About that $52,000 monthly rent…
The hottest topic on both the mainstream media and internet lately has been that HDB shop-lot in Tampines that attracted a successful bid of $52,188 rental a month.
Minister for Health Mr Ong Ye Kung expressed dismay at this outcome and said ultimately it would lead to “higher cost of healthcare one way or another”. More importantly, he noted that “higher rental bids do not necessarily translate to the best healthcare that the community needs”. (4 June, Facebook post).
He went to restate what has been previously reported in the news: MOH is working with HDB to launch a new tender system such that quality of care accounted for 70% of the tender evaluation, and rental price accounting for the remaining 30% with Bartley Beacon, another HDB estate.
Obviously, the recent trend of rapidly and sky-high rental bids has not gone unnoticed by MOH. In February 2024, a 2nd-floor clinic space, also located in Tampines (633 Tampines North Drive 2), attracted a successful bid of $39,938 rental a month. And if you think this is an outlier, the answer is negative. The next two highest bids were $39,888 and $36,138 respectively.
In January this year, a clinic space at Tengah went for a rental bid of $40,088. As you can see, the trend is ominous. So, getting to $52K today is something that is while “obscene”, (To quote Dr Hishamuddin Badaruddin, the doctor who originally made public this figure on his social media account) but hardly unforeseen.
Another interesting factoid is that these new HDB shop-lot are about 550 square feet in size, which is about 100 square feet smaller than shop-lots launched say, 20 years ago. Older HDB estates commonly have shop-lot sizes between 650 to 700 square feet. This loss of 100 square feet is about the size of a small consultation or procedure room. In other words, whereas in the past you can squeeze in two consultation rooms and a procedure room in to the HDB shop-lot, you probably can’t do that with 550 square feet. So, the assertation that the high rental is workable because you can have two doctors working in two consultation rooms simultaneously is a stretched one; what if suddenly an asthma patient needs a nebulizer? Are you going to neb him in the waiting area with the other patients? Or neb him in your consultation room and you suspend patient consultation in the meantime?
But the larger issue besides such operational ones is what is the role of the market and market forces in healthcare? In one corner, you have the “purists” who maintain that market forces will allocate resources most efficiently through the forces of demand and supply. So, $52000 rental is not a problem. The market will work itself out and everyone will live happily after. In the other corner, there are those who think the healthcare sector needs to be managed, and sky-high rentals do not lead to good outcomes for the public that requires such services.
But what does the Government say? Or at least, what did the Government used to say?
In 1993, the Government published a White Paper titled, “Affordable Health Care”. The White Paper was the work of a Ministerial Committee on Health Policies. The Committee was originally chaired by then Deputy Prime Minister Lee Hsien Loong followed by Minister Mr Dhanabalan, and its members were several Cabinet Ministers and Ministers of State.
Notably, right from the outset of the White Paper, this was stated, “Any healthcare policy has to trade off among four competing goals
- Equitable access
- Freedom of choice for patients
- Affordability; and
- Freedom to organise production and to price
No known health care system achieves all four goals simultaneously. A system can achieve three of them with some compromise. Which three to aim for depends on the prevailing social, financial and political conditions. Given Singapore’s environment, we have to compromise the last goal: freedom to organise production and price”.
(page 13, Affordable Health Care)
The Paper came up with a “Proposed Health Care System” that entails a “hybrid approach to controlling health care costs: neither to create a totally regulated national health service, nor to give providers full freedom to organise and to price health services in a completely free market”.
(page 14, Affordable Health Care)
Moreover, it was also stated in Chapter 2 of the same Paper “Health Care Philosophy” that “health care is an instance of market failure” (page 18).
Let’s now look at what happened when we let unbridled market forces determine our fate.
In 2008, the government tendered out a piece of 99-year leasehold land for the building of a private hospital. Since then, no land has been released for this purpose in Singapore. The tender was awarded on 18 February 2008. It involved a site area of 12,226 square metres yielding a Gross Floor Area (GFA) of 72,350 square metres or 778,775 square feet. The successful bid was $1,246,200,389. For those of us not accustomed to counting so many digits, that’s ~$1.25B or $1,600 per square feet of floor space. This was and I believe still the most expensive piece of hospital land ever sold. The hospital today standing on that piece of land is Mount Elizabeth Novena Hospital (MENH). If my memory serves me correctly, the 2nd highest bid was about half of this figure.
This is the free market at work. And by winning this bid, Parkway Hospitals (then) managed to maintain its dominant position in Singapore’s private hospital segment. But in the process, as most of us doctors will know, it also probably contributed to more healthcare inflation once the high land cost of this project was factored in. The total project cost was probably somewhere between $1.5B to $2B, once you include construction, equipment and commissioning costs. And this was more than 10 years ago.
This high land price has far-reaching consequences for us even now, some 17 years later after that momentous tender exercise. It probably also set a new benchmark for private hospital land in Singapore. In government land tenders, the Chief Valuer sets a secret reserve price for the piece of land being tendered. If all tenders come in below the reserve price, then the tender is not awarded. This non-award of tenders because all tenders came in below the reserve price has happened before.
One wonders, what will be the reserve price for private hospital land now, if a new tender is called? Can a new hospital operator come in to this market segment since the reserve price is certainly influenced to some extent by precedents?
Thankfully, this situation of a very high bid affecting subsequent tenders does not apply to this $52,000 bid. HDB has clarified that “The rental for this Tampines clinic does not set any price requirements for future tenders by HDB, and it also will not affect the rentals that HDB is charging other existing clinics,”.
Unfortunately, no government official has said the something to the same effect for private hospital land.
It is worth repeating here what those wise people wrote in 1993 in the Affordable Health Care White Paper, “health care is an instance of market failure”.
hobbitsma 