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

(22-08-2018, 12:24 PM)yeokiwi Wrote:

Quote: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.

I See. I did not take into account the event that owners who sold their HDB back to the government will need to purchase another flat. Does this mean that the financing of VERS will be borne by the new flat buyers?

It's a stroke of genius to reassure the public that their Flats will not be worthless at the end of the tenure.
While the devil is in the details, the long time line to firm up the details gives the extra boost needed to keep the odds in their favor in the next few elections.

The cost to demolish and build HDB is very low. The bulk/primary cost would be the land and how much the government is willing to sell it to us. Do bear in mind that it is a long time frame and even factoring very mild appreciation/inflation would give the future government more leeway in handling this program. I.e. You bought it for $XXX, now after 70 years with 30 years left, the govt can offer you $XXX. It is straightforward for those that bought direct and held on or passed to the next generation. Those resale ones would be more tricky, a large part would depend on the location and resale value. The resale value and BTO prices will need to converge, co-relate more and make sense. The way I see it, the prime areas, especially for new flats, will get much more expensive. It is already happening.

There is absolutely no strain on the budget(even though they would like you to believe so). It is highly likely the cost of the New flats will more than enough to offset the compensation made. There is already a large buffer built into the current system. At the end of the day, the selling price of the new flat is more than sufficient to cover the construction cost and probably some land cost, this point is key and what makes the scheme possible.

(22-08-2018, 07:47 PM)karlmarx Wrote: I See. I did not take into account the event that owners who sold their HDB back to the government will need to purchase another flat. Does this mean that the financing of VERS will be borne by the new flat buyers?

I think the financing of VERS will be largely be borne by those who will like to trade in a new flat for their current one.
I believe most will trade in since it is most likely a good deal.

The residual value of a HDB flat at 30 years is not low.
Assuming a rental value of $1500 per month for a 4 room flat, the valuation is $540000 for 30 years.

Even with some discount here and there on valuation, I suppose a a top-up of $100k to $200k is probably sufficient to run VERS.
And it is also a good time to flush those HDB owners with private properties out of the system or make them pay a premium

In recent years, HDB is also releasing more and more lands for EC. EC will become private condo in 10 years and it is quite unlikely that Gov will give EC owners a "VERS" rescue package. With more ECs, there will be less HDB owners to "rescue" from .

(23-08-2018, 09:26 AM)yeokiwi Wrote: The residual value of a HDB flat at 30 years is not low.
Assuming a rental value of $1500 per month for a 4 room flat, the valuation is $540000 for 30 years.

I highly suspect that won't be how the gov calculates it. Here's an example from HDB's Lease Buyback Scheme from its website:

4-room flat held under joint tenancy
No outstanding loan
Balance lease: 65 years
Market value: $450,000
Choose to keep a 30-year lease
Sell the tail-end 35-year lease to HDB for $190,000

(23-08-2018, 09:55 AM)lanoitar Wrote: I highly suspect that won't be how the gov calculates it. Here's an example from HDB's Lease Buyback Scheme from its website:

4-room flat held under joint tenancy
No outstanding loan
Balance lease: 65 years
Market value: $450,000
Choose to keep a 30-year lease
Sell the tail-end 35-year lease to HDB for $190,000

You get the $190K upfront upon agreeing to sell the balance 35 years lease balance to HDB. For that, there should be some discounting to the market value. It's a pretty fair deal.

(23-08-2018, 09:26 AM)yeokiwi Wrote:

(22-08-2018, 07:47 PM)karlmarx Wrote: I See. I did not take into account the event that owners who sold their HDB back to the government will need to purchase another flat. Does this mean that the financing of VERS will be borne by the new flat buyers?

I think the financing of VERS will be largely be borne by those who will like to trade in a new flat for their current one.
I believe most will trade in since it is most likely a good deal.

The residual value of a HDB flat at 30 years is not low.
Assuming a rental value of $1500 per month for a 4 room flat, the valuation is $540000 for 30 years.

Even with some discount here and there on valuation, I suppose a a top-up of $100k to $200k is probably sufficient to run VERS.
And it is also a good time to flush those HDB owners with private properties out of the system or make them pay a premium

In recent years, HDB is also releasing more and more lands for EC. EC will become private condo in 10 years and it is quite unlikely that Gov will give EC owners a "VERS" rescue package. With more ECs, there will be less HDB owners to "rescue" from .

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.

https://www.bca.gov.sg/keyconstructionin...l_4q15.pdf

According to BCA 2015 stats, the cost of building a high rise flat here is US$1,360 or S$1,900 per square metre. Translated to square feet, this is about S$176 per square feet.

The prices of BTO flats is currently at about $310-$320 per square feet.

For the government to continue its fiscal sustainability, this means to buy back a flat with 29 years lease or less, the government should only consider a cost of $140/psf for cash flow sustainability.

The government can pay higher than $140 per square feet if it is confident it can sell off a fresh 99 year lease at a price higher than the current per square feet pricing. However this means that starting wages of fresh graduate have to rise. This is to avoid young couples from being priced out of affordable housing.

(23-08-2018, 11:01 AM)miningminds Wrote: 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.

(23-08-2018, 09:49 PM)CY09 Wrote: https://www.bca.gov.sg/keyconstructionin...l_4q15.pdf

According to BCA 2015 stats, the cost of building a high rise flat here is US$1,360 or S$1,900 per square metre. Translated to square feet, this is about S$176 per square feet.

The prices of BTO flats is currently at about $310-$320 per square feet.

For the government to continue its fiscal sustainability, this means to buy back a flat with 29 years lease or less, the government should only consider a cost of $140/psf for cash flow sustainability.

The government can pay higher than $140 per square feet if it is confident it can sell off a fresh 99 year lease at a price higher than the current per square feet pricing. However this means that starting wages of fresh graduate have to rise. This is to avoid young couples from being priced out of affordable housing.

It's likely that the new development will be taller than the old one. If a 30 floor HDB replaces a 10 floor one, then the "land profit" of 3 units can be used to pay for the "land cost" of one old unit - (315-176)x3 = 417 psf. Of course this is just based on HDB breaking even, obviously it wouldn't make sense to purchase a 70 year old flat at a higher price than selling a brand new one (but then again the whole narrative is about each couple being born with a silver key so...)

(24-08-2018, 12:15 AM)slowandsteady Wrote:

(23-08-2018, 09:49 PM)CY09 Wrote: https://www.bca.gov.sg/keyconstructionin...l_4q15.pdf

According to BCA 2015 stats, the cost of building a high rise flat here is US$1,360 or S$1,900 per square metre. Translated to square feet, this is about S$176 per square feet.

The prices of BTO flats is currently at about $310-$320 per square feet.

For the government to continue its fiscal sustainability, this means to buy back a flat with 29 years lease or less, the government should only consider a cost of $140/psf for cash flow sustainability.

The government can pay higher than $140 per square feet if it is confident it can sell off a fresh 99 year lease at a price higher than the current per square feet pricing. However this means that starting wages of fresh graduate have to rise. This is to avoid young couples from being priced out of affordable housing.

It's likely that the new development will be taller than the old one. If a 30 floor HDB replaces a 10 floor one, then the "land profit" of 3 units can be used to pay for the "land cost" of one old unit - (315-176)x3 = 417 psf. Of course this is just based on HDB breaking even, obviously it wouldn't make sense to purchase a 70 year old flat at a higher price than selling a brand new one (but then again the whole narrative is about each couple being born with a silver key so...)

For now, owners of SERS flat receive a brand new 99 year lease HDB flat as replacement, and this is after many years of waiting. And we call this as "Generous" package.   Do you actually expect the replacement for VERS flats with remaining life of 29 year or less to be a brand new 99-year lease flat ? and call it "Less Generous"

Generous:  ~40-year SERS flat -> a brand new flat with 99-year lease 
Less Generous:  71-year or older VERS flat  ->  a brand new flat with 30/40/50-year lease