HDB’s tender costs up 22%, but flat prices not linked

With the Housing and Development Board’s (HDB) development costs up over the last year, young couples looking to buy a new flat may ask: Would I have to pay more?

For Financial Year 2007-8, tender prices for its construction works grew about 22 per cent. In June, National Development Minister Mah Bow Tan had estimated they could jump another 20 per cent this year.

Releasing the HDB annual report on Monday, chief executive officer Tay Kim Poh gave homebuyers his assurance the HDB had a “good framework to manage” the costs. “We have a core of building contractors who have been providing good service at reasonable prices … we also help them through various ways, for example, bulk contracts of materials. So, they are able to quote better prices for building contracts.”

Mr Tay also stressed that the pricing of flats is not pegged to development costs. Instead, the board looks at “the market price of comparable flats in the area, the profile of the flat buyers, their income level ˜ and from there, we determine the level of market subsidy that we need to give”.

The board said over FY07/08, HDB building developments were “adversely affected” by the hike in costs fuelled by “strong construction demand both globally and in Singapore”. The industry also encountered volatile oil and steel prices.It put in place “additional cost management measures”, such as reviewing its specifications and requirements”, and has procured materials such as cement and sand through bulk contracts.

“This will help to minimise price uncertainty and reduce the pricing of risk by (contractors) during tenders, which might lead to more competitive tender offers,” said the HDB. “Generally each supply bulk contract will last between 1 and 3 years.”

Even so, PropNex chief executive Mohd Ismail noted that the gap between prices of new flats and market prices “has narrowed” because of construction costs. “A brand new unit versus a resale unit, we are talking about less than 20 per cent,” he told CNA.

On the supply of new flats to meet demand, Mr Tay said 8,400 new flats were being added this year, with 5,000 of these already launched. As for the resale market, he dismissed the view prices are being driven up by permanent residents. “The increased demand for resale flats comes from all segments: First-timers who can’t wait, upgraders and permanent residents.”

With resale prices of HDB flats up 4.4 per cent in the second quarter, property agents were quoted in a July 2 Today report as saying the resale market would still be fuelled by strong immigrant demand.

Mr Tay said with the HDB increasing supply of new flats, “this will relieve pressure on the resale market”.

Source : Today – 18 Sep 2008

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