HDB carpark operations are profitable
Business Times
May 28, 2002
SINGAPORE
BY Lee Han Shih
CONTRARY to popular belief, the Housing and Development Board does
not lose money on its carparks. In fact, it is making good profits
out of them.
HDB, which houses 85 per cent of Singaporeans, is also the nation's
biggest carpark operator. As a rough guide, it builds three parking
lots for every four flats in its estates. It now manages more than
640,000 car, motorcycle and lorry lots.
Operationally, these are highly profitable. In financial year
2000-01, HDB made $87.1 million from its carparks - half of that
'contributed' by motorists' parking fines. The year after, profit
eased to $80 million.
Yet, despite these figures, HDB carparks are officially losing
money. Early this month, National Development Minister Mah Bow Tan
told Parliament the carparks lost $99 million in financial year
2000-01 and $105 million in FY2001-02.
To reduce these losses, HDB has no option but to raise parking
charges by 11 to 20 per cent come September, the minister told
fellow MPs.
Mr Mah bears the brunt of a rising storm of protest over the rate
hike. But some have rallied around him. Among them was Wee Kiat
Sia, head of HDB's carpark section. In a letter to the Straits
Times, Mr Wee said: 'The HDB residential carparks are heavily
subsidised as current charges are way below the cost of providing
these carparks.'
So are HDB carparks a money spinner or money loser?
It depends on how you tally up the cost.
Costs for projects such as carparks, MRT lines and power stations
come on two levels: developmental (money spent to build them and to
service loans) and operational (money spent running them).
Operationally, HDB carparks are profitable. But when interest
payments are included, they plunge into the red.
HDB borrowed perhaps $4 billion from the government to buy state
land and to build carparks. Servicing these loans is the single
biggest expenditure item for HDB carparks - and the reason they are
in the red.
When the carparks suffered a $83.6 million deficit in FY 1999-2000,
interest paid to the government was $175.1 million. In FY 2000-01,
the deficit was $99 million and the interest payment $186.1
million.
Taking away cost of interest, the carparks are immediately
profitable: $91.5 million in 1999-2000 and $87.1 million in
2000-01.
When Mr Mah and Mr Wee talk about deficits and the need to raise
rates, they include both developmental and operational costs in
their computations.
This is not always the case with government projects. Take the MRT,
for instance. The cost is split into two: MRT Corporation (now part
of the Land Transport Authority) carries all developmental
expenses, including interest payments; while SMRT runs the rail
system.
This allows SMRT to show a profit and go for a listing. If SMRT
were to bear both developmental and operational costs, it would run
at a loss, there would be no IPO - and fares would have to be
raised sharply to cover its deficit.
Can the same approach be applied to HDB carparks? If the government
shoulders the building cost, the carparks will be profitable and
there will be no need to hoist parking fees.
But it is not fair for the government to subsidise motorists at the
expense of those who take public transport, Mr Mah told
Parliament.
This leaves HDB with the full responsibility of running the
carparks and making ends meet. Even if one accepts this, there are
other solutions apart from raising parking charges.
Why, for example, is it still paying the government 4.5 per cent
interest when it can refinance its loans at better rates? At 3.75
per cent, its interest cost would be cut by $31 million a year -
the exact same amount it would get from the parking rate increase.
Thus, a simple refinancing of its loans would do away with the need
for the unpopular rate hike.
But a bigger issue is land cost. HDB may have overpaid for the land
it bought for the carparks. Hence the deficit every year.
When a private landlord overpays, he lives with the losses, as it
would be suicidal to try to pass the cost to customers. (If, say,
Ngee Ann City upped its parking fees to $10 an hour, motorists
would take their cars and their business to Paragon and Mandarin
Hotel.)
As a monopoly, HDB has the luxury of being able to raise rates and
make them stick. Car owners in housing estates may complain, but
they have no other place to park. So they have been made to pay for
HDB's mistake.
From this perspective, Mr Mah is not wrong to say there is subsidy
for HDB carparks. It is just that the subsidising has been passed
from the government to hapless motorists.
