2) HDB issue. Is the HDB overpriced? Additional information here.
HDB is running at a budget deficit if you have look at it's annual
report. It is taking grant from the government every year. So, what
are the plans?
Unless you have more details on why this budget deficit exist, you
can draw any conclusion from this fact. By itself, it does not
means HDB flats are not overpriced.
If HDB accounting practice books the flat price based on market
value and sell them at "subsidized price", it will explain this
deficit easily.
Before answering the question, we need HDB to tell us what is the
cost of buidling HDB flats, and it is avoiding the questions.
The following letter was published on ST at around Aug 11, 2004.
HDB never response to it.
==============================================
Flat buyers pay more than cost unless resale prices take a sharp
dip
I REFER to the reply by the Housing Board, 'HDB pricing keeps
new
flats affordable to most Singaporeans' (ST, Aug 6), in response
to
Mr Mohamed Rafiq Hamjah's letter, 'Subsidy should be based on
flat's
building cost' (ST, July 27).
Mr Desmond Wong said the difference between what the buyer pays
HDB
for his flat and what it is actually worth in the market is a
direct
and real subsidy.
Mr Wong also used the analogy of a first-time HDB buyer who
is
indifferent between buying direct from HDB and from the
resale
market. I think he has missed Mr Mohamed's point.
The dictionary definition of a subsidy is a form of payment to
a
person. To me, this market subsidy is neither direct nor real. It
is
more an opportunity cost than real cost, and it is indirect to
the
extent that it does not physically deplete HDB's coffers as would
be
the case if HDB really subsidises the price by giving a discount
on
the flat's actual construction cost.
I think the public has a misconception with regard to the HDB
subsidy. Many think that the subsidy represents a true
discount
given by the Government by footing the difference between what
it
pays to the main contractor and how much it sells a flat for.
This is similar to the ongoing argument on whether companies
should
expense stock options. By issuing stock options at a discount to
the
prevailing market price, it actually costs the company close
to
nothing other than depriving itself of the premium it could
have
fetched through issuing shares to the public. The premium is
the
difference it can derive from the share issue and the exercise
price
of the options. It is therefore an opportunity cost rather than
a
real cost.
What Mr Wong has done is explain HDB's long-established practice
in
this subsidy matter but he has not answered Mr Mohamed's question
as
to why HDB does not practise cost-based pricing.
Does this market-subsidy practice also apply to other public
services, such as health care? Does the Ministry of Health
subsidise
the health-care cost of Singaporeans based on market prices
of
commensurate services provided by the private sector?
What about previous reports that some hospitals and
polyclinics
belonging to the two health-care clusters charge higher prices
for
certain treatments and drugs than those in the private
sector?
If I could answer Mr Mohamed, I would explain that the HDB
subsidy
is never a cost subsidy. It is more like a price discount or
simply
a market subsidy, as stated by Mr Wong. Unless the price of a
resale
flat falls below the cost of building a similar flat in the
vicinity, which is extremely unlikely, the buyer will always have
to
pay more than cost.
EE TECK SIEW
