HDB’s pricing of BTO flats, as explained by Sim Ann

In a Dec 11 Facebook post responding to NCMP Mr Leong Mun Wai’s comments about Housing and Development Board’s (HDB) subsidies for build to order (BTO) flats, Senior Minister of State for National Development Sim Ann sought to explain how the Government has kept BTOs affordable for Singaporeans.

“By objective measures, we have kept BTOs affordable for Singaporeans. And we will continue to do so. For a large majority of flat buyers, the home price to annual income (HPI) ratio is only about 4 to 5 times, i.e. they use about 4 to 5 years of total household income to pay for their BTO homes. In comparison, in global cities HPIs range from 8 times to well over 20 times,” she wrote.

This after HDB and the Ministry of National Development revealed the breakdown of development costs of BTO flats on Dec 7.

Here are the key points of SMS Sim’s post.

How do BTO flat buyers usually service their mortgages?

Many of them service their mortgages using their CPF contributions, meaning they pay little or no cash, said SMS Sim.

“They use 25 per cent or less of their monthly income to pay for their housing loans, i.e. they have Mortgage Serving Ratios (MSR) of 25 per cent or below. In comparison, typical MSRs in other countries range from 30 per cent to 35 per cent.”

Which are the most preferred BTO flats?

Flats located in sought-after locations, especially the bigger units.

Naturally such units are more expensive but when the BTO flats with those characteristics are priced at a very generous discount to the open market in order to keep them affordable.

Why can’t HDB price such BTO flats even lower?

Due to the limited supply of such units, an even lower price would attract more eligible buyers, this makes it harder for those starting families to get one.

“This would also be unfair to all the buyers not lucky enough to secure such a flat, and enjoy the large windfall gain,” she said.

Is it possible then to remove land costs out from the picture?

While Mr Leong agreed that BTO pricing should account for such location differences, he also suggested taking land costs out of the picture and recovering only construction costs.

“We cannot do that if we accept that land values in fact vary across locations. So I conclude that what Mr Leong is really asking for is the Government to price BTOs much lower, whatever the justifications may be,” said the SMS.

If the Government charges HDB less for the land, it also means a higher draw from our national savings.

This is because if HDB doesn’t pay back into the Reserves the fair market value of the land, the value of our Reserves would be lower, which would be detriment to current and future generations of Singaporeans, said SMS Sim.

“Drastically lowering BTO prices, to the extent of disregarding land costs, would only end up hurting all Singaporeans, instead of helping them.”

Are BTO flats unaffordable? Is the Government less generous with subsidies?

Hardly. The Government has been increasing subsidies and grants to keep BTO prices affordable and stable.

This shows in the relatively stable prices of BTO flats.

For example, the average price of a 4-Room BTO flat in non-mature estates was S$341,000 in 2019 and S$348,000 in 2022 – despite the Resale Price Index rising much faster by 28 per cent over this period.

What happens if there are increased housing subsidies?

Lower prices, no doubt. But also tradeoffs. Because in a country with finite resources, the government of the day must balance the needs and aspirations of the people.

“Increasing housing subsidies further must be weighed carefully against other urgent spending priorities. It would mean reducing spending on many other important things we need as a country, like education, healthcare and security,” she said.

Is there no chance of lowering the price of BTOs?

Of course not. HDB’s mission is to provide affordable, quality housing and a great living environment where communities thrive.

SMS Sim reiterated: “HDB will make sure that every eligible BTO homebuyer has an affordable housing option. We will keep on improving our policies to smoothen the home ownership journey for Singaporeans, especially those starting families.”

Cover photo credit: Grace Ho on Unsplash and Sim Ann / Facebook