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Thursday, 5 May 2011

Minister Mah had not address Profits for BTO Flats and the "Ballooning" Land Costs

Minister Mah had announced that income ceiling for BTO flats may be raised to S$10,000, from S$8,000. I supposed that is, if he is voted in by Tampines GRC voters. All along, he had insisted that HDB flats are affordable. However, he has not reveal how much profits the HDB is making from selling these BTO flats.

My earlier posting on 21 April 2011, "An illegal raid on the reserves? Mr Mah Should Explain About Ballooning Land Costs", had traced the historical cost of a plot of land at the then "Clementi New Town" when the HDB acquired it in mid 1975.

On 3 May 2011, someone had provided the estimated selling prices of New SER Flats at Clementi Ave 3, here. I asked for someone to do a simple calculation to advise me what sort of profits HDB is making. There was no response, so I will do a calculation here.

Projection of Estimated Costs & Profits for BTO Flats at Clementi Ave 3

(1) 5 Rm @ 110 m2 or about 1,184 sq. ft.

Historical land costs = S$0.49 psf GFA x 1,184 = S$580.16
Present land costs, say 30 times above land costs = $580.16 x 30 = S$17,404.80
Present construction costs @ S$150 psf GFA x 1,184 = S$177,600.
Total Projected Costs = S$17,404.80 + $177,600.00 = S$195,005.

Based on the Estimated Selling Price Range ( $574,000 ~ $681,000 ),
Profit Range = ( $378,995 ~ $485,995 ) or (66% ~ 71%)

Say we allow a higher construction costs @ S$200 psf GFA x 1,184 = S$236,800.
Total Projected Costs = S$17,404.80 + $236,800 = S$254,205.
Based on the Estimated Selling Price Range ( $574,000 ~ $681,000 ),
Profit Range = ( $319,795 ~ $426,795) or (55% ~ 62%)

Or at 20% Discount of Estimated Selling Price

@ construction costs of S$150 psf GFA   [Total : S$195,005 ]
Based on the Estimated Selling Price Range ( $544,000 ~ $651,000 ),
Profit Range = ( $348,995 ~ $455,995 ) or (64% ~ 70%)

@ construction costs of S$200 psf GFA   [Total : S$254,205]
Based on the Estimated Selling Price Range ( $544,000 ~ $651,000 ),
Profit Range = ( $289,795 ~ $396,795) or (53% ~ 60.9%)

(2) 4 Rm @ 92 m2 or about 990 sq. ft.

Historical land costs = S$0.49 psf GFA x 990 = S$485.10
Present land costs, say 30 times above land costs = $485.10 x 30 = S$14,553.
Present construction costs @ S$150 psf GFA x 990 = S$148,500.
Total Projected Costs = S$14,553 + $148,500 = S$163,053.

Based on the Estimated Selling Price Range ( $468,000 ~ $548,000 ),
Profit Range = ( $304,947 ~ $384,947 ) or (65% ~ 70%)

Say we allow a higher construction costs @ S$200 psf GFA x 990 = S$198,000.
Total Projected Costs = S$14,553 + $198,000 = S$212,553.
Based on the Estimated Selling Price Range ( $468,000 ~ $548,000 ),
Profit Range = ( $255,447 ~ $335,447) or (54% ~ 61%)

Or at 20% Discount of Estimated Selling Price

@ construction costs of S$150 psf GFA    [Total = S$163,053]
Based on the Estimated Selling Price Range ( $438,000 ~ $518,000 ),
Profit Range = ( $274,947 ~ $354,947 ) or (62% ~ 68%)

@ construction costs of S$200 psf GFA   [Total = S$212,553]
Based on the Estimated Selling Price Range ( $438,000 ~ $518,000 ),
Profit Range = ( $225,447 ~ $305,447) or (51% ~ 58.9%)


Hence, for a 5-Rm at Clementi SER Flat,

(a) Without discount, estimated profit made is about 66~71% at construction costs of $150 psf GFA and 30 times historical land cost.

(b) Without discount, estimated profit made is about 55~62% at construction costs of $200 psf GFA and 30 times historical land cost.

(c) With 20% discount, estimated profit made is about 64~70% at construction costs of $150 psf GFA and 30 times historical land cost.

(d) With 20% discount, estimated profit made is about 53~60.9% at construction costs of $200 psf GFA and 30 times historical land cost.


Hence, for a 4-Rm at Clementi SER Flat,

(a) Without discount, estimated profit made is about 65~70% at construction costs of $150 psf GFA and 30 times historical land cost.

(b) Without discount, estimated profit made is about 54~61% at construction costs of $200 psf GFA and 30 times historical land cost.

(c) With 20% discount, estimated profit made is about 62~68% at construction costs of $150 psf GFA and 30 times historical land cost.

(d) With 20% discount, estimated profit made is about 51~58.9% at construction costs of $200 psf GFA and 30 times historical land cost.


As it is unlikely to incur a $200 psf GFA construction cost unless when steel price is high, it means for every 4-RM or 5-RM you purchase at Clementi Ave 3 SER, you will be giving away 1 to 2 similar HDB units to HDB depending on the percentage of discount.

This is just like COE for cars, for every car you buy, you are giving 2 cars to the LTA.

Hence, it is material for Minister Mah to address the actual construction cost and "ballooning" land cost, and not just simply avoiding the issue by pushing up the monthly income ceiling cap from S$8,000 to S$10,000, and saying it's "not cause for concern unless it isn't affordable". By assuming and taking "affordability" through stetching the mortgage over 20 to 30 years just does not make sense in the current context of wage stagnation and volatile employment market conditions.


Reference#01
TODAY  May 05, 2011

"The highest price for a five-room flat in April's BTO launches was S$484,000. Will the price of BTO flats reach half a million dollars and more in future?

Mah Bow Tan: Depends on the location. If you're building one in Queenstown and in the central area, where land is more expensive, because HDB has to buy the land, it's possible. I think Singaporeans would appreciate that it's not just absolute cost alone but value for money ... If the value of a comparable private flat is higher, then it may happen. But that's not cause for concern unless it isn't affordable ... If you look at the sums ... somebody earning S$8,000 to S$9,000 will be able to afford that." .....


Reference#02
TODAY  May 05, 2011

"If the income ceiling for Build-To-Order (BTO) flats is raised, National Development Minister Mah Bow Tan will be watching closely one set of figures: The average incomes of applicants for each flat type.

Based on those numbers, he will price the flats within a range they can afford. And in the long term, it will be a price range equivalent to a monthly mortgage within one-third of household income.

That is how he will manage affordability for the future, Mr Mah told Today in a one-to-one interview, two days after the surprise announcement that the income ceiling for BTO flats may be raised to S$10,000, from S$8,000." .....

4 comments:

  1. Steal from our future to enrich the present reserve that we might never see in our live time, can't wait for MBT to lose because he think that singaporean are stupid.

    ReplyDelete
  2. township development in singapore includes costs which are outside the bto project boundary, such as infrastructure and services provision and connection. so, land and construction costs are not the only costs for bto flats. there are also other costs such as infrastructure and services provision within the bto project boundary, development charges, professional fees that you have not factored in your analysis.

    ReplyDelete
  3. also, for sers replacement housing, there is compensation consideration for the old sers flats. the government has to balance the figures of providing new flats (all land/construction/charges/fees/infra/services costs included as well as costs of administration ie manpower costs of hdb), factor in the overall compensation, before announcing a particular site for sers. what you should query is how much of the admin cost is a percentage of the overall costs, as civil service, stat board staff are well-paid bureaucrats but still have to hire external consultants to do part of their jobs.

    ReplyDelete
  4. De Leviathan @ Sg10 May, 2011 09:30

    To Anon 6 May 13:54, 7 May 07:18 and 07:26...Sorry for the late posting due to Cooling-Off and Polling Day.

    ReplyDelete