Profiteering? What Profiteering?

“PAP is profiteering from DBSS Land Sales”, screamed a well-known blog yesterday.

Much as it reflects ground sentiments, I must disagree with the utterly misleading headline. I also hope that I can introduce a paradigm shift that can change the way Singaporeans look at DBSS.

Misleading Headline

First, it’s not PAP that’s allegedly “profiteering”, it’s the Govt. Do not equate State to Party, even if the PAP is forming the current govt, because the money goes into State coffers, not Party coffers.

Big difference, ok?

Second, “profiteering” is a very strong word, with a very specific meaning, and is totally unjustified here.

To “profiteer” means to sell something at far above fair market price, typically to exploit weak, gullible or vulnerable buyers, who have little or no choice.

A classic example would be selling umbrellas at 10x the normal price when it’s raining heavily.

What HDB did, ie tendering land to the highest bidder, cannot be called “profiteering” by any means.

Why should the State sell land lower than what the highest bidder will pay, esp to private developers?

Even if they did sell land below market price, would the developers return the favour by selling the flats at low cost, or would they still price at $880K?

Even if they did price units at low cost, would the buyers also sell at low cost to the resale market after five years, or would they want the highest possible selling price?

The answer is obvious.

So, why call HDB’s action “profiteering” when it is simply selling at market price, which is the price achieved in an open tender.

Land is a state asset, and there’s no justification to sell it to private developers below market price. To do so would be shortchanging the Treasury, and by extension, the people.

The goods in question (ie flats) are also by no means monopolised by a single seller, and buyers have alternatives, such as resale flats in Tampines. The developer has no stranglehold on the market.

The price is not excessive, when you consider that it lands smack in the middle between resale flats and condos in Tampines.

Hence, a charge of “profiteering” cannot be made, and certainly not against PAP.

Paradigm Shift

Many people are disgusted by $880K “public” flats. While this is understandable, it may be that they see DBSS flats wrongly as “public” housing.

I will write on the unique nature of our “public” housing another time. But for now, if you change your paradigm, and see DBSS flats as “subsidised” private housing with HDB restrictions, perhaps your anger and disbelief can dissipate.

When suburban private condos easily command at least $1000 psf and over $1m, DBSS offers the equivalent build quality and finish for at least 20% discount.

However, by the no-free-lunch principle, DBSS buyers have to submit themselves to HDB restrictions, while DBSS developers have to bid and price with HDB income ceilings in mind.

If you see DBSS as private housing with HDB rules, rather than “public” housing, does that change your perspective on price and affordability? Does it also eliminate any thoughts on “profiteering”?

Put aside whether HDB has lost its mission and direction for now.

DBSS is not your grandfather’s HDB flat. It is aimed at those who want to live in private luxury, but cannot afford to pay condo prices.

DBSS is therefore a luxury good, and even with a 20% discount, it is still pricey– as it should be, because it’s aimed at people who can and want to pay, NOT at the masses.

Hence I don’t see how this is profiteering, by any measure.


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Someone who sees beyond PAP and "opposition" in Singapore politics. To understand more please see the Top 10 link below.
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12 Responses to Profiteering? What Profiteering?

  1. Aurvandil says:

    It is a small matter for me to change the title of my blog posting. That however just plays with semantics. It doesn’t change the reality that DBSS flats are priced at a level beyond what many Singaporeans can afford.

    The purpose of the blog posting is to explore the reason why DBSS flats are priced so much. Since Minister Khaw has provided so much information on why the DBSS developers are not making large profits, the reason for the high price falls to the high land price paid by the DBSS developers.

    The DBSS land which was sold did not originally belong to the PAP government. It was acquired at below market prices under the Land Acquisition Act. This was with the express understanding that it would be used to provide low cost public housing for Singaporeans. In my book, it is “profiteering” when you

    1) Force acquire the land for as little as $1 per square foot
    2) Promise Singaporans the acquired land will be used to build low cost public housing
    3) Land bank the land for 30 to 40 years
    4) Sell the land for nearly $200 hundred million to private developer to build DBSS housing
    5) The private developer earns 10% to 20% profit but has to sell the DBSS flats at a price beyond the means of most Singaporeans you had promised to build low cost public housing for

    • Thanks for comments. Full of misinformation, but thanks for reply anyway.

      First, you assume the land was forcibly acquired at low prices, which may or may not be true.

      As you know, the Land Acquisition Act was amended to make the govt pay market value, so unless you have evidence this particular land parcel was one of those forcibly acquired, you’re just making a conjecture.

      Second, it is more likely the land was never acquired in the first place, forcibly or at market prices. There’s many cases when land previously unused or unwanted by anyone is now valuable simply because of the infra developments carried out by the govt.

      Third, you use emotive words like “affordable to everyone” to defend your assertion. Can I suggest you read my reply to Jonathan above to understand why these flats are not, and should not be, “affordable” to everyone.

      I know many people feel HDB has lost its way, and deviated from its original mission of providing cheap and affordable housing to everyone. I have my own views too, and I will write upon this emotive topic another time.

      For now, may I urge that you do not use words and expressioms wrongly.

  2. Jonathan says:

    Here’s my two cents of comments.

    The problem is why adopt this new paradigm instead of the traditional paradigm?

    The traditional paradigm of HDB is to build affordable public housing so that as many people can own their own property. The new paradigm now steers towards profit-maximizing motives and why should the people accept this new principle?

    The amount of land in Singapore is very much constant. The only way is to build things higher. In general, normal flats and DBSS apartments are in competitive supply. It used to be that all the land can be leased to the HDB to build normal flats. Now, some of these land are leased to build “luxury” goods. It leaves the people with less land for normal flats, and how can they not be angry?

    Furthermore, it is entirely possible for the HDB to build this “luxury housing” rather than giving this opportunity to the private developers so that they can share some profits (be it 76%, 26% or 15%). In addition, it is not fair to let newly-weds in general to bear higher burden of the land cost which is arbitrarily set by the MND.

    Hence, there are many problems with this new paradigm. When associated with opaque land costs, profiteering (be it by the private developer or the PAP government) is actually quite befitting.

    • Thanks. Nice comments. I don’t agree, but nice comments anyway.

      We’ve been told repeatedly that HDB houses 80-90% of the population. If so, then HDB must cater to 80-90% of the population. Which means it has to cater to everyone from the poor 1-roomers who can’t afford to pay their utilities to the yuppies who dream of owning condos.

      HDB can’t just build simple basic flats. It has to satisfy yuppies too, as long as this Govt wants to keep 90% of the population under its wing.

      Hence EA’s, EM’s, EC’s, DBSS, etc are all means and ways for HDB to cater to those at the high end of public housing demand.

      If one accepts that subsidies should be given more to the lower end, and less or nil at the upper end, then there is no reason to begrudge the high prices of DBSS flats.

    • Jonathan says:

      No problem, thanks for uploading the comment. Your blog posts are very insightful and many of them contain original thought. Hope to read more from your blog!

  3. laoli4896 says:

    ‎”At this moment, we know that we have about S$300 billion of reserves”… !!!??? Singapore’s GDP is S$ 250 billion … size of reserve only 1 year GDP ??? So , cannot give a bigger grant to eligible applicants , since reserve is too low to be “raided” ? lowering land prices is also raiding the reserve ?

  4. steve says:

    HDB’s primary role is to provide affordable housing for the masses and the reason there is such a huge outcry is because HDB has not fulfilled that role well enough, leaving many not so well off people without enough affordable public housing.

    If their needs had been adequately met, then DBSS pricing would have been a non-issue like the old days when nobody was upset with HUDC when higher priced HUDC developments were sold. Then the public saw HUDC as an opportunity to buy something better even though the government made more money from selling the land. The difference now is that they see DBSS as a way to take away land which would otherwise have been used for more affordable housing which is in short supply.

    In my view, Singaporeans feel a little shortchanged also because HDB has always been given an unfair advantage to get cheap landbank. A simple illustration is the enbloc of HDB flats. When HDB acquires blocks of flats to be rebuilt into more intensive, taller developments, the current flat owners are the only ones in the market where they are hugely compensated (like for the other private developments). HDB ends up making a lot of money on a cashflow basis by selling more flats on the same piece of land later.

    As long as they use such low cost land to benefit the majority of Singaporeans (as they did very well in the past), I don’t think many Singaporeans would be too unhappy. But when there is not enough cheap housing and DBSS sells for the sky, the reaction is quite predictable.

    • Thanks for comments. There’s certainly lots of unhappiness with HDB, especially the perception that it’s making lots of $$$. But what’s sad is that the public is complaining more about $880K flats than $440K flats. The former are a luxury good; the latter are for the masses.

      HDB doesn’t need to stop DBSS flats to make BTO flats cheaper. Khaw is only stopping this program because of public unhappiness.

      But the truth is as long as HDB adopts its “market subsidy” principle in new flat pricing, new flat buyers are still going to be stuck with 30-year “affordable” mortgages.

      In the old days HDB really sold flats at cost-plus, which is why our parents were able to pay their loans within 5-10 years. However, HDB stopped this when it became clear many flat owners were making huge profits on the resale market after 5 years, and coming back to HDB again and again to buy new flats every five years.

      This is the dilemma with HDB.

      Apart from fears of sparking a property price collapse if they price flats too cheaply now, they worry about creating another round of flat trading too.

      I don’t think HDB has any neat solutions.

  5. steve says:

    HDB priority (and mission in life) should be use land to provide $300k and below apartments first and foremost. After that, they can do as much DBSS as they want like the HUDC of the old. No one will bother about the $880k apartments then. That’s my point.

    The problem with the market subsidy and the 30-year “affordable” mortgage approach is that the average Singaporean’s CPF is mostly empty when they reach retirement age (except for minimum sum). And this means they wouldn’t have enough money for retirement. The option then would be to sell their house to downgrade when reach retirement as my former nextdoor neighbours (on the left and right) did a few years ago.

    Imagine when the majority of Singaporeans start to do this as the baby boomers reach retirement age. What will happen to the property market then? I foresee something that might border on the scale of the US subprime.

    You might think that I am alarmist but history of the property market in other countries have shown that real estate prices are not sustainable when they cost more than 4 to 5 times of gross annual income. For the average Singaporean family with annual family income of $30K, our public housing are closer to 10 times of annual income.

    Property prices here have been sustained by using our retirement savings through the CPF, artificially low interest rate and possibly a lot of money laundering by rich Asians who use property to clean their ill gotten gains in their home countries.

    When the downgrading starts on a more massive scale 10 to 20 years down the road to fund retirement, there is a real risk that the economy might suffer a shock. So it is imperative that property prices come down to a more sensible level at a pace of our own choosing, no matter how painful it is to us now. And HDB has a prime role to play because they set the floor to the market as the biggest property developer in Singapore by a million miles.

    So it is imperative that they bring down property price for the good of the economy in the longer term. To prevent a collapse and to prevent profiteering by flat owners, they can be innovative about it by providing an extra options to sell some flats (NOT ALL) cheaper by:

    a. Requiring a longer holding period of say 10 years instead of 5 years
    b. Having shorter leasehold of say 60 years for some flats. You might think that this is ridiculous until you look at China where the leasehold is only about 50 years
    c. Having a capital gains tax of say 50% for poorer Singaporeans who want cheaper flats

    I believe the above categories will serve to cool the market without causing a collapse because these flats are a different category of public housing. While it is not neat, it will be a neater solution then what is happening in US, Ireland and Spain whose economies have been brought down by the once mighty real estate market.

    • Thanks for insightful comments. I understand you, but my pt is Mr Khaw can decide to sell flats at cost-plus tomorrow if he wants to, he doesn’t have to kill the dbss program.

      For a long time hdb defended the “market subsidy” principle, but really it is just a question of how much money hdb wants to make from land sales. He doesn’t have to stop dbss program to price normal flats cheaper.

  6. David says:

    I believe you omitted the Government’s role as market maker. As long as the Government prices flats at high levels, resal’e flat sellers will have no ability to price their flats high. Resale flats, being the exact same commodity minus several restrictions, are priced on a “first time plus” mechanism.

    Whereas HDB flats were once available to deserving buyers based on time in queue, the MND has assigned all reasonable and attractive sites to DBSS and poorer BTO buyers, young couples included, are being consigned to undesirable areas in Punggol Extension.

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