BTO prices not pegged to resale flats: Khaw Boon Wan

By Rachel Chang And Daryl Chin, The Straits Times, 1 Feb 2013

NATIONAL Development Minister Khaw Boon Wan yesterday made clear he has delinked prices of the Housing Board's Build-to-Order (BTO) flats from resale flat prices to keep new flats affordable, especially to first-timers.

This new pricing policy has been in place since he took over the housing portfolio after the 2011 General Election, he told journalists.

"Although the resale market is going up, I've stabilised BTO prices, by increasing the government subsidy," he said in Mandarin, to back up his assurance that public housing will remain abundant and affordable even with population projections of 6.9 million by 2030.

Mr Khaw also said he has directed HDB to continue with this new pricing policy for as long as "property remains hot".

His remarks confirm what property analysts have suspected for the past 18 months - that the Government has increased its subsidy for new flats.

That is how it has kept BTO prices across HDB's flat launches largely stable, despite the resale price index rising 12.5 per cent since the second quarter of 2011.

Traditionally, new flats are priced at a discount to resale flats in the same area.

HDB's home ownership programme incurs an annual deficit of about a billion dollars due to this practice, a shortfall that the Government covers.

But before this new policy, prices of new flats were still pegged to those of resale flats and rose on the same trajectory. If not, the shortfall that the Government would have to plug would grow indefinitely.

In the current financing framework, the Ministry of National Development (MND) has to buy from the Singapore Land Authority (SLA) the land on which HDB flats are built. Each plot is valued according to several factors, including the price of resale flats in the vicinity. So as the resale flat market rises, so too does the value of the land and what MND has to pay for it.

The money that SLA collects from the land sale is considered part of national reserves.

PropNex chief executive Mohamed Ismail said the new policy means "more of taxpayers' monies will be given to BTO flats, in order to keep them affordable to buyers".

SLP International's head of research Nicholas Mak said "the real cost to our coffers is not known until we know how much they purchase the land for".

He said that the low prices of new flats could draw some demand away from resale flats, "effectively slowing down the resale market, but it will not stop nor reverse rising trends yet".

ERA realtor Eugene Lim called Mr Khaw's promise a step in the right direction for its assurance to home buyers.

But flat buyers should not expect HDB to price units "haphazardly" in defiance of the market, he said.

"The prices of BTO flats in mature estates could very well be 40 per cent more than those in outlying, suburban areas."