Thursday, April 21, 2011

The Toxic Assets of Mah Bow Tan

Minister of National Development Mah Bow Tan may not appreciate it, but when he states that lowering the prices of new HDB housing will impact the prices of existing one million flats, he is opening a can of worms. He was responding to Workers' Party's stand against the present government's asset enhancement policy and blaming HDB for pushing up flat prices.

First a primer on the US subprime crisis which triggered the financial meltdown of 2007-2008. Borrowers with weak credit histories and dubious repayment capacity were encouraged by financial institutions to take on difficult mortgages. The sweetener was long-term trend of rising housing prices, and risks of a market downturn was never in the equation. Like everything else, the property market has boom and bust cycles. When home prices did fail, consumer wealth evaporated, and pulled down the banking institutions and their fancy refinancing cocktails.

What Mah Bow Tan has been flogging to the market is the housing equivalent of the toxic Lehman products, instruments packaging financial risk in esoteric derivatives and complex collateralized debt obligations. Seduced by promises of high returns of a resale market, potential home owners ignored or were ignorant of the risks of housing and credit bubbles. The scam is more pernicious in the Singapore context since the CPF fund which is the lifeline for retirement is depleted by 20 to 25 year loan repayments. Asset rich, cash poor, those caught in the ponzi scheme can either starve to death in the highrise pigeon holes or head for the MRT tracks. Now you know why LTA are in no hurry to install the safety barriers.

For the new HDB pricing to work, the current resale schemes may have to be jetisoned, hopefully along with the Minister. After all, HDB flats are on lease, outright purchase was never in the contract in the first place. HDB flats should be for residential purpose, not speculative intent. You want o gamble, go to the casinos.  If the flat owners decide to the relinquish the unit, say for an upgrade to accommodate a growing family, it can be resold to HDB at cost plus interest, equivalent to what CPF demands when the loan quantum is returned to the CPF account. And what kind of numbers can we expect? According to a link provided by a reader, the average cost to build a flat unit ranges from $110,752 (Jian Huang Construction, 465 Dwelling Units at Jurong West) to $179,314 (Tiong Seng Contractors, 1072 Dwelling Units at Punggol West). Which is significantly different from Mah's number of $300,000 a flat. The Workers' Party's proposal is definitely worthy of consideration.


  1. Please read this...& the video is very compelling...

    And may explain why the PAPIGs are so into the "free market all the way" and the selling [very un-wise & basically show their nature & low life intelligence] of critical strategic state assets (SPC, power generating stations/companies, Public transportation companies...etc)...

    And this the civil service (unknown number) and SPF/etc (same unknown quantity here) supports to the ultimate cost of everyone else in Singapore.


    Good day all.

  2. How to create something out of nothing... just change the plot density, stupid. Duh.. How many strata levels do you want to carve out of a plot of land? At the end of the day, you are just selling airspace and a slab of suspended concrete floor. Yes, there is a limit to how dense we should allow HDB developments to be, but my point is, the land price ppr is determined by the Chief Valuer supposedly without influence. By the way, which government body dictates plot ratios for HDB flats? URA as part of the Master Plan? or HDB? Talk about an incestuous relationship.

  3. HDB flats are toxic assets if prices are high and above 5X the median income of the population. The pricing is precarious and depends on non-fundamental factors such as sentiment, expectations, recent upwards price movement, greater fool theory. In short, a ponzi scheme where you expect there will be always someone else willing to buy at higher price.

    Firstly, HDB public flats are depreciating assets. It is basically a concrete shell with shelf-life of 70 yrs max.

    Secondly, HDB flats are not sold with land rights or strata-title rights. You have no say in the destiny of your "property" except to be able to re-sell the lease rights on the resale market.

    If you don't sell your HDB and continue leasing (staying) in it, then the economic value goes down year after year. You depend on inflation and sentiment forces to hold up the price of your HDB flat. And you depend on HDB random SERS programme to get out of your old and depreciated HDB flat into another new HDB lease, but often you need to increase or take up new mortgage.

    If you're 50+ and older, you may be in deep shit if HDB SERS compensation is not enough to cover the new HDB lease. HDB and banks (for sure) may not be willing to lend you money, or will only lend at high repayment rates.

  4. Hi, I enjoyed your post and have shared your findings with my friends on Facebook. Hope you don't mind.
    I'm interested to know, where did you get the information of the average cost of building a flat from? and these costs apply to 3-room, 4-room or 5-room flats?

  5. Love your posts as usual. I strongly agree the concept of housing as a home and shelter, not asset enhancements. Those who prefer grander addresses can choose the private developements. At least the buyers dont have to pay for the frills. I wouldnt trade my humble flat even if it goes to a million, but wouldnt be upset should it comes down because Im not selling. But if the rentals of other establishments come down, it would mean lower costs of living and we can all stretch our savings.

  6. Another question:

    Should we be paying property tax on a HDB lease?

  7. Hello Mr Insolen,

    The information for government tenders is available at
    A reader kindly provided the link at my "About Time To Come Clean" post. Unfortunately there's no breakdown by 3-, 4- or 5- room units.

  8. Yeah, just go to the GeBiz website and see how the PAP spends your money. I just saw that Mindef awarded Traders Hotel for rooms for incoming VIPs at price of $4,950.

    Just click on Tenders And Quotations under Past Opportunities on the left-hand margin.

    In the search criteria, select HDB for the Calling Entity, and General Building for the Supply Head.

    The description for HDB flats construction always begin with "Part A: Building Works at ......"

    Click on the Tender number to see the details like which companies bidded for the job, who won (always the lowest bidder) and what are the bidded prices.

    Unfortunately now you cannot access the actual PDF files which tell you the tender specs and technical / architectural drawings and the type of flats (3-rm, 4-rm etc) and how many of each type. Previously before in 2009 and earlier, visitors were allowed to download and open the PDF files.

    If you want to know the breakdown of flats, you need to search HDB website for their news release and link the estate and the exact number of units announced. Usually there is a gap of 6-9 months between the announcing of BTO by HDB and the actual award of the job in GeBiz.

    For example, the 1072 HDB flats in Punggol West is a BTO announced on 30th June 2010. This is the first waterfront / riverfront HDB project with premium finishings. That's why construction cost so expensive at $179K per unit. HDB's blurb as follows:-

    Waterway Terraces, the award-winning "First Waterfront Housing" project designed by Group8asia and Aedas along the Punggol Waterway, will have 1,072 premium flats. This is comprised of 178 units of 3-room, 588 units of 4-room and 306 units of 5-room flats.

    In line with HDB's vision of Punggol as an eco-town, the project - which was conferred the Green Mark (Platinum) Award - has the following eco features:

    * Facade design which minimises heat gain;
    * Use of solar power to supplement lighting needs in common areas;
    * Provision of separate recyclable refuse chute for easy recycling;
    * On-site compost bin for depositing of garden waste for decomposition; and
    * Installation of rain gardens to clean rain and runoff water prior to discharge into
    the waterway.

    Prices of these premium flats start from $186,000, $300,000 and $374,000 for 3-room, 4-room and 5-room flats respectively. [End quote]

  9. the frightening thing is that prices of HDB flats did not start galloping upwards until goh chok tong Claimed they are Assets whose prices can only be enhanced. after that, it was no holds barred. so it raises the question about manipulation of prices by the govt.

    what is interesting is that prices rise as the lease runs down. this is unbelieveable. btw, it is only the case for HDB flats.

    meanwhile someone should calculate how much one sq ft of an hdb flat costs today and how much it did each decade. we hear 4 room, 5 room flat, but so many have forgotten that these flats have been steadily shrinking in size. so in fact, one is actually paying a horrific amount more than indicated by the total price.

    besides price, what disturbs me is 85% of the population live in public housing - meant for poor people. this is not the case anywhere else in world, even fourth world countries. what does it say about singaporeans' financial level? what does it say about development generally and housing in particular? what does it say about land prices? what does it say about the standard of living in a so-called first world country which worships at the feet of the money god?

    i foresee that the number of suicides is die die(excuse the pun) going to rise, as more n more people over the years are unable to pay off the horrifically high mortgages. along the way, they will lose their jobs. finally they come to the point where no one will hire them becos of their age, never mind all the laws; they still have a mortgage and they have no CPF and very little if any savings.

    there is at best a very weak safety net, no matter what anyone who has never had to ask for help swears. burden it down with many who need help and it must surely break.

    all this sounds as fatal(pun intended) long-term as the stop at two policy and speak mandarin campaign.

  10. Seems the MIW really "like" all those "blood money or public funds" really a lot!

    Too bad in the next life they can't bring em with them...

    Crazy as crazy does!

  11. Absolutely madness to think that a fixed-life asset price can keep rising...

    Anyone who attended Accounting 101 will know about how such assets will only be worth their salvage value (usually very close to zero) at the end of their useful life (lease in this case)...

    I think MBK owes everyone an explanation of how can this not be the case with our 99-year leasehold HDB flats!

  12. No need MBT to explain. Just get rid of this lousy minister during this election. Establish an alternative, impound his passport, freeze his assets and claw back his ministerial salary!

  13. Read de-leviathan's excellent costing of how a 5-room flat generates a mark-up profit of about 46% for HDB.

  14. You need to think about what is it you want. Lowering of asset prices or increasing asset prices is good or bad. Looking at the above comments, people are complaining asset prices rising is no good (it's getting expensive argument) AND complaining declining asset prices is no good (declining value argument).

    Increasing prices is good for those in debt, ie those who own a place. It was a very tough time servicing debt and mortgage during 1998 - 2003! But was that period good for those without debt, ie generally without a home and mortgage. Not really, jobs were very hard to come by and no increments for those who had a job.

    Just remember more than 90% of households in Singapore own a home and mostly in debt. You certainly don't want your family members to cry over declining asset prices because it is extremely tough to soldier on paying and paying while watching their homes decline in value.

    So please have a perspective and conscience.. Almost everyone who wants a job have one, and hard work is the way of life. Singaporeans included.

  15. to Anon 9:51pm

    "Just remember more than 90% of households in Singapore own a home and mostly in debt."

    You are wrong, only 50%, and these people lease for 99 years from HDB. Children don't own the house. Increasing asset price would only lead to a lifetime of debt, retirement would not be possible for many people.

    What goes up has to come down. Singapore will face its sub-prime crisis if salary don't increase at the same rate as property. It's better for a few to bite the bullet now than the entire nation to suffer from lifetime of debts.