Jul 4, 2011

Two developers have released a joint statement to clarify a report published by The Business Times last week, claiming that Design, Build and Sell Scheme (DBSS) projects collects high gross profit margins for the developer.

“The article gave the impression that DBSS developers including Hoi Hup Sunway, are making huge profits from HDB’s design, build and sell scheme. Gross profit margins ranging from 19.1 percent to 75.8 percent were cited in a table accompanying the article,” said Hoi Hup Group and Sunway Group in a joint statement.

“We regret that by focusing only on gross profit margins, the article does not paint an accurate picture of the profitability of DBSS projects developed by Hoi Hup Sunway,” they said.

The report showed that developers can reap a gross profit margin of up to 76 percent from developing HDB’s DBSS projects. It also estimated that from five of the seven DBSS projects launched since 2008, developers earned gross profit margins of at least 28 percent.

BT said they compiled the figures by analysing the revenue, maximum gross floor area (GFA), estimated construction cost and land price.

However, the companies said that “gross profit margins do not take into account essential costs incurred by us. They include differential premium, financing costs, stamp duty, GST and marketing expenses.”

“Such essential costs for DBSS projects form a very significant chunk of total costs as compared with that for private mass market condominium projects, and therefore exert a large negative impact on profitability. The profitability of our projects should hence be measured by our net profit margins, which range from 15-18 percent, and not by gross profit margins.”

“We hope that this statement will help to give a more balanced view on the true costs and profitability behind DBSS projects.”

Meanwhile, National Development Minister Khaw Boon Wan also responded to the issue, saying in his blog that the article was “fraught with serious errors”.

“I was startled when I read the front page article,” he wrote in his blog.

He noted that the report quoted “a land price of S$82,222,000 and a maximum GFA of 721,188 square feet for the project. Both figures were wrong. The correct figures were respectively S$178,128,000 and 682,385 square feet. This was a huge difference of almost S$100 million. The errors led to a gross over-estimation by BT of the developer’s profit and gross profit margin.”

“Based on these figures alone, the profit margin would have been 26%, not 76%,” noted Mr. Khaw.

“I have been in MND for 5 weeks, and not sleeping well. I am working my guts out to try to calm the market, for the good of all Singaporeans. But I can’t do it alone. I need all to help.”

“I hope our media can do their part too. There is some panic buying out there, by people worried that prices will continue to rise. Sensationalised articles will merely feed the frenzy,” wrote Mr. Khaw on his blog.

Info courtesy –