FROM the letter by the Housing Board's Ms Kee Lay Cheng ('How prices of new HDB flats arrived at'; ST, Nov 17), it would appear that new flats that are sold are not subsidised.
Ms Kee said that 'new HDB flats are... priced below their equivalent market values so that buyers enjoy a substantial market subsidy' - that is, they are sold at prices lower than those sold in the open market.
In fact, there is no such thing as 'market subsidy'. If a flat's price in the open market is $400,000 and the seller reduces it to, say, $350,000, he is giving a discount and not a subsidy. Likewise, if the HDB sells its flats at $350,000 each, it is giving a discount to what similar flats can fetch in the open market.
A subsidy is the difference between the cost of a product or service and the reduced price at which the product or service is sold or provided, the difference being absorbed by the Government to make the product or service available to those who may not otherwise be able to afford it.
Thus, if it costs $200,000 to build each flat (land cost + construction cost + consultants' fees and other incidentals) and they are sold at $150,000, then the HDB is giving a subsidy of $50,000. On the other hand, if it sells the flats at, say, $350,000, it is in fact making a profit of $150,000, even though it may be giving a discount of $50,000 to the market price.
The flats in Queenstown that are close to the MRT station were constructed after demolishing low- and medium-rise blocks that were constructed during the early 1960s. The land on which they stood was acquired at very low cost. Even allowing for inflation, the final costs of the flats cannot be the prices now quoted by the HDB. At these prices, the flats are not subsidised.
To say they are sold at these prices because they are near the MRT station is to place a value on them and not their cost. It would have been far better had the HDB said that, because the flats are located close to amenities, they will not be subsidised, but will be sold at cost or even at a small profit to subsidise flats that are not so well located.
Cheong Chee Mun
