.
5. Subsidies As An Accounting Entry To Reduce Price
Ms Sim also said that any further increase in housing subsidies must be weighed carefully against other urgent spending priorities, as it would mean reducing spending on education, healthcare and security.
She added that taxes may have to be raised to pay for the higher housing subsidies.
But the so-called “housing subsidies” may, in a sense, be just an accounting entry and concept, to reduce the price after charging land at market rates.
This begs the question of why the land costs cannot be simply reduced to reflect the so-called subsidies.
If this is done, there may be no need for the Government to charge this so-called subsidies as an expenditure to the Budget.
6. Comparing Costs Of Private Housing With Public Housing?
Ms Sim said that BTO flat prices have been kept affordable for Singaporeans, going by objective measures.
Noting that the majority of flat buyers use about four to five times their annual household income to pay for their BTO flats, compared with the eight to 20 times in other global cities.
But are we comparing with the private housing “in other global cities” or their public housing?
Ms Sim also notes that many BTO flat buyers service their mortgages entirely via their Central Provident Fund contributions with little to no cash outlay, while using less than 25 per cent of their monthly income to pay for their housing loans.
This narrative may be flawed, as those who can’t afford would not buy or could not buy & those who can not afford to continue with payment after they have bought the flats, would have given it up.
Therefore, with this sort of flawed reasoning, it is always affordable because the people who could afford to buy the flats, can only buy them because of the measures put in place to ensure the buyers can afford them in the first place.
7. Think For The Future Generations
Ms Sim also noted that the Government is sympathetic to the needs and concerns of Singaporeans, especially those starting families, and will continue improving its policies to “smoothen the home ownership journey”.
It may just be bad enough that with all the CPF & cash utilised, the HDB flat may become zero-value at the end of the typical 99-year lease instead of the “asset enhancement” narrative for decades.
A consumer sentiment study released by real estate portal PropertyGuru in September this year, showed that two in three of those aged 22 to 29 said they have chosen to rent instead of buy a home due to their lack of savings.
One-fifth of respondents in this age group felt that current property prices are too high, and about one-third expressed interest in home ownership alternatives like shared housing — such as renting a common room in an apartment or co-living spaces — due to lower rent and common facilities.
The situation may be further aggravated for future generations by ever-increasing record BTO prices and the gloomy economy ahead.
Before we talk about saving for future generations, we should, perhaps, think about how to help them save for the future by the gradual reduction of land costs from HDB flats.