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

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I'm not sure what you guys are discussing at bottom. This is the modern financial world, not the 15th century.

When you hold $100 of cash, do you own a piece of paper, or a promise? Or do you own 25 bowls of Bak Chor Mee?

When you hold $100k of a 100 year bond, do you not call it an asset? Or do you call it a promissary note?

When you pay 250k for a HDB flat (let's call it an asset).
- have you ever encountered a landlord who rents something out to you for 99 years with a gauranteed rental?
- are you not able to re-sell the asset? Potentially for profit?
- are you not able to rent the right to live in the flat to another party? (rules permitting).
- are you not able to will the proceeds of the flat in your will to your family?

You can call it "rental" if you like. But that's mere semantics. What ever it is, you are able to treat it like an asset.

Even freehold is not "forever". It can be acquired by the government, or perhaps a war, or drastic change of government might take away that property. At most, a freehold holds up its price better (and that's why freehold have higher prices than leasehold anyway).

If you have the ability to sell it, to rent it out, or to leave it to your family in a will, it qualifies as an asset (albeit with time decay in option terms).

Let's do a thought experiment. Let's assume 999 years is effectively "forever". Let's say you "rent" for 20,000 per year for 49, 99 and 999 years respectively. Discount all cashflows at 3%. What is your PV in all 3 cases? It is, respectively 255k, 315k and 333k. The difference between the 99 and 999 year case is just 18k. The difference between the 49 and 99 year case is much greater at 60k. The differences become much less when the discount rate is larger. At 7%, your 99 and 999 year PVs are within $200 of each other!

In other words, paying up front for your "lease" is an inflation trade! your HDB flat is an inflation protected asset (balanced against time decay). In the past (when our economy was growing), when thousands of Singaporeans could buy a HDB, then trade up to a private property by selling the HDB at a higher price, they were (A) benefiting from the inflation trade and (B) obviously treating their HDB flat as an asset. So I guess whether you call it a rental or an asset depends on whether you benefited from rising HDB prices? LOL

For a baby boomer, I don't think you have a right to turn around and blame the government for this situation. You can only manage it. Even if you never obviously benefited from rising HDB values during the go-go years, you did sit in a housing asset that you paid for and did not have to rent at increasingly higher rentals. If you are new to the housing market, then buyer beware.
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Btw, here's a link to the definition of the term "Money Illusion". http://www.investopedia.com/terms/m/money_illusion.asp
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99 years leasehold is 99 years leasehold.
Residual value at the end of 99 years? If it is not written on the paper signed during purchase.. good luck claiming on it.
If the government is so kind to change it from 99 years leasehold to freehold, thank you very much and I will start planning where to migrate to. sell HDB and perhaps migration is on the card. Never know when the government will be so unkind to change it from freehold to 49 years lease.
A country with weak legal system, rule of law will be doomed for sure.
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(31-07-2017, 04:43 PM)kichialo Wrote:
(31-07-2017, 04:01 PM)yeokiwi Wrote:
(31-07-2017, 03:46 PM)kichialo Wrote: What you purchase is not only the lease but also what's built on it. After all you did not build the flat yourself and have paid for the construction and building of the flat. The lease value can go to zero but there is still value in the infrastructure.

I suppose they will not stop you from carting the leftover concrete of your remaining house to any of your storage place.
But, since the lease is zero and you want your concrete, are you going to pay for the tear down of your unit or you assume the demolishing is free?

Do google residual value and its context and application in other parts of the world with leasehold property. Have a nice day.  Smile

For public housing, is likely zero since it will be torn down after 99 years !

Just my Diary
corylogics.blogspot.com/


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If there is residual value after leasehold expires, I'm sure these folks will be very keen to know:
http://www.straitstimes.com/singapore/ho...in-2020-no

Bro tanjm your though experiment is a fallacy. As you extend your time period value is skewed because of compounding. It is the same logic why Buffett said the Goldman S&P 10 years put is mispriced. Look at it another way. What is the value of the freehold, 99-year and 49 years after 100 years? For that you just need to read history or just Lee Rubber as a case study

In a hundred years' time we are all dead and the value is meaningless to us, but meaningless is different from no value
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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here is a report of private houses expiring in 2020.

http://www.straitstimes.com/singapore/ho...in-2020-no
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(01-08-2017, 11:18 PM)specuvestor Wrote: Bro tanjm your though experiment is a fallacy. As you extend your time period value is skewed because of compounding. It is the same logic why Buffett said the Goldman S&P 10 years put is mispriced. Look at it another way. What is the value of the freehold, 99-year and 49 years after 100 years? For that you just need to read history or just Lee Rubber as a case study

I may have phrased it badly, but you have missed my point.

My point is that HDB flats are an inflation trade (and inflation is compounded no?). By just buying a HDB flat with a up front payment, you have benefited.

Anyway, this thread is a political argument disguised as an economic one.

Cheers.
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(02-08-2017, 08:25 AM)tanjm Wrote: Anyway, this thread is a political argument disguised as an economic one.

Apologies in advance for my bluntness. But certainly, this HDB as a 99 year "rental" argument surfaces every now and then, and I'm tired of it.

In my view, all conditions are up front - you take it or leave it. From an economic point of view, the HDB flat is more like an asset. People are now complaining about the 99 year thing as if they did not know it all along and the govt is like trying to cheat you. The fact is, society as a whole has benefited from the HDB program - even if all they did was purchase the flat and live in it (I will not rehash my arugments).

The average living space per person in Hong Kong is 47.8 square feet with (https://www.hongkongfp.com/2015/07/27/th...ing-space/), and with an average of 40% of a household's income going to rental. A young person in Hong Kong expects to work for 25 years before they can buy their first home (https://www.cnbc.com/2016/11/15/dream-of...eople.html).

The average living area per person in Singapore by contrast (where home ownership - if you don't quibble about semantics - is 90%) is 140+ square feet (forgot where I saw that).

If there is an economic issue here, it is that by allowing use of CPF for housing, the govt has allowed the public to over consume housing, and reduce the adequacy of their retirement savings - but that's a topic for another thread, not this one.
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Besides "Money Illusion", I recommend you to read up "Present Bias" or "Hyperbolic Discounting" in behavioral science.
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(02-08-2017, 10:41 AM)tanjm Wrote: The average living space per person in Hong Kong is 47.8 square feet with (https://www.hongkongfp.com/2015/07/27/th...ing-space/), and with an average of 40% of a household's income going to rental. A young person in Hong Kong expects to work for 25 years before they can buy their first home (https://www.cnbc.com/2016/11/15/dream-of...eople.html).

The average living area per person in Singapore by contrast (where home ownership - if you don't quibble about semantics - is 90%) is 140+ square feet (forgot where I saw that).
Correction, I've just come across an academic report published in 2009. Per capita floor living space as follows:
SG : 258
HK: 75
Seoul: 140
Tokyo: 161
And of course, we have 90+% home ownership. Singaporeans vastly over consume housing.
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