Tuesday, July 22, 2008

How HDB flats are priced affordably

HDB adopts a market-based pricing approach so as to reflect the true subsidy that buyers enjoy. Under this approach, HDB determines the market value of the flat, based on its location, finish and other attributes. Then, it sells the flat at a discount to the market value. HDB buyers understand this, and appreciate that new HDB flats are priced lower than resale flats. Similarly, when they want to sell their flat in the open market, they do so at the prevailing market value, not at their cost of purchase of the flat.

We also wish to highlight that this approach has enabled HDB to continue to price its flats affordably despite the current sharp escalation in construction costs. Currently, a new four-room flat can cost close to $300,000 to develop, taking into account land, building and other costs. This is significantly higher than the subsidised price of a four-room flat in Punggol/Sengkang sold by HDB at about $200,000 to $260,000.

Source: How HDB flats are priced affordably

This is the story that's getting a lot of heat lately. I've managed to dig up a cartoon I drew in January 2007.

Readers are getting very annoyed at the revealed cost and demands a breakdown. If it's a minority who are in disagreement, it's probably no big deal. But when it's a majority, you can be sure where the problem lies with. I'm also very interested to find out because I find it highly suspicious that HDB is actually revealing the cost of construction.

My belief has always been from a macro economic viewpoint. If you keep the property prices high, people will have to work harder. That's essentially good for the economy.

Essentially, people are angry at the lack of information that HDB has been providing , or should I say not been providing, all these years.

The solution for HDB is very simple. This is just essentially a marketing or PR problem. I hope they do realise that this is a marketing problem in the first place.

First, stop beating around the bush and state the real cost of building a HDB flat, with the cost breakdown.

Secondly, don't be afraid to tell people the profit margin on each flat. There has to be a profit margin or else who would built the housing? Tell people that, loud and bashfully.

Third, listen to people and answer their damn questions straight. Understand that people can say whatever they want. Whether you want to implement it is another thing altogether. There's nothing the people can do except earn more money.

Fourth, educate the public on the concept of value. Value is the perceived benefit over the sales price. If you cannot change the sales price, improve the perceived benefit. It's basic marketing. It's like Starbucks is not selling coffee and Ikea is not selling furniture. If not, there's no chance in hell people will pay that kind of price and not complain.

Sometimes it's not about the price, it's about the value. Simple analogy, just because one's a millionaire doesn't mean one has to buy an orange for $10.

There's nothing to hide, unless there is something.

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