How BTO flats are priced and kept affordable according to HDB

To aid Singaporeans in owning their own homes, the Housing and Development Board (HDB) reiterated that public housing will continue to remain affordable for all.

Responding to a query on Build-to-Order (BTO) flat prices, it clarified that new flats are priced with affordability in mind and that it does not apply a profit margin on costs.

HDB shared that in the first half of 2022, 90 per cent of flat buyers who collected keys to their flats in non-mature estates (NME) used 25 per cent or less of their monthly income to service their HDB loan instalment payments.

Similarly, more than 80 per cent of flat buyers who collected their keys in Mature Estates (ME) had a Mortgage Servicing Ratio (MSR) of 25 per cent or lower.

HDB said it assesses resident household incomes and compares them with the range of flat types and selling prices on offer at every BTO launch, tapping on benchmarks like the MSR to ensure a wide range of BTO flats for first-time homebuyers.

“The flat selling prices are not uniform across the BTO projects that are launched every year as we have to take into account the varying attributes and locational factors of the flats on offer at each launch,” the board explained.

To ensure fairness for the different buyers, HDB flats can be bought and sold in the resale market after the five-year Minimum Occupation Period (MOP).

HDB says it first establishes the market value of the flats by considering the prices of surrounding resale flats which is influenced by prevailing market conditions and individual attributes of the flats.

A significant subsidy is then applied to the assessed market values to ensure new flats are affordable for flat buyers.

It clarified that the difference in prices between resale flats and subsidised flats reflect the market subsidies provided for new flats after accounting for differences in attributes.

The extent of market subsidies applied by HDB will vary across BTO projects in different launches, subject to prevailing market conditions.

While the Prime Location Public Housing (PLH) projects command higher market values, HDB revealed that it is still priced with additional subsidies on top of the market subsidies that are accorded to all BTO flats.

“PLH flat owners will need to pay a fixed percentage of the higher of the resale price or valuation of the flat to HDB upon sale of their flats to prevent excessive windfall gains,” the board added.

HDB also discussed the affordability-based flat pricing being ‘fundamentally different’ from private developers as it is separate and independent from the BTO development costs.

A press release by HDB revealed that the average BTO selling price per square foot has risen by 16 per cent in non-mature estates while mature estates saw a 22 per cent increase in the third quarter of 2022 as compared to 2012. It said that the increase in the BTO flat prices over this period has kept within the growth in resident household incomes.

“To show that each BTO project is priced substantially lower than comparable resale flats due to the significant subsidies, we show the recently transacted prices of comparable flats at each BTO launch.”

The projects for the November 2022 sales exercise and the transacted prices of resale flats in the vicinity of each project can be found on the HDB InfoWEB.

On land costs, HDB stated that it pays a fair market value for land that is developed into public housing. This market value is determined independently by the chief valuer in accordance with market conditions and established valuation principles.

“As the land used for public housing is meant for developing affordable homes for Singaporeans, buyers of public housing flats are subject to more restrictions than flats sold in private residential projects,” it said.

HDB attributes the stringent eligibility criteria and conditions that buyers of public housing must meet to the lower land price compared to private housing in the same locality.

It reiterated that it ensures affordability in real terms for HDB flat buyers by providing worked illustrations to show how homebuyers with varying household incomes can afford the different flat types. It also displays information on construction and development costs of the BTO projects on HDB InfoWEB and GeBIZ.

In 2022, HDB launched 23,184 BTO flats, exceeding the target of up to 23,000 flats. A total of 12,814 flats were launched across 15 projects in NME, while 10,370 flats were launched across 13 projects in ME.

Significant deficits are also incurred by HDB every year in the Home Ownership Programme as construction and land costs cannot be fully covered by the selling prices of flats. This is reflected in HDB’s Annual Reports found on the HDB InfoWEB.

In the financial year of 2021/2022, HDB recorded a deficit of $3.85 billion in its Home Ownership Programme as compared to $1.95 billion in the financial year of 2020/2021.

This deficit stems from the gross loss on flat sales completed, disbursement of Central Provident Fund (CPF) housing grants to eligible resale flat buyers and expected loss for flats that commenced development in the financial year.

HDB said it will remain committed to monitoring housing market conditions and keep public housing accessible to support home ownership among Singaporeans.