HDB carpark operations are profitable
Business Times
May 28, 2002
SINGAPORE
BY Lee Han Shih
CONTRARY to popular belief, the Housing and Development Board does not lose money on its carparks. In fact, it is making good profits out of them.
HDB, which houses 85 per cent of Singaporeans, is also the nation's biggest carpark operator. As a rough guide, it builds three parking lots for every four flats in its estates. It now manages more than 640,000 car, motorcycle and lorry lots.
Operationally, these are highly profitable. In financial year 2000-01, HDB made $87.1 million from its carparks - half of that 'contributed' by motorists' parking fines. The year after, profit eased to $80 million.
Yet, despite these figures, HDB carparks are officially losing money. Early this month, National Development Minister Mah Bow Tan told Parliament the carparks lost $99 million in financial year 2000-01 and $105 million in FY2001-02.
To reduce these losses, HDB has no option but to raise parking charges by 11 to 20 per cent come September, the minister told fellow MPs.
Mr Mah bears the brunt of a rising storm of protest over the rate hike. But some have rallied around him. Among them was Wee Kiat Sia, head of HDB's carpark section. In a letter to the Straits Times, Mr Wee said: 'The HDB residential carparks are heavily subsidised as current charges are way below the cost of providing these carparks.'
So are HDB carparks a money spinner or money loser?
It depends on how you tally up the cost.
Costs for projects such as carparks, MRT lines and power stations come on two levels: developmental (money spent to build them and to service loans) and operational (money spent running them).
Operationally, HDB carparks are profitable. But when interest payments are included, they plunge into the red.
HDB borrowed perhaps $4 billion from the government to buy state land and to build carparks. Servicing these loans is the single biggest expenditure item for HDB carparks - and the reason they are in the red.
When the carparks suffered a $83.6 million deficit in FY 1999-2000, interest paid to the government was $175.1 million. In FY 2000-01, the deficit was $99 million and the interest payment $186.1 million.
Taking away cost of interest, the carparks are immediately profitable: $91.5 million in 1999-2000 and $87.1 million in 2000-01.
When Mr Mah and Mr Wee talk about deficits and the need to raise rates, they include both developmental and operational costs in their computations.
This is not always the case with government projects. Take the MRT, for instance. The cost is split into two: MRT Corporation (now part of the Land Transport Authority) carries all developmental expenses, including interest payments; while SMRT runs the rail system.
This allows SMRT to show a profit and go for a listing. If SMRT were to bear both developmental and operational costs, it would run at a loss, there would be no IPO - and fares would have to be raised sharply to cover its deficit.
Can the same approach be applied to HDB carparks? If the government shoulders the building cost, the carparks will be profitable and there will be no need to hoist parking fees.
But it is not fair for the government to subsidise motorists at the expense of those who take public transport, Mr Mah told Parliament.
This leaves HDB with the full responsibility of running the carparks and making ends meet. Even if one accepts this, there are other solutions apart from raising parking charges.
Why, for example, is it still paying the government 4.5 per cent interest when it can refinance its loans at better rates? At 3.75 per cent, its interest cost would be cut by $31 million a year - the exact same amount it would get from the parking rate increase. Thus, a simple refinancing of its loans would do away with the need for the unpopular rate hike.
But a bigger issue is land cost. HDB may have overpaid for the land it bought for the carparks. Hence the deficit every year.
When a private landlord overpays, he lives with the losses, as it would be suicidal to try to pass the cost to customers. (If, say, Ngee Ann City upped its parking fees to $10 an hour, motorists would take their cars and their business to Paragon and Mandarin Hotel.)
As a monopoly, HDB has the luxury of being able to raise rates and make them stick. Car owners in housing estates may complain, but they have no other place to park. So they have been made to pay for HDB's mistake.
From this perspective, Mr Mah is not wrong to say there is subsidy for HDB carparks. It is just that the subsidising has been passed from the government to hapless motorists.
