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11/09/2012

The flexible pricing formula for HDB flats



The clearest picture of what formula was used in HDB pricing was revealed by LKY last Sunday. It was at cost or cost minus. Though it was a general statement, let’s presume that it was construction cost plus a little land cost as the land originally acquired was at minimal cost under the Land Acquisition Act.

So the original formula is likely to be Price = Construction Cost.

Though it was not discussed, it was likely that after a while the Price was slightly adjusted to provide some profits for HDB. Thus the formula would be Price = Construction + profit.

I use a small p for profit as the profit then was really not much to talk about.

Then someone got an awakening. The CPF holders have a lot of money in their savings. They can afford to pay a more for their flats. Then I think the formula was changed to Price = Construction Cost + Profit.

I am now using a bigger P to equate a bigger profit being built into the price.

This went on for a while till someone got another enlightenment, like being struck by a bolt of wisdom, and the formula was changed to Price = Subsidised Market Price. There was no need for the big P any more. It was hidden in the Market Price.

Then more angry noises were heard and the formula was modified and explained in different ways. It was changed to Price = Resale Market Price with Subsidy.

Then more noises and anger. So the factor of Affordability crept in as many claimed that it was getting unaffordable. So the formula was modified to become Price = Resale Market Price with Subsidy subject to 30% of two incomes for 20 years and instantly it became affordable.

As price kept going up, the formula was revised to Price = Resale Market Price with Subsidy subject to 30% of household income for 20 years. More members can now contribute to make the price more affordable.

Again the price went higher and the formula was again revised to become Price = Resale Market Price with Subsidy subject to 30% of household income for 30 years. See, still very affordable. It was all over the media with the Housing Minister having his special pages to drum this affordability idea into daft Sinkies.

But this was not the end. The formula was again revised to become Price = Resale Market Price with Subsidy subject to 30% of household income for 40/45 years. 30 years simply were not sustainable.

This may not be the last change as the price is still going up. It is likely that the formula will be revised again and likely to be Price = Resale Market Price with Subsidy subject to 30% of household income for 60 years or 100 years.

Does anyone realize that the Cost factor has been missing since Price was changed to Subsidised Market Price? Yes, Cost is no longer a factor in the issue of pricing HDB flat prices. The price of future HDB flats will not be determined by Cost but by the 30% of household income and how long they allow the buyer to repay. It also means that the price of HDB flats, regardless of Cost, can keep going up as long as the salary goes up and the repayment period is extended.

This is called flexible pricing, or rubber band pricing, like luxury goods. It can go as high as the seller so wishes as long as it keeps to the 30% benchmark plus plus. The first plus is the household income. The second plus is the number of years for repayment which is inversely proportional to the Price. The longer the number of years taken, the higher can the price go up. The formula can thus be written as Price = Resale Market Price(with market subsidy) Plus Plus.

12 comments:

jjgg said...

Brudder brudder...with the entire Singapore economy and indeed the well being of the entire cpf balances being dependent on ever increasing property prices do you really expect the government to even make a serious attempt to rein it in? Get real ah...we are lucky they haven't sold hdb units on projected temasick losses..hehe

Anonymous said...

Do we have a government that cares for the people anymore?

Anonymous said...


Tell you the truth, only the Opposition now can really rein in the property bull run. Only them will make a serious attempt because they really got nothing much to lose in the first place.

oldhorse42 said...

I really wish you do not corrupt the word "subsidy".HDB pricing is not subsidised as it is not below cost.It is a discount from market price.The seller,in this case HDB,suffers no loss just earn a little less should it sell its flat in the resale market.It is in its interest to allow resale flats to appreciate in order to sell its new flats to citizen at higher and higher price.

Anonymous said...

They need a Sinkie dictionary for subsidy and affordable. Or Oxford/Webber need to explain these two words within inverted commas for the Singapore version of what they really meant.

Anonymous said...

Every dictionary I have consulted defines subsidy as;
Subsidy = Cost - Selling Price

There is no such term as "market subsidy". This is a PAPig word.
Invented by our Millionaire Ministers to confuse Sinkies.

Anonymous said...

@ ANON: November 09, 2012 8:56 AM
"Do we have a government that cares for the people anymore?"

This is the crux of the problem.
We don't have a government that cares for the people.
They stopped caring about 20 plus years ago.
It's been a very slow awakening process for all the Sinkies.
That's why grandfather call us daft in 2011.
And 60% still voted for the Millionaires' Party in GE 2011!

60% of your friends & relatives voted for the Pro Alien Party.
If you can convert your friends & relatives into Opposition voters.
You have within yourself the power to decide the next government.

Anonymous said...

Red bean, good article

Anonymous said...

your pieces on property are always spot on, exposing the ridiculousness of the sitn here.

Anonymous said...

The pigs only care about their fat bellies. The pap only care about their fat wallets. Only the angmo care about singaporeans. Although they failed to protect singaporeans from jap invasion, they did not force us to do NS.

Anonymous said...

Another factor that will upset all repayment plan or affordability is movement in interest rate ? Repayment period and price of property may be fixed but interest rate can definitely move up since we are at a all time low now

Anonymous said...

7.59am, definitely agreed with u. Keep it up