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Thread: Profit margins for DBSS developers 'look high'

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    Default Profit margins for DBSS developers 'look high'

    Business Times - 30 Jun 2011


    Profit margins for DBSS developers 'look high'

    Gross profit margins can be up to 76%; five of seven projects have yielded at least 28%

    By UMA SHANKARI

    (SINGAPORE) Developers can make gross profit margins of up to 76 per cent from the public housing projects they develop under HDB's design, build and sell scheme (DBSS), data compiled by BT shows.

    Five out of the seven DBSS projects launched since 2008 earned their developers gross profit margins of at least 28 per cent, BT estimates.

    This is comparable to the 30-40 per cent gross profit margins that property groups can earn when they develop private mass-market projects.

    But in some cases, DBSS margins were even higher. Sim Lian Group, for example, stands to make a gross profit margin of around 76 per cent from its recently launched Centrale 8 in Tampines - even after it announced prices that were lower than previously indicated.

    In absolute terms, Hoi Hup Sunway reaped the highest gross profit for its 1,203-unit The Peak @ Toa Payoh - netting some $257 million in all.

    On the other extreme were Sim Lian Group's 360-unit Parc Lumiere in Simei, and Qingdao Construction's 480-unit Natura Loft at Bishan, which earned the developers $45 million and $48 million respectively.

    BT added the land cost and the building cost - using a generous construction cost estimate of $200 per square foot per plot ratio (psf ppr) - in order to calculate the total development cost for each project and arrive at the breakeven price. Industry watchers said that the construction cost could be as low as $160 psf ppr in some cases.

    But the back-of-the-envelope calculations do not take into account expenses such as finance, marketing and administration.

    The estimated total development cost was then matched against total sales revenue. For this, BT first took the average of the lowest and highest prices for each type of unit - three, four, or five-room flats - in a project, then multiplied the average cost of each type of flat by the total number of such flats available in the development.

    Some of the projects still have unsold units, industry players said - although the numbers are not significant.

    Analysts said that the profit margins look high. But they pointed out that since developers do not need to take 'public interest' in account, they will price the flats as high as possible.

    'I am surprised that the margins are so high,' said International Property Advisor chief executive Ku Swee Yong. 'All the more reason for us to re-examine the raison d'etre for DBSS in view of the need for a massive supply of affordable flats to satisfy the past five years of pent-up demand.'

    PropNex chief executive Mohamed Ismail Gafoor noted that private developers have a duty to their shareholders to maximise profit margins. 'So, I think the fundamental issue concerns HDB, which actually provides the opportunity for private developers to make this money.'

    In particular, not having a check on DBSS flat prices skews the market, he said.

    The DBSS scheme was first introduced by the government in 2005 to provide a more upmarket option for buyers as compared to basic build-to-order (BTO) flats, which are sold directly by HDB.

    But DBSS flats are also supposed to be a more modest option compared to executive condominium (EC) units, at least in theory, Mr Mohamed Ismail said. This is because eligibility, ownership and resale restrictions for public housing cease to apply for ECs after 10 years - effectively making them private homes.

    At Centrale 8 in Tampines, flats were initially priced at up to $750 psf - a price tag more commonly seen for private condominiums and higher than for most EC projects.

    This contravenes the government's aim to provide various types of homes - from the most affordable BTO flats, to DBSS flats, then EC units and then finally private homes - for homeseekers with varying levels of financial clout, Mr Mohamed Ismail said.

    Analysts have noted that the price gap between DBSS and EC units has narrowed in recent years.

    Nicholas Mak, head of research at SLP International, noted that in addition to giving homebuyers more options, the DBSS scheme was also mooted to give private developers a slice of the public housing market (since the property market was in the doldrums six years ago) and also to allow for more innovative building and design for HDB projects.

    'The government has to decide whether these objectives are still relevant today,' said Mr Mak.

    Copyright 2010 Singapore Press Holdings Ltd. All rights reserved.

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    Default Profit margins for DBSS developers 'look high'

    Business Times - 30 Jun 2011
    Profit margins for DBSS developers 'look high'
    Gross profit margins can be up to 76%; five of seven projects have yielded at least 28%
    By UMA SHANKARI
    (SINGAPORE) Developers can make gross profit margins of up to 76 per cent from the public housing projects they develop under HDB's design, build and sell scheme (DBSS), data compiled by BT shows.
    Five out of the seven DBSS projects launched since 2008 earned their developers gross profit margins of at least 28 per cent, BT estimates.
    This is comparable to the 30-40 per cent gross profit margins that property groups can earn when they develop private mass-market projects.
    But in some cases, DBSS margins were even higher. Sim Lian Group, for example, stands to make a gross profit margin of around 76 per cent from its recently launched Centrale 8 in Tampines - even after it announced prices that were lower than previously indicated.
    In absolute terms, Hoi Hup Sunway reaped the highest gross profit for its 1,203-unit The Peak @ Toa Payoh - netting some $257 million in all.
    On the other extreme were Sim Lian Group's 360-unit Parc Lumiere in Simei, and Qingdao Construction's 480-unit Natura Loft at Bishan, which earned the developers $45 million and $48 million respectively.
    BT added the land cost and the building cost - using a generous construction cost estimate of $200 per square foot per plot ratio (psf ppr) - in order to calculate the total development cost for each project and arrive at the breakeven price. Industry watchers said that the construction cost could be as low as $160 psf ppr in some cases.
    But the back-of-the-envelope calculations do not take into account expenses such as finance, marketing and administration.
    The estimated total development cost was then matched against total sales revenue. For this, BT first took the average of the lowest and highest prices for each type of unit - three, four, or five-room flats - in a project, then multiplied the average cost of each type of flat by the total number of such flats available in the development.
    Some of the projects still have unsold units, industry players said - although the numbers are not significant.
    Analysts said that the profit margins look high. But they pointed out that since developers do not need to take 'public interest' in account, they will price the flats as high as possible.
    'I am surprised that the margins are so high,' said International Property Advisor chief executive Ku Swee Yong. 'All the more reason for us to re-examine the raison d'etre for DBSS in view of the need for a massive supply of affordable flats to satisfy the past five years of pent-up demand.'
    PropNex chief executive Mohamed Ismail Gafoor noted that private developers have a duty to their shareholders to maximise profit margins. 'So, I think the fundamental issue concerns HDB, which actually provides the opportunity for private developers to make this money.'
    In particular, not having a check on DBSS flat prices skews the market, he said.
    The DBSS scheme was first introduced by the government in 2005 to provide a more upmarket option for buyers as compared to basic build-to-order (BTO) flats, which are sold directly by HDB.
    But DBSS flats are also supposed to be a more modest option compared to executive condominium (EC) units, at least in theory, Mr Mohamed Ismail said. This is because eligibility, ownership and resale restrictions for public housing cease to apply for ECs after 10 years - effectively making them private homes.
    At Centrale 8 in Tampines, flats were initially priced at up to $750 psf - a price tag more commonly seen for private condominiums and higher than for most EC projects.
    This contravenes the government's aim to provide various types of homes - from the most affordable BTO flats, to DBSS flats, then EC units and then finally private homes - for homeseekers with varying levels of financial clout, Mr Mohamed Ismail said.
    Analysts have noted that the price gap between DBSS and EC units has narrowed in recent years.
    Nicholas Mak, head of research at SLP International, noted that in addition to giving homebuyers more options, the DBSS scheme was also mooted to give private developers a slice of the public housing market (since the property market was in the doldrums six years ago) and also to allow for more innovative building and design for HDB projects.
    'The government has to decide whether these objectives are still relevant today,' said Mr Mak.
    Copyright 2010 Singapore Press Holdings Ltd. All rights reserved.

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    sorry dup posting, please close.

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    Default Profit margins for DBSS developers 'look high'

    Gross profit margins can be up to 76%; five of seven projects have yielded at least 28%
    By UMA SHANKARI
    (SINGAPORE) Developers can make gross profit margins of up to 76 per cent from the public housing projects they develop under HDB's design, build and sell scheme (DBSS), data compiled by BT shows.

    Five out of the seven DBSS projects launched since 2008 earned their developers gross profit margins of at least 28 per cent, BT estimates.

    This is comparable to the 30-40 per cent gross profit margins that property groups can earn when they develop private mass-market projects.

    But in some cases, DBSS margins were even higher. Sim Lian Group, for example, stands to make a gross profit margin of around 76 per cent from its recently launched Centrale 8 in Tampines - even after it announced prices that were lower than previously indicated.

    In absolute terms, Hoi Hup Sunway reaped the highest gross profit for its 1,203-unit The Peak @ Toa Payoh - netting some $257 million in all.

    On the other extreme were Sim Lian Group's 360-unit Parc Lumiere in Simei, and Qingdao Construction's 480-unit Natura Loft at Bishan, which earned the developers $45 million and $48 million respectively.

    BT added the land cost and the building cost - using a generous construction cost estimate of $200 per square foot per plot ratio (psf ppr) - in order to calculate the total development cost for each project and arrive at the breakeven price. Industry watchers said that the construction cost could be as low as $160 psf ppr in some cases.
    But the back-of-the-envelope calculations do not take into account expenses such as finance, marketing and administration.

    The estimated total development cost was then matched against total sales revenue. For this, BT first took the average of the lowest and highest prices for each type of unit - three, four, or five-room flats - in a project, then multiplied the average cost of each type of flat by the total number of such flats available in the development. Some of the projects still have unsold units, industry players said - although the numbers are not significant.

    Analysts said that the profit margins look high. But they pointed out that since developers do not need to take 'public interest' in account, they will price the flats as high as possible.

    'I am surprised that the margins are so high,' said International Property Advisor chief executive Ku Swee Yong. 'All the more reason for us to re-examine the raison d'etre for DBSS in view of the need for a massive supply of affordable flats to satisfy the past five years of pent-up demand.'

    PropNex chief executive Mohamed Ismail Gafoor noted that private developers have a duty to their shareholders to maximise profit margins. 'So, I think the fundamental issue concerns HDB, which actually provides the opportunity for private developers to make this money.'

    In particular, not having a check on DBSS flat prices skews the market, he said.
    The DBSS scheme was first introduced by the government in 2005 to provide a more upmarket option for buyers as compared to basic build-to-order (BTO) flats, which are sold directly by HDB.

    But DBSS flats are also supposed to be a more modest option compared to executive condominium (EC) units, at least in theory, Mr Mohamed Ismail said. This is because eligibility, ownership and resale restrictions for public housing cease to apply for ECs after 10 years - effectively making them private homes.

    At Centrale 8 in Tampines, flats were initially priced at up to $750 psf - a price tag more commonly seen for private condominiums and higher than for most EC projects.
    This contravenes the government's aim to provide various types of homes - from the most affordable BTO flats, to DBSS flats, then EC units and then finally private homes - for homeseekers with varying levels of financial clout, Mr Mohamed Ismail said.
    Analysts have noted that the price gap between DBSS and EC units has narrowed in recent years.

    Nicholas Mak, head of research at SLP International, noted that in addition to giving homebuyers more options, the DBSS scheme was also mooted to give private developers a slice of the public housing market (since the property market was in the doldrums six years ago) and also to allow for more innovative building and design for HDB projects.

    'The government has to decide whether these objectives are still relevant today,' said Mr Mak.

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    Another failed policy by MBT?

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    It's not a failure. You must view it from the perspective of maintaining good relationships with the industry and helping our homegrown developers to grow.

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    Quote Originally Posted by Jadey
    Another failed policy by MBT?
    initial intention was good....but its not properly handled and failed to differentiate dbss n HDB thus cannot justify the hefty px tag

    if they wana continue dbss, one way is to allow the possibility of privatisation of dbss(similar to HUDC) bcoz most dbss locations r quite good

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    Quote Originally Posted by hyenergix
    It's not a failure. You must view it from the perspective of maintaining good relationships with the industry and helping our homegrown developers to grow.
    At the expense of the homegrown homeowner..... So I guess that's OK then.

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    Dbss should take a back seat until the tight supply situation is over.

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    Or govt don't sell land to DBSS developers but just the contract!

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    Quote Originally Posted by ysyap
    Or govt don't sell land to DBSS developers but just the contract!
    That would be ideal.

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    Quote Originally Posted by devilplate
    initial intention was good....but its not properly handled and failed to differentiate dbss n HDB thus cannot justify the hefty px tag

    if they wana continue dbss, one way is to allow the possibility of privatisation of dbss(similar to HUDC) bcoz most dbss locations r quite good
    How you define good? Other than the boon keng one, the rest are nowhere near MRT stations.. Even the toa payoh and ang mo kio one are >500m away.. The bishan one cant even walk to MRT.. No good no good.. DBSS is doomed to fail.. The only thing they succeeded is to bring up the prices of resale flats around them haha..

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    Why HDB is losing money when developer is making such healthy profit from DBSS at the expense of Singaporeans?

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    privatising profits, socialising costs

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    Quote Originally Posted by linchong84
    How you define good? Other than the boon keng one, the rest are nowhere near MRT stations.. Even the toa payoh and ang mo kio one are >500m away.. The bishan one cant even walk to MRT.. No good no good.. DBSS is doomed to fail.. The only thing they succeeded is to bring up the prices of resale flats around them haha..
    i tot peak TPY is withn 5-7mins walk to mrt?

    only bishan one is far from mrt...

    both tamp dbss near to mrt and simei one aso consider near.....

    gd in the sense they r located in mature estate and mostly still within walking dist to mrt compared to tons of lousy BTOs

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    Quote Originally Posted by Jadey
    Why HDB is losing money when developer is making such healthy profit from DBSS at the expense of Singaporeans?
    OMG! y u ask such a question AGAIN?!?!?!?!

    fyi: HDB factored in the current market valuation of the LAND tat they r building the BTOs on.....

    pls dun lead this to post GE debate

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    Quote Originally Posted by devilplate
    OMG! y u ask such a question AGAIN?!?!?!?!

    fyi: HDB factored in the current market valuation of the LAND tat they r building the BTOs on.....

    pls dun lead this to post GE debate
    Fyi, DBSS land are bought through bidding process which are priced above market valuation of HDB BTO land. Developers are not given subsidized land to build DBSS.

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    Quote Originally Posted by Jadey
    Fyi, DBSS land are bought through bidding process which are priced above market valuation of any HDB BTO land.
    i din ask for tat answer/info ...did i?

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    anyway, singaporeans taking things for granted for too long!

    they simply calculate HDB profit based on the builder's cost px...

    i wud suggest HDB to price at cost px at a small plus and den factored in the cost of building the infrastructure like roads, nearby schools,parks, etc if any

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    Quote Originally Posted by devilplate
    i din ask for tat answer/info ...did i?

    neither did I ask you how HDB justify the cost of HDB flat.

    And using similar land cost formula, developers can make such healthy profit while HDB cant? HDB boleh?

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    Quote Originally Posted by Jadey
    neither did I ask you how HDB justify the cost of HDB flat.

    And using similar land cost formula, developers can make such healthy profit while HDB cant? HDB boleh?
    u post a question which i assume is open to all rite?

    hdb selling 400k for 5rm flat vs 7xxk for dbss....did u compare it correctly?

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    Quote Originally Posted by devilplate
    u post a question which i assume is open to all rite?

    hdb selling 400k for 5rm flat vs 7xxk for dbss....did u compare it correctly?

    I am actually asking why HDB is so generous to allow private developers to make so much money with HDB land, and yet they are constantly complaining they are losing money building HDB flat.

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    Quote Originally Posted by Jadey
    I am actually asking why HDB is so generous to allow private developers to make so much money with HDB land, and yet they are constantly complaining they are losing money building HDB flat.
    i dun see it tat way....HDB generous to let pte developers earn so much? den HDB shd set a min bid price? or u mean developers got the land for too low?

    HDB eevr complain they losing $$ meh? its more like ppl r complaining y HDB priced bto price so high so they goto justify ....so i reply u HDB include the land valuation determined by SLA and claimed they making a loss

    tats y i mentioned liao...sell HDB price at cost price no problem but where is the money gona come from to build the new infrastructure, new schools, new roads, new amenities etc? all the residents chip in to build too?

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    HDB didn't complain they lose money but MBT did mention it in one of his speeches earlier this year. Anyway, there are so many avenues which govt are getting money to build infrastructures, schools, buy jet planes, etc like income taxes, ERP, COE, GST, etc.. the list goes on and on and on!

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    Quote Originally Posted by ysyap
    HDB didn't complain they lose money but MBT did mention it in one of his speeches earlier this year. Anyway, there are so many avenues which govt are getting money to build infrastructures, schools, buy jet planes, etc like income taxes, ERP, COE, GST, etc.. the list goes on and on and on!
    den leads to govt reserves issue liao....y nid so much govt reserves...how much is enuff? i want a transparent statement of our taxpayers $$$

    hahaha GE again...oh ya presidential election coming!!!! time to vote again!!!

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    Then SLA also allow LVS and Genting to make so much money? What about offices? Like Suntec. They also make so much money.

    Even some chicken rice seller is making so much money. So should URA continue to rent the shop to them since they are making so much money? Or you think Government should ask them to sell chicken rice at cost price. And you earn your salary at $350 per month. Just like a communist country.




    Quote Originally Posted by Jadey
    I am actually asking why HDB is so generous to allow private developers to make so much money with HDB land, and yet they are constantly complaining they are losing money building HDB flat.

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    Quote Originally Posted by devilplate
    den leads to govt reserves issue liao....y nid so much govt reserves...how much is enuff? i want a transparent statement of our taxpayers $$$

    hahaha GE again...oh ya presidential election coming!!!! time to vote again!!!
    Hahahaha! Presidential election not that much fireworks! Still prefer GE!

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    Also, you forgot to include developer's risk. Let's say, they bid a high price for the land during good times. Then downturn suddenly come. And they are forced to sell at a loss because under the law, they have to complete it within a certain time frame.

    So it is a free market, with supply vs demand and risk vs returns.

    And do you know the price of DBSS vs HDB?



    Quote Originally Posted by Jadey
    neither did I ask you how HDB justify the cost of HDB flat.

    And using similar land cost formula, developers can make such healthy profit while HDB cant? HDB boleh?

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    Quote Originally Posted by thomastansb
    Also, you forgot to include developer's risk. Let's say, they bid a high price for the land during good times. Then downturn suddenly come. And they are forced to sell at a loss because under the law, they have to complete it within a certain time frame.

    So it is a free market, with supply vs demand and risk vs returns.

    And do you know the price of DBSS vs HDB?
    it is not a free market
    the govt came out pronto with a slew of measures to help property developers e.g. defer completion etc

    so fast forgot liao? lol

    & in recent times no developer ever sold at a loss

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    Free market as in developers can bid for land at their price. And buyers can choose to buy at their price.

    If you talking about defer completion, then it is policies. That is a given. Like a project has to TOP within a period, the plot ratio etc..

    And lastly, no doesn't mean never. No bank has ever failed doesn't mean banks will never fail.




    Quote Originally Posted by august
    it is not a free market
    the govt came out pronto with a slew of measures to help property developers e.g. defer completion etc

    so fast forgot liao? lol

    & in recent times no developer ever sold at a loss

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