Market Subsidy

After some searching and careful reading, I was finally able to extract the following from the debate held on 3 March 2006 on the Budget 2006 debate for the Ministry of National Development, Mr Mah Bow Tan's reply to a query from Dr Amy Khor :

The third point Dr Amy Khor raised was this issue about implicit subsidies. How do we price our flats? The most important criterion in pricing of new HDB flats is affordability. We track affordability very closely. We track what are the various household incomes at various percentiles. We also track the market prices. We ensure that the price of a new flat is always at a discount to the market price of that similar flat, as far as possible. She knows, as a valuer, that it is not possible to have everything exactly the same. But as far as is possible, as far as the valuers can advise, we try to price the new flat at a subsidy to market price of a comparable flat.

What is the amount of this subsidy? It varies from place to place. It varies from time to time. The important criterion, as I said, is to ensure that there is affordability at various price points and at various flat types. And that is the reason why it is not possible for me to name a certain amount as the subsidy of the flat.

The above answer gives us confirmation that the price of HDB new flats are derived by the following process:

1. Choose a comparable private flat
   
2. Take the market price of the private flat
3. Apply some sort of formula
   
4. Arrive at price of new HDB flat
5. The subsidy is the difference between the market price of the prviate flat and the selling price of the HDB flat
   

This leads to a few questions:

• Based on what criteria is the comparable private flat chosen?
• What is the formula applied?
• Is the resultant Price of the new HDB flat higher or lower than the Break-even Cost of the flat?

The key point of contention is that, if the Price is a lot higher than the Break-even Cost of the flat, then the people will feel gross disjustice because we have to pay too much for the flat, while being told that there are heavy subsidies on the flat. However, the Break-even Cost of flats is not publicly available.

Filed in: singapore politics hdb