KHAW CONFIRMS VALUE OF HDB FLATS WILL BE ZERO AT END OF 99-YEAR LEASE

[opmi]

https://www.channelnewsasia.com/news/sin...y-10631442

PM Lee explains why HDB leases are 99 years long.

This statement is directed to people who still very keen on HDB legacy. I seen this happening in Taiwan where properties are not limited. Where children who has parent that manage to pass on their property and unfortunately to many who don't.


"He continued: “The owners would pass down the flat to some of their descendants ... Those not lucky enough to inherit a property would get nothing. Our society would be split into property owners and those who cannot afford a property. That would be most unequal, and socially divisive.”
Read more at https://www.channelnewsasia.com/news/sin...y-10631442"

Well, the PAP Govt can also revive estate tax on 2nd and subsequent resi properties if they are concerned about society splitting into property have and have-nots.

[memphisb]

It is a good reminder that HDB or Public housing is for live in with no worries about 99 years of rental fluctuations.

[karlmarx]

Singapore wants to be private banking hub of the East. Estate duty would have put off a lot of HNWI from storing their assets here. Therefore, no estate duty.

I agree with PM Lee's rationale for 99 years leasehold; long enough for yourself to live, and then to gift your children when you no longer need it. Your children, or yourself if you haven't already, could monetise (what little value is left of it) or stay in the flat (for perhaps a good 30 years), giving them a small boost to accumulate wealth faster.

There already exist a class of freehold property owners whose families are slowly accumulating more (freehold) properties. Some of the kids of these richer folks also purchase HDB flats. Thankfully, HDB policies offer sufficient protection to new property buyers from these rich folks, or HDB prices will be beyond the reach of the common man.

While limiting public housing to 99 years of lease is generally good, it also means that those that start at the bottom (no gift/inheritance from family) will have a much harder time accumulating wealth, and creating their own legacy. Social mobility is not impossible, just more difficult. The rich man's son, who may not have to pay to consume housing (as he stays in a big house, or one gifted to him), can instead spend his salary on a FH investment property. On the other hand, the average man's son will spend his salary servicing the 99 year leasehold mortgage.

Of course, there is nothing new in what has been mentioned. The rich always had an advantage in accumulating wealth faster than the average man. The richest families in Singapore were also the earliest migrants. Over generations, the stronger and smarter rich folks were able to fortify their financial position. But nature has a way redistributing wealth. The absence of a leader in the family, leading to conflicts and divestment of key assets; comfort leading to complacency and incompetence, leading to poor business decisions that cause ruin; excessive risk taking and bad luck, also leading to ruin; lack of male heirs (maybe due to chance, or not willing to continue trying, etc) to continue the legacy.

Anyway, that's just how modern capitalist societies work. Some countries do more to slow down inter-generation wealth accumulation, some do less. Singapore, I think, does enough to keep all segments satisfied. If you're feeling upset at being disadvantaged by Singapore's housing policies, I'll say that its just something that has to be accepted. You just have to work your butt off if you want to accumulate wealth. And then you can pass your wealth to your children, who will then have a head start, and probably a more privileged life. You may lament that you have to work so hard and for so long, and you probably won't have a lot of time to enjoy your wealth by the time you've amassed it. But someone has to start by doing the hard work, before their offspring can enjoy the fruits.

[specuvestor]

It's as per what we have been discussing but I'm disappointed that PM propagated the Goh idea of HDB being an asset rather than ownership / stake in Singapore. It's a need to have a roof over our head. Investment is not and should be contained to the pte property market. Which has been the message for decades until Goh.

As per discussed in multiple threads but think I'll just post here. Now to see if HDB will continue to bail out that psychology of HDB flats won't lose money with SERS. This has huge policy implications.

http://www.channelnewsasia.com/news/sing...in-8961090

This should be a warning to the PRs who are "investing" in HDB for rental/capital appreciation. Many bought with the idea that the HDB prices will never fall.

Man on the street thinks long term HDB prices will never fall.

I've posted this before: if u assume some 4% nominal appreciation annual, you will see prices start to stagnate around 60-70 years old and decline thereafter. We don't have flats that old YET.

So the key is whether govt will allow HDB flats to enter a structural declining phase. This will have huge impact on the population psyche and perception. Serious implications for the property market and political environment. A way to avoid the paradigmn shock is of course HDB to recover flats that are more than 60 years ago via SERS or otherwise.

But on a policy point of view, 99 years make a lot of sense. It provides for renewal of landscape.

I ask u all one question, if someone buys an hdb and lives in it. Is it an asset or liability? Since one day your hdb will become zero value

Your flat is an asset. Your mortgage is the liability. Hahha

How about:
Your flat is  prepaid rental expense in advance for 99 years. Mortgage is liability.

From layman point of view it's an asset because for most part of the 99 years it is appreciating partly due to inflation, plus the 4X leverage kicker... so positive reinforcement

From policy makers and econs point of view it is a COST. These are costs that contributes to our inflation and competitiveness... policy makers that focus on "asset appreciation" is either not very intelligent, smoking something or politically driven.. or all the above

Those who ''own'' an HDB , be it home or commercial are actually owning the lease , not the properties al at , all are tenants not owners of HDB.

I actually ask a HDB officer why we get title deed when we fully paid our HDB flat. Shouldn't it be master lease? Frankly I think there must be some legal implication in this arrangements that a lawyer would be able to explain. Which also comes to the next question below...

Just to share.

From a book that I had read, the word "Real" in the term "Real Estate" does not actually mean "real" in English language. Its from Spanish word that mean royal. In today's world, it means the our government. So the properties that people own actually belong to the government.

Excellent point... same meaning as the soccer team Real Madrid. End of the day the state is sovereign. That's why some say there is no difference between 99, 999 or FH since the state can take possession of it. But I do think there is subtle legal implications to it, just like strata titles. The anecdotal evidence is that FH preserve and increase in value much better than 99 over say >30 years.

[weijian]

Based on anecdotal evidence, there are grumbles of rising costs (GST, water prices) which may actually threaten the 4G leaders in the next election (in a few years time). This is probably in the right direction to directly show that they are protecting the most valuable "asset" for the majority of Singaporeans i guess?

[karlmarx]

Since HDB as an appreciating asset was promised in the past, the government has to do the necessary -- in this case, the VERS -- to fulfill this promise. As the next election is not so far away, this VERS is probably done in anticipation of the angry voters who are holding onto old flats. It was a terrible mistake to promise that a finite leasehold property is an appreciating asset. They must have felt that they were in danger of losing their seats, or perhaps they never really thought about the implications of such promises.

Now, the past over-promises has now come back to haunt them. And the cost? In about 20 years time HDB will have to buy back (or bail out, if you prefer), massive numbers of flats. We now have a million HDB flats. Assuming that 20-30% of them are now 40+ years old, HDB will have to buy back some 200k-300k. Assuming that each flat is bought back for $100k-$200k, 200k flats will cost HDB $20b-$40b. Hopefully, by then, Singapore would have accumulated enough surplus in its budget for this purpose. But this is not the end, as many more flats will continue to be 70years old and qualify for VERS, thereafter. So the real cost of this policy (on future budgets) is much bigger.

Unless the amount offered to buy back is low, the entire policy will be a poor use of resources. A fair buyout offer will be to offer an amount that is similar to what will be spent on improving the estate (Home Improvement Programme 2 when flats are 60-70 years old) instead of being bought back by HDB.

Effectively, the cost of HDB ownership has become cheaper. But the burden on the budget has become heavier. I wonder how this massive cost will be financed.

Could this be another policy mistake, intended to correct the first policy's mistake?

[money]

Since HDB as an appreciating asset was promised in the past, the government has to do the necessary -- in this case, the VERS -- to fulfill this promise. As the next election is not so far away, this VERS is probably done in anticipation of the angry voters who are holding onto old flats. It was a terrible mistake to promise that a finite leasehold property is an appreciating asset. They must have felt that they were in danger of losing their seats, or perhaps they never really thought about the implications of such promises.

Now, the past over-promises has now come back to haunt them. And the cost? In about 20 years time HDB will have to buy back (or bail out, if you prefer), massive numbers of flats. We now have a million HDB flats. Assuming that 20-30% of them are now 40+ years old, HDB will have to buy back some 200k-300k. Assuming that each flat is bought back for $100k-$200k, 200k flats will cost HDB $20b-$40b. Hopefully, by then, Singapore would have accumulated enough surplus in its budget for this purpose. But this is not the end, as many more flats will continue to be 70years old and qualify for VERS, thereafter. So the real cost of this policy (on future budgets) is much bigger.

Unless the amount offered to buy back is low, the entire policy will be a poor use of resources. A fair buyout offer will be to offer an amount that is similar to what will be spent on improving the estate (Home Improvement Programme 2 when flats are 60-70 years old) instead of being bought back by HDB.

Effectively, the cost of HDB ownership has become cheaper. But the burden on the budget has become heavier. I wonder how this massive cost will be financed.

Could this be another policy mistake, intended to correct the first policy's mistake?

It is not to hard to finance this massive cost. Raise the GST to 10%, then 12% then 15%. But we should also not forget that there are offseting factors as the government can redevelop and sell the new hdb flats; they also have the option of "revising" the plot ratio

[yeokiwi]

Assuming that 20-30% of them are now 40+ years old, HDB will have to buy back some 200k-300k. Assuming that each flat is bought back for $100k-$200k, 200k flats will cost HDB $20b-$40b.

From a cashflow perspective, the only cost that is incurred is essentially only the construction and demolish cost. As for the land, the gov is basically exchanging a new lease with an old lease. On paper, they may lose or gain money but they pay nothing.

So, if the new flat replacement cost, taking into account of the remaining land lease, is able to cover the construction cost, there is no real impact on the gov revenue since land sale is never included into Singapore gov revenue.

As for Hong kong, I think they are into troubles when their public housing leases expire.

I must admit that the guy who decided not to include land sale returns into gov revenue was a genius. The person had solved the problem into infinity. I am quite sure most HDB owners were be more willing to pay $100-200k to get a new lease and new flat. And, $100-200k is around the construction cost of each HDB unit now. As for those who cannot afford, it is either a downgrade or a top-up from Gov based on family income.

[opmi]

Assuming that 20-30% of them are now 40+ years old, HDB will have to buy back some 200k-300k. Assuming that each flat is bought back for $100k-$200k, 200k flats will cost HDB $20b-$40b.

From a cashflow perspective, the only cost that is incurred is essentially only the construction and demolish cost. As for the land, the gov is basically exchanging a new lease with an old lease. On paper, they may lose or gain money but they pay nothing.

So, if the new flat replacement cost, taking into account of the remaining land lease, is able to cover the construction cost, there is no real impact on the gov revenue since land sale is never included into Singapore gov revenue.

As for Hong kong, I think they are into troubles when their public housing leases expire.

I must admit that the guy who decided not to include land sale returns into gov revenue was a genius. The person had solved the problem into infinity. I am quite sure most HDB owners were be more willing to pay $100-200k to get a new lease and new flat. And, $100-200k is around the construction cost of each HDB unit now. As for those who cannot afford, it is either a downgrade or a top-up from Gov based on family income.

To add, lease/tenure is paper play. sign a paper then it is L99 again. Leasehold is partly decided by the President, because it is linked to the reserves. 

Construction cost is not $100k-$200k.  it is probably $50k per flat. Almost of the 'costs' is land cost at prevailing market price. Just that the PAP Govt policy  gave a 'market subsidy' to lower the price. Just google "market subsidy" Mah flat or search in parliament website

Paper + $50k construction at scale = VERS is viable. If the PAP Govt or whichever Govt at that time, removed the link between land sale proceeds and reserves. 
Besides $100-200K for L99, thats $84 per month. Public rental pricing. I also want.

In China, the CPC Govt already gave title to 小产权 (property without titles) in SZ. You think they wont give lease extension to HK properties. The bet is it will be renewed one. 

In Vietnam, also the same thing. Can renew one.

No sane Govt will take away land or house from people. It is sure way to lose power, next to hyperinflation.

[specuvestor]

This is an interesting discussion

Agree with Yeokiwi that to delink land sale and government revenue disincentivise irrational land sale or appreciation. That’s partially the problem with China regional government.

To rebuild is probably more value add than refurbish. The problem is that with rising HDB prices (not cost) what amount of reimbursement is sufficient enough to encourage VERS. Do we go by market price, property tax AV extrapolation, the original price bought from HDB, etc? Otherwise it’s just a good looking herring

Net net still it’s good to open this discussion now rather than wait for chickens to come home to roost

NB raising GST for housing is subsiding “asset” with consumption, not a good idea.