BTO flats priced affordably and without regard to profit

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The Lakegarden Residences at Yuan Ching Road Lakeside

Build-to-Order (BTO) apartments are priced keeping affordable in mind, using methods that are “totally independent and distinct” from the development cost as per a press statement from the Housing Development Board (HDB).

The Lakegarden Residences at Yuan Ching Road Lakeside sits in a desirable location in the Jurong neighbourhood. It’s a perfect location away from the fast-paced city life and allows homeowners to live in Singapore’s next.

The announcement, made together along with Ministry of National Development (MND) It explains the fact that HDB’s pricing model differs from private developers. “HDB’s flat pricing approach based on affordability is distinct from private developers the cost-based pricing method for private residential developments that considers provision for profit margins,” the statement states. HDB declares that it will not use a profit margin for expenses for BTO projects.

HDB is also clear that it has development costs through its home ownership program which is in contrast to profit-making private developers. “This is due to our distinct pricing principles, since HDB price flats in order to guarantee affordableness, while private developers set their prices for profits,” it reiterates.

According to HDB the statement was made in response to questions from media regarding the way BTO flat rates are established, as well as development costs which are incurred by HDB. Nicholas Mak, head of research and consulting for ERA Realty Network, also considers the statement to be an explanation of the HDB’s position to the general public, given the significant increase in HDB flat prices for resales. Between 3Q2020 and 3Q2022 The HDB price index for resales rose by 25.5%. “The most recent time HDB prices for resales grew in the same manner is in the property boom in the years 2010 and 2011.” the expert says.

Pricing is based upon affordability of the housing
To assess affordability of housing, HDB takes into consideration the household income of residents and compares them with the variety of flat styles and prices offered at each BTO launch with benchmarks, such as MSR, or mortgage servicing ratio (MSR).

It also notes that in the 1H2022 period the 90% of buyers who took possession of keys to their new apartments located in estates that were not mature had an MSR value of% or less, which means they employed the equivalent of 25% to less than their income per month to pay their HDB installment payments on loans and the rest was paid through each month CPF contributions. For buyers of flats in mature estates, over the 80% have an MSR that is 25% or less.

The ERA’s Mak points out the fact that it is the standard rule of thumb to have no greater than 30% percent of an individuals monthly income devoted to the mortgage. “In the same way, HDB BTO flats are thought to be affordable to most homebuyers,” he remarks.

Recognizing that every BTO project is unique and has distinct characteristics and local elements, when the pricing of flats that are brand new BTO apartments, HDB states that it will first determines the flat’s market value by comparing them with nearby resales flats, while taking into consideration the unique characteristics for the apartments.

Subsidies are also applied to estimated market value to help keep costs down, with the subsidies differing across projects based on the market conditions. If prices for release increase, HDB will correspondingly increase market subsidies, which are incorporated into the selling prices in order to keep BTO costs reasonable.

With these mechanisms in mind, HDB says its flat pricing policy is “totally distinct and inseparable” of the construction cost that are associated with BTO projects. “By increasing the amount of subsidy that is applied in an increasing property marketplace, HDB is able to keep BTO flat pricing fairly steady. This was the case in the last two years when construction costs have increased by nearly 30%,” it says.

According to HDB the HDB estimates that average BTO price on a basis of psf have been up by 22% for mature estates in the past 10 years. In non-mature estates, the average prices per square foot for BTOs have increased by 16%. The median household income of a resident employed was up 26% between 2012 and 2021.

“On in addition to the subsidy used, HDB provides housing grants to help certain population groups to attain their dream of owning a home and the amount of housing grants has been increasing several times in the same periodof time,” HDB adds.

Costs of development
In light of the huge subsidies given for BTO project, project’ construction costs, which comprise land and construction costs are not fully paid for by the sales prices, according to HDB.

In FY2021/2022, HDB registered a record deficit of $4.367 billion in the first quarter, with $3.85 billion of that attributed to the program for home ownership. This is mainly due to the net loss on flat sales that are completed (where keys are distributed to buyers during the year of financials) as well as the distribution of CPF housing grants to qualified buyers of flats for resales and the expected loss on flats that were developed during the fiscal year.

Particularly, HDB’s expense of flat sales that were completed was $5.346 billion. This includes mostly $3.167 billion for land development costs , and $2.077 billion for development costs. The remainder of $102 million comes from the cost of buying flats from flat owners who have sold their properties.

Additionally, HDB highlights that land utilized for housing for the public has lesser costs compared to the land that is used as private dwellings in the exact area. HDB is the one to pay the fair market value of the land utilized for BTO projects. The fair market value is determined on an individual basis by the chief valuer.