HDB annual deficit declines to $1.64b

By: Leong Sze Hian I refer to the article “HDB annual deficit declines to S$1.64b as fewer new flats built” (Channel NewsAsia, Oct 13).

“The Housing and Development Board (HDB) incurred a deficit of S$1.64 billion in the last financial year, down from S$2.02 billion the previous year, as it scaled back on the building of new flats.

HDB incurs a deficit every year due to its home ownership programmes, and the deficit is fully covered by a grant from the Ministry of Finance.

The bulk of last year’s deficit came from HDB’s home ownership segment, which recorded a deficit of S$1.18 billion, a decline of 32.7 per cent from S$1.75 billion in FY2014/15. The deficit comprises the gross loss on the sale of flats, disbursement of CPF housing grants and the expected loss for flats that are currently under development.”

Land cost at market rates? I understand that the primary reason why the HDB incurs a deficit every year, and higher deficits when more flats are built – may be that it is charging the land cost at market rates. In this regard, it was said that “HDB pays market rate for its land and construction costs. Hence, when it prices flats below a market rate, it incurs a housing deficit – now in the region of about $1 billion a year, including other costs such as upgrading” (“HDB will be the price-setter: Khaw Boon Wan“, Straits Times, Apr 13, 2013). Provision for foreseeable loss $5,255,197,000? According to its annual report (page 50):

• 12 Properties under development
• Land $16,157,082,000
• Buildings $5,633,018,000
• Provision for foreseeable loss $5,255,197,000

Land cost component is about 66%? So, does it mean that the component of HDB flat prices charged to land cost is about 66 per cent (5,633,018 divided by (16,157,082 + 5,633,018 – 5,255,197)?