There has been much discussion and debate in recent days about censorship, freedom of expression and the Press.
My regular HDB insider sent me the following very interesting article (Straits Times, Aug 16, 1981) on the issue of the costs of HDB flats:-
“HDB’s ‘guess-timates’ on the cost of housing
It is all a question of timing. If the Public Accounts Committee (PAC) had come up with their criticisms of Housing and Development Board accounting practices before the massive price hikes in May, the report would have been read and passed off without so much as a whimper.
But it comes how on the heels of the latest HDB price rises, the third successive increase in three years.
And with the fact that HDB flat prices have been increased by an average of 38 per cent fresh on our minds, it is no wonder that the PAC report has caused much concern among the public and Parliament.
Much of this concern stems from two major points made by the PAC.
The first is that the major activities of the HDB are not shown in the annual income and expenditure accounts of the Board.
As a result, “a complete picture of HDB’s performance annually” is not available.
The second springs from the fact that the HDB is involved in a variety of activities – from the sale of flats, leasing of land and manufacturing to other peripheral activities such as a quarry, a tile and brick factory.
The PAC calls for separate accounts to be kept so that the cost of housing can be clearly shown.
Also contained in the PAC report is the criticism of the “double account” system which the HDB practices.
What has sprung out of the PAC report is the erroneous impression that the “double account” system is the root of all evil.
It has resulted in a widespread feeling that a switch to a “single account system”, or as it is more correctly known “the general accepted accounting principle” will result in a true picture of the HDB’s performance.
Or of greater importance, the real cost of an HDB flat.
There is also the impression that perhaps the HDB is making money from the sale of flats.
This, if it were true, is tantamount to treason in the eyes of the Singapore public.
The HDB is thus under great pressure to change to a single account system, for that, in the minds of many, will enable the public to know the true cost of housing development, and perhaps even show that the Board has been making money from the sale of flats.
This is a simplistic view, and one that isn’t true.
The crux of the entire problem is not accounting systems, but the fact that the Housing Board is just not able to come up with the exact costs of building an HDB flat.
It follows then that the HDB cannot include the sales figures of HDB flats in the income and expenditure account because it does not have the corresponding costs of building the flats that have been sold.
Even the costs of flats given in the HDB’s annual report are at best “guess-timates” based on the tender prices of contractors bidding for the project.
And these are only average costs, which do not reflect the difference in costs in building flats in various parts of the island.
There are also hidden subsidies such as administrative costs, design supervision, architectural fees and interests on loans.
These costs are minor compared to the infrastructural costs of developing an entire HDB estate.
Ang Mo Kio, Toa Payoh, Woodlands – these are new towns literally springing up from nowhere.
The infrastructural costs of building feeder roads, link roads, sewerage system, telephone cables, electric cables and gas pipes are enormous, even mind boggling.
Just as important are the land cost which are not included in the breakdown costs contained in the Board’s annual report.
HDB estates are normally built on government acquired land – the Board has yet to find an equitable valuation method.
To complicate the issue of land cost even further is the fact that many HDB estates are not developed in one go.
If land costs are to be included in the computation of the selling price of an HDB flat, the Board is faced with the problem of figuring out ow to apportion the land costs between the various stages of development.
The matter is further complicated by the fact that estates grow in many ways. Sometimes, new blocks are built in old estates.
If the land costs were already absorbed by the original flats, are the new flats to be sold without land costs?
New land may be acquired for old estates at prices different from the original acquisition prices. Are the new flats to reflect this difference?
These are some of the vital questions that have to be resolved before the HDB can attempt to truly value their flats.
A high ranking HDB official admits that the Board does not have a detailed costing system for HDB flats.
The cost components are not well-separated, as such, true costs are almost an enigma to the Board.
Another high ranking government official also admits that the complexity of costing an HDB flat is a major stumbling block to the Board being able to give a complete picture of its performance.
Others even go so far as to say that it is not that the HDB does not want to, it just does not know how to.
The reason for this is historical. The HDB took over the functions, as well as the assets of the now defunct Singapore Improvement Trust (SIT).
The SIT, and even the HDB originally only leased these flats. As a result no proper records on the actual costs of low-cost housing were kept. There was no need to.
But this is no longer true of the HDB of today. Selling flats is its major activity.
The Auditor-General himself has noted that the major activities of the Board has changed, so much so that “proceeds from sales and leases of land which amounted to only $8,068,600 for the year ended Dec 31, 1964 has increased to $539,513,061 for the year ended March 31, 1980.”
It has reached such proportions that the sales figures must be included in the annual income and expenditure of the Board for a complete picture of its performance.
The HDB must thus start on the gargantuan task of working out the actual costs of an HDB flat as soon as possible.
Delaying it would only make their task more difficult, and even impossible in the future.
It has already made attempts to account separately the other costs such as car parks, hawker centres, markets and the results of these have been included in the annual income and expenditure accounts.
They have also stated their intentions to include in the income and expenditure account of 1980/81 the operating results of their peripheral activities.
These are steps in the right direction. But they are little steps in the path to the complete picture of HDB’s annual performance.
The giant leap is to show the profits or the losses resulting from the sale of flats.
The public should be told whether the HDB does make or lose money from the sale of HDB flats.
And if losses are made, the extent of subsidy must be known and as assessment of the degree of subsidy made.”
Leong Sze Hian