Old HDB flats for new: Over 9 in 10 back scheme

Dear Straits Times,

I refer to the 12 Feb 2011 Straits Times report on selective en bloc redevelopment.

Retiree Pay Meng Hock reportedly paid $9,500 for his three-room flat in 1973 but relocated to a $310,000 five-room unit in 2006. He paid only $152,000 after receiving a compensation of $158,000.

Mr Pay’s three-room flat was worth $9,500 in 1973 and $158,000 in 2006. That represents 8.9% annual price increase. If we assume the same 8.9% annual price increase for the five-room flat, the five-room flat should be worth $18,639 in 1973.

If Mr Pay had bought a five-room flat right from the start in 1973, he would only have paid an extra $18,639 – $9,500 = $9,139. Even if we were to account for inflation, Mr Pay would be paying an extra $20,947 only.

But because he bought it much later, in 2006, he ended up paying an extra of $152,000 instead. So he ended up paying a lot more because of the 8.9% property price inflation from 1973 to 2006.

In the case of polytechnic lecturer Mr Gareth Lai, whose four-room flat in Jalan Membina jumped from $110,000 in 2005 to $700,000 today, property price inflation is 36.1% annually. So if Mr Lai were to upgrade to a five-room flat or a maisonette in the same area in future, he would end up paying more than he would had prices not climbed so rapidly.

Mr Pay’s and Mr Lai’s cases represent property inflation of 8.9% and 36.1% respectively. Did salaries increase by 8.9% annually between 1973 and 2006 or 36.1% annually between 2005 and today? Property inflation has clearly far outpaced salary growth. This benefits land owners the most and represents generations of wealth transfer from home buyers to land owners. The government, being the biggest land owner of all, is the ultimate winner of property inflation.

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One Response to “Old HDB flats for new: Over 9 in 10 back scheme”

  1. defennder Says:

    That’s an interesting perspective, one that I have never thought of viewing from.

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