Friday, August 06, 2004

Explaining that HDB subsidy 

Last week, a reader of The Straits Times wrote to ask why the Housing & Development Board (HDB) bases its subsidy for new flats to the market price rather than the cost of the flats.

“Most Singaporeans would have expected the selling price to be related to the cost of production, in this case the cost of land and construction,” he wrote. “Under the current pricing policy, the subsidy may be non-existent in the event that the cost of production is lower than the selling price.”

Today The Straits Times published a reply from Desmond Wong, a deputy director at the HDB.

Today, first-time HDB flat buyers can buy either resale or new flats. Those who opt to buy resale flats from the open market can take up a housing grant of $30,000 or $40,000, which allows them to enjoy a discount off the market price of the flat.

Those who opt to buy new flats from HDB also enjoy a discount off the equivalent market price of the flat.

The difference between what the buyer pays HDB for his flat and what it is actually worth in the market is a direct and real subsidy provided by HDB to the buyer.

Like the housing grant for resale flats, the provision of such a market-related subsidy in the case of new flats has enabled HDB to keep its flats affordable for the majority of Singaporeans.

Wow! Thanks for the enlightening explanation, Mr Wong.

With civil servants like these, it is no wonder that Senior Minister Lee Kuan Yew wants to pack some of them off to the private sector.

Granted that the subject of government subsidy involves economic and accounting principles that are not easy to explain to laymen. However, overly simplistic explanations which do not directly address specific questions raised only turn people cynical at government officers.


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