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How Are New BTO Flats Priced By HDB?

Subsidised compared to resale

Housing prices are increasing in Singapore for both private and HDB properties. The Private Residential Property Price Index is currently at 187.1 points for 3Q2022, an increase of 22% compared to 153.6 points for 4Q2019 before the pandemic. Likewise, the Resale Price Index for HDB resale properties is at 168.1 points for 3Q2022, an increase of 28% compared to 131.5 points for 4Q2019.

Even BTO flat prices are not spared from the rising prices. The August 2022 BTO launch prices of Central [email protected] made headlines with unit prices as high as $877,000. Given that BTO flats are meant to be affordable public housing, how are new BTO flat priced by HDB?

Read Also: Does Your HDB BTO Flat Price Appreciate While Waiting For It To Be Built?

HDB Buys Land To Build BTO Flats

Similar to private developers, HDB incurs land and construction costs when developing new BTO flats. HDB doesn’t actually own Singapore’s land reserves as it is a separate entity from the Government.

According to MND’s parliamentary reply, when HDB uses land for development, the land has to be bought from the state. The cost of the land is determined independently, using market valuation principles, by the Chief Valuer. As land is part of Singapore’s Past Reserves, the monies are then paid back into the Past Reserves. The Government cannot use land sales proceeds as revenue for spending in the Budget.

In FY2021/22, HDB spent $4,933 million on land and $3,156 million on buildings. During this period, 17,322 new flats were launched.

HDB BTO Flats Are Not Priced By How Much They Cost To Build (Including Land Cost)

One thing that HDB is very emphatic about is that the pricing of BTO flats is completely separate from the cost of building them.

Most of us understand property development from the point of view of a private developer. A private developer will bid for a plot of land and build in the cost (including the cost to acquire the land and construct the building) into their eventual launch pricing. Thus, there is a very close association between land price and the launch pricing.

However, HDB is a public housing developer. Its mandate is to provide affordable public housing, especially for first-time home buyers. Thus, HDB does not price according to the cost, including the cost of acquiring land.

Read Also: How To Find An HDB Resale Flat Within Your Budget

HDB BTO Flats Are Priced With Subsidies Applied

When pricing new BTO flats, HDB looks at the prices of comparable resale flats nearby, the individual flat’s attributes and prevailing market conditions. Individual flat attributes considered include location, floor area, storey height, fittings and finishes, orientation and accessibility to facilities, key transport nodes and amenities. Thus, a BTO project that is nearer to the MRT station will be priced higher than one farther away. While a BTO flat on a higher floor will be priced higher than one on the lower floors.

However, BTO flats are not priced to median resale prices of the town. This is because median resale flat price averages prices across the entire town. It doesn’t reflect the desirability (and prices) of flats located nearer to the town centre or MRT station. Instead, as illustrated in our article – How Much Can You Save By Opting For BTO Flats Over HDB Resale Flats, HDB will provide the resale comparables used for each BTO project. These will be the resale flats in the proximity of the new BTO launch.

Additionally, HDB applies a significant subsidy after assessing the market value. This is to maintain the affordability of new BTO flats. While the subsidy allows the new BTO flats to be priced below the market, this may not be lower than the median resale prices of the town, depending on the resale comparable and the assessed market value.

For example, in Sun Plaza Spring, a BTO launch in Tampines, the comparable resale flats are about 94 years lease selling for $580,000 to $635,000. This means that the BTO flats are heavily subsidised to sold at $381,000 to $438,000, or more than 30% cheaper.

New BTO Flats In Non-Mature Estates Are Priced To Be Affordable For First-Timers

In general, flats in mature estates enjoy better amenities, facilities, and accessibility. Thus, it is fair for them to be priced at a premium due to their underlying resale comparables and better attributes.

Instead, HDB focuses on maintaining affordability through new BTO flats in non-mature estates. These flats are developed for the purpose of increasing the supply of affordable public housing and this is reflected in the pricing (and subsidy).

Even new towns like Tengah will have resale comparables:

Source: HDB

Read Also: 3-3-5 Rule Of Buying An HDB Flat: How Much Can Singaporeans Really Afford?  

Why Are BTO Flats Getting More Expensive?

One driver of BTO prices is resale comparables. Logically, this means that if resale flat prices continue to rise and prevailing market conditions continue to favour higher prices, BTO prices are likely to continue in increasing in tandem.

Let’s look at the example of Central [email protected]. The estimated land cost of Central [email protected] is about $500 million. HDB estimates that they would incur a development loss of about $250 million, as the sales proceeds would be insufficient to cover the cost of development.

This means that the launch prices for Central [email protected] would have to be even more expensive, more than the highest price of $877,000 in order for HDB to break even on costs. Thankfully, our BTO flats are not priced based on cost.

If we take HDB’s approach of assessing market value, the resale comparables are at an eye-popping level of $1,150,00 for a 5-room flat with a lease between 89 to 95 years. The $720,000 to $877,000 seems much more palatable in comparison.

Source: HDB

Even if $800,000 does seem out of reach for first-time homebuyers, we can see that HDB does apply a significant subsidy for BTO flats.

Instead of aiming for the most desirable flats in mature estates and near the town centre and MRT station, homebuyers may have to make trade-offs in return for affordability. Consider balloting for new BTO flats in non-mature estates instead. The median prices of BTO flats in non-mature estates are much more affordable at $228,000 for a 3-room flat, $347,000 for a 4-room flat and $473,000 for a 5-room flat.

Read Also: What Are The HDB BTO Flats That You Can Afford On A $1,000 Salary?

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