Why does HDB run a deficit in every fiscal year?

The short answer is that the HDB builds government HDB flats and sells them at a "loss" because the authority sells new HDB flats at below-market prices.

This means that the more HDB flats it sells in a year, the higher the deficit will be.

In the last fiscal year, the HDB launched 17,322 new HDB flats and delivered a total of 13,506 flats, up from 8,124 in the previous fiscal year.

The HDB has to bear the land and construction costs when developing new HDB projects. The authority will purchase the land from the state based on the market price as assessed by the chief valuer.

In an interview, HDB Director Chan Ming-rui said that every fiscal year, the amount collected from the sale of HDB flats is less than the total development cost paid, which is what we often call not being able to make ends meet.

As a result, HDB has been running a deficit every year due to the sale of new HDB flats, and the deficit has been increasing every year.

Only in the previous year (fiscal year 2020/2021), the deficit was once reduced to $2.34 billion from $2.66 billion in the previous year because the coronary disease epidemic hindered the construction progress.

The financial deficit borne by HDB each year is fully covered by the Treasury's appropriation.

In the last fiscal year, HDB received an allocation of S$4.4 billion, up from $2.346 billion in the previous year. Since its establishment in 1960, HDB has received a cumulative government allocation of S$42.97 billion.

Why did the deficit almost double last year?

The vast majority of last year's deficit stemmed from the Home Ownership Scheme (HOS), which amounted to $3.85 billion, nearly double the amount from the previous year.

The Home Ownership Scheme includes the development and sale of flats to eligible buyers and the payment of housing subsidies to eligible buyers of new homes and resale flats.

This deficit stems from three main sources.

1. Expected deficit of new HDB flats under construction (net increase of $2,262 million)

66% more pre-purchase HDB projects broke ground last year than the year before. The financial assistance provided by HDB to contractors during the epidemic, such as sharing the increased costs due to construction delays, and the measures taken by the authority to cope with disruptions in the supply of building materials, such as the use of alternative sites for the production of prefabricated components.

Construction costs have risen by about 30% since FY2019, and most of these costs have been borne by HDB.

2. Actual loss in the delivery of new HDB flats ($659 million)

3. Increase in the allowance for the sale price of new HDB flats by the authority to keep the price of new HDB flats below the market price and the CPF housing purchase allowance

The CPF housing purchase allowance granted to resale HDB flats and Executive Condominium (EC) buyers last year ($849 million) was more than the previous year's ($791 million).

In addition to the Home Ownership Scheme, the authorities' deficit came from.

1. municipal and HDB renovation programs, which are fully or substantially funded by the government. in FY 2021, the renovation program alone generated a deficit of $392 million, compared to a deficit of $242 million in FY 2020, an increase of nearly 62%.

With the relaxation of anti-epidemic measures and the gradual resumption of construction activities, 53,792 HDB flats were renovated through the Home Improvement Program last year, far exceeding the 18,595 flats in 2020.

Meanwhile, the authorities announced six neighborhood renewal programs. Another six Neighborhood Renewal Programmes were also completed last year, bringing the number of completed projects to 100.

three more HDB blocks also completed elevator refurbishment schemes, benefiting 136 households.

Spending on parking lot improvements and other regular works (such as drainage ditch reconstruction) also increased, bringing the deficit in this area to $352 million, up from $307 million last year.

2. To help individuals and businesses tide over last year's tough times, the authorities also provided financial assistance totaling $15 million to homeowners who defaulted on mortgage payments or renovation costs, and waived $115 million in rent for 8,500 eligible tenants of HDB stores or facilities.

3. The rental HDB-related assistance program, on the other hand, brought in a deficit of $121 million, and the authority also wrote off $3.6 million in rent arrears that were determined to be uncollectible.

How are the new HDB flats priced?

HDB has previously explained on several occasions how new HDB flats are priced. New HDB flats are not priced according to the total development cost of the pre-purchased HDB project, i.e. the construction and land cost, but according to the affordability level (affordability).

In other words, the pricing of new HDB flats is not linked to the land price, and even if the land price increases, the new HDB flats will not be sold at a more expensive price.

The authorities will first determine the market price of new HDB flats based on the selling prices of similar HDB flats in the vicinity, as well as the characteristics of individual flats (e.g. floor, location, convenience) and current market conditions. A substantial allowance is also provided to keep the selling price of new HDB flats below market price, based on household income and pricing of different types of flats.

Currently, new HDB flats in non-established HDB areas are priced at less than five times the median annual household income, and most new buyers who take out loans with HDB use less than a quarter of their monthly income to pay for their homes.

HDB said that in the first nine months of this year, the median price of new HDB flats in non-established HDB areas were

S$228,000 for a three-bedroom type

S$347,000 for a four-bedroom

S$473,000 for a five-bedroom

Will the deficit continue to climb next year?

HDB said that the number of HDB flats supplied by the authority, as well as current market conditions that affect development costs (e.g. inflation will lead to an increase in the cost of building materials, and a warming property market will also drive up land costs) will affect the HDB deficit, which is expected to continue to widen.

To meet the strong demand for housing, the HDB will put up to 23,000 HDB flats on sale this year and next, 35% more than last year's 17,000 flats. Depending on demand, the authorities will also launch up to 100,000 HDB flats between 2021 and 2025.

The booming resale market also means that the authorities will have to grant more CPF subsidies for home purchases.

In fact, the HDB has explained so much, just to tell you one thing.

The government is not trying to make money out of you, it's doing it at a loss, just so you can have a comfortable home.