Experts back Govt's stance on including land cost in BTO pricing but urge more transparency on subsidies
SINGAPORE — Property industry experts have backed the Government's stance that land costs should continue to be included when determining the price of Build-to-Order (BTO) flats. This was necessary to ensure the stability of fiscal revenue and property market, they added.
- In the ongoing debate on prices of BTO flats, Ms Sim Ann said that drastically lowering the prices would eat into national reserves
- This was the Senior Minister for State for National Development's response to Non-Constituency Member of Parliament Leong Mun Wai who said the prices should disregard land costs
- Property analysts said that disregarding land costs could have detrimental effect on fiscal growth and the reserves
- Such a move would not solve problems related to BTO flats such as longer waiting times and increasingly stiff competition
- The experts also said that the Government could be transparent with the amount of housing subsidies offered to avoid unnecessary public speculation
SINGAPORE — Property analysts have backed the Government's stance that land costs should continue to be included when determining the price of Build-to-Order (BTO) flats. This was necessary to ensure the stability of fiscal revenue and property market, they added.
That said, the experts believe that the Government could be more transparent about how much it is providing in subsidies for each BTO project, because this would help to quell public speculation on the matter.
The experts were responding to queries from TODAY about an ongoing national debate on whether BTO flats, which are part of the public housing programme by the Housing and Development Board (HDB), are fairly priced.
In the latest development, Ms Sim Ann, Senior Minister for State for National Development, said on Facebook on Sunday (Dec 11) that drastically lowering BTO flat prices by disregarding land costs would eat into the national reserves and affect all Singaporeans.
Ms Sim was responding to comments from Mr Leong Mun Wai, Non-Constituency Member of Parliament, who called for a removal of land costs from the pricing of HDB flats.
TODAY spoke to some analysts about lowering BTO flat prices and its possible effects on fiscal revenue and the property market.
HOW ARE BTO PRICES DETERMINED?
In a joint statement by HDB and the Ministry of National Development (MND) released on Dec 7, HDB said that the pricing of BTO projects does not take into account development costs.
To determine BTO flat prices, HDB first compares the transacted price of nearby resale flats and takes into account existing market conditions, to establish the BTO flat’s market value.
Then, HDB provides subsidies to offset the difference between the flat’s assessed market value and its final selling price.
The amount of subsidy depends on the BTO flat buyers’ resident household incomes and their mortgage servicing ratio, which is the percentage of their gross monthly income that they can use for housing loan repayments.
This means that the amount of subsidy for each BTO project differs since different BTO projects have varied market values, depending on their location, proximity to facilities and amenities, and other individual flat attributes.
KEEPING BTO PRICES LOW NOT SO SIMPLE
Even though BTO flats are meant to be affordable, the latest rounds of BTO projects have seen an increase in some flat prices nudging their way towards the million-dollar mark, with a record-high selling price of S$877,000 for a five-room BTO flat at Central Weave@Ang Mo Kio in August.
However, experts who spoke to TODAY said that keeping prices low for BTO projects is not a simple matter.
Economist Song Seng Wun from CIMB bank said that lowering BTO flat prices does not necessarily mean that prospective homebuyers will be able to secure a unit more easily.
“It’s really about supply of BTO flats. But it’s really hard to recalibrate also, because there could be a mismatch of demand and supply.Economist Song Seng Wun”
Mr Song said that the supply of available BTO flats was an even more pressing issue than price, because competition is influenced by supply and demand, not pricing.
“It’s really about supply of BTO flats. But it’s really hard to recalibrate also, because there could be a mismatch of demand and supply.
“Demand is influenced by the economy. If the economy is bad, people might not be able to afford buying a house, so even if you have plenty of supply, there might not be demand for it.”
Other than the supply of BTO flats, Mr Song added that the focus of the discussion should be on the issue of affordability for buyers.
“The Government must ensure that buyers can still afford to buy BTO flats, by ensuring that the wages of resident employees continue to grow.
“If prices are lower but wages stagnate, people will still not be able to afford BTO flats.”
Mr Chris Koh, director of property consultancy Chris International, said that lowering flat prices also may not solve other issues related to BTO projects such as the long waiting times, flat sizes and location.
Mr Koh and Mr Song both said that disregarding land costs in BTO pricing will affect fiscal growth as well.
Mr Koh said that since the Government acquires land at different times, land costs will differ according to the market, and it will be more difficult for the Government to forecast revenue streams and calculate revenue and tax collections.
Mr Song also said that another problem with increased governmental intervention in the property market is that every flat buyer regardless of socioeconomic background will receive the housing subsidies, instead of targeting only those who need them.
Mr Lee Sze Teck, senior director of research at real estate group Huttons Asia, said that BTO prices should include land costs to avoid stress on public amenities and infrastructure.
“If land costs are disregarded, it may mean that the costs of a BTO flat is homogeneous regardless of location.”
"Buyers will then likely zoom in to a more desired location such as central locations since the price is the same. Certain locations may not even see buyers.
“There will be more stress on public amenities and infrastructure when one area becomes more crowded than another area,” Mr Lee added.
Mr Lee also said that if BTO flat prices are lowered, the Government will have to bear more costs for housing subsidies and developing highly desired areas than others.
SHOULD GOVERNMENT REVEAL SUBSIDIES FOR BTO PROJECTS?
The national debate about BTO flat prices has also raised the point on the amount of subsidies given by HDB.
Last month, Leader of the Opposition Pritam Singh and Ms Indranee Rajah, Second Minister for Finance and National Development, sparred in Parliament over the development costs of new flats and HDB subsidies.
Mr Singh had recommended that the Government make public the breakdown of development costs of new flats and the value of housing subsidies offered by HDB, which Ms Indranee said was not “meaningful” to do.
HDB for the first time then revealed the breakdown of the development costs of BTO flats, in a joint statement with MND.
Although HDB made known the computation for subsidies in the statement, it did not disclose the amount of subsidies disbursed for individual BTO projects.
TODAY is asking HDB why it did not disclose the amount of subsidies.
Mr Song and Mr Koh both agreed that it would be good for the Government to be transparent with the amount of subsidies given, to prevent “unnecessary” public speculation.
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