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

[CY09]

Hi Slowandsteady

You are assuming for every 1 HDB bought back, there will be 2 flats sold to cover the cost of acquisition and construction.

In my opinion, it is a very dangerous proposition because it means the population has to continuously double to continue the house of cards. Eventually the entire world's population has to be housed in Singapore because of the compounding effect. It is worth noting that global population will start to shrink in 2050.

I think the government may have to put a stop to this. Work under the principle of buyback 1 flat and sell 1 flat, aka zero population growth

[soros]

Do you understand the investment situation from the home buyer's side ?

If you paid $500,000 for 5 room flat with a 99 years lease and the lease has zero value at end of 99 years, you are going to lose roughly $ 5,000 each year.

if the same amount is invested in several income stocks such as reits paying 5-6% dividend each year, you would be receiving annual income of $ 25,000-$30,000. So if you paid the full price up front by cash , you are entering into an annual loss contract of $ 3,500 for the next 99 years.

Its all theoretical so don't lose any sleep worrying about it.

[specuvestor]

Do you understand the investment situation  from the home buyer's side ?

If you paid $500,000 for 5 room flat with a 99 years lease and the lease has zero value at end of 99 years, you are going to lose roughly $ 5,000 each year.

if the same amount is invested in several income stocks such as reits paying 5-6% dividend each year,  you would be receiving annual  income of $ 25,000-$30,000. So if you paid the full price  up front by cash , you are  entering  into an annual  loss contract of $ 3,500 for the next 99 years.  

Its all theoretical so don't lose any sleep worrying about it.

Hi Soros try input a reasonable 4% annual asset appreciation (inflation included) with 1/99 discount factor, throw in 3 to 5 times leverage and you’ll see easily why properties are sought after investment

The discount factor will start to be overwhelming the asset appreciation when the asset life is left 30 years, like commercial leases.

[egghead]

Do you understand the investment situation  from the home buyer's side ?

If you paid $500,000 for 5 room flat with a 99 years lease and the lease has zero value at end of 99 years, you are going to lose roughly $ 5,000 each year.

if the same amount is invested in several income stocks such as reits paying 5-6% dividend each year,  you would be receiving annual  income of $ 25,000-$30,000. So if you paid the full price  up front by cash , you are  entering  into an annual  loss contract of $ 3,500 for the next 99 years.  

Its all theoretical so don't lose any sleep worrying about it.

I'm amused by such comparison.  If we are comparing costs of housing, I see your example as paying only $5,000 per year rental (fixed for 99 years)for a 5 room HDB.  Whereas, the $25-30k return from dividend is just about enough to pay for rental for the same flat today (subject to market forces every 2 years for rental renewal).  This is of course discounting leverage, asset inflation, etc mentioned by specuvestor for property.

[specuvestor]

yes, actually $5k a year for rent is inexpensive, even for a median income of $4.2k per month, which is about 10% of annual income. Killer is that one has to pay the rent upfront to also cover the construction cost. That's why I agree with a VB who said that it is not "asset" per se but prepaid rent. But that doesn't mean this "prepaid rent" has no market value adjusted by current rental rates

Like I always said, I'm just thankful that I am not a HKer

[Ben]

Do you understand the investment situation from the home buyer's side ?

If you paid $500,000 for 5 room flat with a 99 years lease and the lease has zero value at end of 99 years, you are going to lose roughly $ 5,000 each year.

if the same amount is invested in several income stocks such as reits paying 5-6% dividend each year, you would be receiving annual income of $ 25,000-$30,000. So if you paid the full price up front by cash , you are entering into an annual loss contract of $ 3,500 for the next 99 years.

Its all theoretical so don't lose any sleep worrying about it.

We shouldn't look at everything from an investment point of view. For most people, a HDB flat is a basic needs, and buying decision should be based on affordability rather than investment returns. For those rich enough to consider buying a second apartment for investment purpose, then your logic may comes in. Even that, there are many variables to considers before we conclude the merits of each type of investment.

[corydorus]

Even if the economy grows at just 2% every years, I think EC after becoming private condo will probably still able to get enbloc way before the 70 -year mark.  The compensation for VERS probably would be just peg to or at most the cheapest replacement cost.

The point here is that with more ECs that are rolled out, the gov is essentially transferring more burdens out from the state to private owners. As to whether the EC can get enbloc a not, it does not affect the gov annual revenue nor reserves.

Burden i think is a heavy word because as I know EC owners make money after 10 years. If they make money that's mean gov loses isn't it ? That's tax payer money.

[corydorus]

Do you understand the investment situation  from the home buyer's side ?

If you paid $500,000 for 5 room flat with a 99 years lease and the lease has zero value at end of 99 years, you are going to lose roughly $ 5,000 each year.

if the same amount is invested in several income stocks such as reits paying 5-6% dividend each year,  you would be receiving annual  income of $ 25,000-$30,000. So if you paid the full price  up front by cash , you are  entering  into an annual  loss contract of $ 3,500 for the next 99 years.  

Its all theoretical so don't lose any sleep worrying about it.

I do not think HDB should be the right vehicle for investment comparison to stocks as we need to use it for home. This is home buyer side.
5K "annual rent" is very cheap. Is only a lost contract if you leave the flat empty for 99 years .... who does that ?

[swang107]

The first property is a home. Not an investment. Look at this policy over the long term, from the angle of social equity. Not across racial groups but across generational groups and you will think it is only fair.

So the old status quo/expectation is something like this.
- Young couple buy BTO flat, 99 year lease, live for 20 years, price appreciate. Sell to Upgrade to Condo.
- Sell to next generation of Young couple, left 79 year lease, live for 20 years, price appreciate. Sell to Upgrade to Condo.
- Sell to next generation of Young couple.......blah blah.
- Sell to last generation of young couple with 19 years lease left. Live for 19 years, wait for government to enbloc or buy back at the price of a brand new 99 year lease BTO at inflated price (99 years of price inflation+appreciation).

How is the above expectation realistic i wonder? It is stupid for any government to do this. How to finance?

So the NEW status quo/expectation should reset to something like this.
- Young couple buy BTO flat, 99 year lease, live for 20 years, price appreciate (or not) based on non-lease related market factors. Want to sell.
- Sell to next generation of Young couple. Since left 79 year lease, so good for them maybe can buy at lower price than new 99 year lease BTO. Live 20 years want to sell.
- Sell to next generation of Young couple. Since left 59 year lease, maybe can buy at even lower price.
- Musical chair to last lease owner, left 19 years, buy for cheap. Knowing it will expire and accepts the reality.
- Meanwhile general population mindset/expectation become "Aiyah, since cannot make money from housing, i invest in up-skilling myself, start a business or learn investing lah."

Which i think is GREAT.

The current status quo functions as a generational wealth transfer. When I was looking to buy my first HDB flat to start a family 8 years ago, i remember being pissed that I had to pay so much compared to what the initial owner paid for, and obviously buying a HDB with less lease remaining. Ask yourselves, why should each generation be forced to transfer their wealth to the older one? How is this equitable?

If your first reaction is to disagree..... go study Hong Kong first. Generational wealth transfer in addition to mass wealth transfer to that handful of property tycoons.