Should HDB flat pricing be affected by the reserve accounting policy?

I thank Senior Minister of State (SMS) Sim Ann for her reply to me on December 11. This is one step towards a more thorough and productive public discourse.

First, I would like to clarify that I do not claim HDB flats have been subsidised.  This is because the government has net positive cash flow from each HDB flat it sells disregarding land costs. Nevertheless, since the government has adopted a certain accounting method, we have no choice but to accept this and continue the discussion based on these methods. 

But even based on the government’s definition of the subsidy, it is not clear how the government has priced and subsidised HDB flats over the years. The so-called “net government subsidy” has fluctuated significantly over the years as a percentage of the total cost, based on the PSP’s research of the HDB’s financial statements over the past 20 years.  For most of that period, the “net government subsidy” was a positive percentage but there were times during the 2000s when it was negative, which means the government made a gross profit by selling flats at prices above its total cost.  (Please refer to the chart below)

SMS Sim Ann invoked the government’s usual defence that taking out the land cost in pricing HDB flats will require the government to draw from the national reserves. If public housing is treated as public infrastructure like schools and hospitals, which sit on what is regarded as state land because they are used by a ministry for public purposes, there will be no drawdown of reserves if we do not charge land cost when building HDB flats. Is the land used for HDB flats truly “disposed” by the government if HDB flat owners only own the rights to their flat and not the common areas and amenities, and the government can re-acquire the land anytime under SERS, and flat owners are arguably paying a fixed monthly rent for 99 years in today’s dollars upfront when they purchase their flat?

To reiterate what I have repeatedly said in my Facebook posts and speeches, Singaporeans collectively own financial assets totalling $1.57 trillion as of 31 March 2022, as reported in the Government Financial Statement. This does not include financial assets held by MAS and other statutory boards. The financial assets will continue to increase by at least $40 billion a year, because we have to convert our structural excess savings, mostly inflows into CPF, into foreign currency assets as our economy does not have enough investment opportunities.

With the passing of the MAS Amendment Bill on Reserve Management Government Securities (RMGS) in January 2022, the government is now able to use the RMGS to accumulate even more reserves. The RMGS will be used to absorb the $200 billion of additional reserves accumulated in the last few years on top of our excess savings. Even the drawdown on reserves for COVID-19, which is touted as a once-in-a-lifetime crisis, has hardly caused “a dent in the armour” of our trillion-dollar reserves. So how much money do we need to save for future generations? Is there any point in talking about providing for future generations when they are already assured of a few trillion dollars of inheritance?

The more urgent need now is to do more to help the present generation overcome their many challenges. Doing more means to stop increasing taxes like the GST, and to make better use of land sales proceeds and the remaining 50% of the Net Investment Return that has not been included in the Net Investment Return Contribution (NIRC) in the Budget which is about $20 billion for Fiscal Year 2022. We would not be drawing down on the reserves but using the annual investment returns on the principal.

The annual land sales proceeds is about $10 billion and this will be reduced to about $6 billion if HDB no longer pays the land cost. Based on the government’s current definition, the $4 billion not paid by HDB is “a drawdown of reserves”.  Our view is that the land sales proceeds should not be put into the reserves, but used in the current budget every year because state land is a perpetual asset whose value does not diminish over time but is renewed after the end of each lease term.

Our future is not guaranteed by how much reserves we have, but by having the future generation witness the success of the current generation. This in turn depends on how many good jobs we can provide for Singaporeans and how much financial security we give Singaporeans, so they have the leeway to become resilient, innovative, and productive. If we need to use more of our annual investment returns (not the principal) to achieve that, we should not hesitate to do so.

Singaporeans deserve better.

For Country, For People.

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