[h=1]Looks like Aurvandil was correct in his prediction.
Analysis on reducing the HDB lease to 66 years[/h] October 3, 2011 by property
Filed under HDB Mortgage Loans
Leave a Comment
[h=1]Analysis on reducing the HDB lease to 66 years[/h]We are not surprised with suggestions of releasing HDB on shorter lease.
As we analyzed, there is a strong incentive for the Singapore government to realize “land productivity”.
(Source: http://www.scribd.com/doc/33276827/Economic-Strategies-Sub-Committee-Maximizing-Land-Value and http://www.asiaone.com/Business/News/My+Money/Story/A1Story20100222-200190.html)
This means that, low cost simple joys of life such as enjoying a coffee at a neighbourhood coffee shop that sells you a 70 cents coffee is considered LOW Productivity. How much can such businesses give the Singapore government in terms of revenues or property tax?
In order for land productivity to materialize, Singapore government cannot and should not maintain a balanced supply and demand situation. Instead, the Singapore government should produce less supply than there is demand, so that HDB prices and hence land prices can go up.
When land prices go up, then more revenues can be obtained, either via HDB or through various land holding/owning authorities.
[h=2]HDB studio retirement flats with 30 years lease[/h]In the past, the HDB has tried to create a sub-class of HDB flats (Still effective as at today) which are only 30 years lease. HDB tries to create a precedent and hopes that people will gradually accept 30 year land lease via the Lease and Buy back Scheme. On the surface, it seems like a great plan for retirees who are short of money, but in reality, due to the CPF used (with accrued interest), most of these retirees who let go of their normal 3-4-5 rooms HDB to go into such “Studio” and 30 years lease HDBs will have most of their money locked up by CPF, part of the money realized will go into an Annuity with CPF Live.
(http://www.hdb.gov.sg/fi10/fi10325p.nsf/w/MaxFinancesOverviewLeaseBuyback?OpenDocument)
[h=2]People are buying in flats that are very costly on a Per sq feet per year basis.[/h]For example a 99 years flat with 1200 sq feet cost $450,000. That works out to a $375 psf per 99 years.
• Or $3.79 per sq feet per year.
• Or $4,545 per 1200 sq feet per year.
Say for example, a 30 year flat with 500 sq feet cost $120,000. That works out to: -
• $8 per sq feet per year. (way more expensive than that of a 99 year lease)
In another scenario
In another scenario, the government offers a buy back of 40 years from a 70 years lease at $104,000 (valued 236,000 of 70 years → 40 years should be 40/70 x 236,000 = $134,857), thereby “making” $30,857 from the poor HDB home owner.
HDB lease and buy back
Of course, this offer by HDB is NOT BY FORCE, it is up to the individual. However we see this as a very BAD deal and urge home owners to reject it outright. Unfortunately, those people who are in those situation may not even have a computer, much less internet access, thereby possibly succumbing to a bad deal as they do not have enough knowledge.
(Source: http://www.hdb.gov.sg/fi10/fi10297p.nsf/ImageView/CORPORATE_PR_05032010_LBS_ANNEXA/$file/Annex+A.pdf)
[h=2]Private developers buy FreeHold land and sell it as 103 years lease hold land[/h]These buying of FH land and selling it as 103 years lease hold land is allowed under the common law.
These reduces the supply of FH/999 land and makes lease hold land more the norm for eventual gradual acceptance.
[h=2]SMALLER UNITS (Mickey mouse units)[/h]With the reserve list bidding deposit dropping from 5% of bid price to 3%, this means that developers will likely bid higher for the land. There is also a cap of $5m on the bid deposit allowing more developers to participate.
(Source: http://www.ura.gov.sg/sales/reservelist/faqrlq11n12.html)
This means that developers wanting to stay in business will have to bid higher prices to win the land bids. As the population has limited income and affordability, in order to make money from their very high land bids, they will have to build houses smaller and sell at a higher per square feet price.
[h=2]Recent developments all point to land productivity[/h]The land productivity measures by the government points the way towards making land more expensive on a per square feet per year basis. We have seen various measures to vary the land lease, vary the size or impose regulations, all trying to check what sticks.
[h=2]Implications of Singapore’s land policies[/h]There should be a class of land that the Singapore government provide for ordinary citizens without so much as worrying about land productivity.
Leave the productivity to Commercial properties, industrial properties, spare the hard working and over-taxed citizens. These Singaporeans merely want a roof over their heads and stay alive. Give them a chance.
Imposing Shorter leases on HDBs will only make them more expensive on a per unit basis with Singaporeans having lesser and lesser “equity” (because they own less of a house, instead of a house with 99 years lease, they own one with 66 years lease) while paying higher and higher prices.
Eventually, shortages in supply whether deliberate or via constraints will drive up the prices of HDB with 66 years leases up to the point where people can still afford it, sapping up most of the household portion of disposable income.
So the key to maintaining reasonable pricing is NOT giving you less of a HDB flat, but creating a balance supply and demand condition to smooth out the prices.
Based on these reasoning, we totally reject Conrad Rai’s argument of proposing HDBs with shorter leases!
See below for Article by Todayonline.com where the writer proposed a 66 year HDB lease.
Why not 66-year HDB leases?
(source: Todayonline.com
www.todayonline.com/Print/Business/EDC110930-0000244/Why-not-66-year-HDB-leases)
Introducing some flats with shorter lease periods would make them more affordable
04:46 AM Sep 30, 2011
by Conrad Raj
The Ministry of National Development’s decision earlier in the year to raise the supply of HDB flats is a step in the right direction.
The move to raise the income ceiling for buyers from S$8,000 to S$10,000 for Build-To-Order flats and from S$10,000 to S$12,000 for executive condominiums is another welcome response from the Government.
The Housing Board is expected to put on offer 25,000 new flats this year and another 25,000 next year to meet pent-up demand for public housing. While the promise of higher supply is said to have slowed down the pace of price rises in the residential property market, prices are still on the high side and public housing needs to be made still more affordable.
At present new flats are sold on a 99-year lease, good for more than three generations. What the Government does after that is anybody’s guess, although in the case of HUDC property, the Government has topped up the leases of flats in estates that have gone private for a fee. Perhaps they will do the same with HDB flats.
But do all leases have to be that long? Perhaps the Government should look at providing flats with shorter leases to make them more affordable.
After all in China, leases on residential property are for 70 years.
In Hong Kong, nobody really knows what is going to happen when the Chinese government’s commitment to let the former British colony remain autonomous ends. While new leases are normally for 50 years and may be renewed, what the Chinese government will do after 2047 is anybody’s guess – yet the buying goes on despite the deadline being just 36 years away.
Although most financial institutions here rarely provide loans on properties with less than 70 years left on their leases, there is nothing in the books to prevent them from giving loans for properties with shorter shelf lives.
In fact according to a financier some financial institutions here do give loans for properties with as short as a 40-year lease.
“We look more at the ability of the borrower to repay the loan rather than the life of the flat,” the financier said.
Just look at the resale market where HDB flats are being sold with more than 30 years of their lease gone.
I, in fact, bought a property at Dover Close East with less than 70 years of its lease left, and flats are still being bought and sold in my estate.
In theory if HDB apartments are sold on a 66-year lease basis, one third less than the present 99 years, they should go for a third less.
But of course the HDB might want to recover its building and other costs much faster and so the actual selling price of these flats might be higher, but it should not be very much more.
Whatever the actual cost recovery basis is, shorter leases should provide substantial savings for buyers, especially the younger crowd who have been in the job market for a shorter period and thus probably would have less savings in both their CPF and bank accounts.
This is not to say that all HDB flats should be sold on a shorter lease plan. Perhaps there should be a mix to allow people preferring the longer 99-year lease period a choice.
In any case, why not have leases for just 33 years (or whatever period the HDB is comfortable with) for those who do not want to pass on their property to the next generation, but want a more affordable flat?
After all the current 99-year period just follows convention elsewhere and is not cast in stone.
According to Wikipedia, the 99-year lease was, under historic common law, the longest possible term of a lease of real property.
Although no longer the law in most common law jurisdictions today, 99-year leases continue to be common as a matter of business practice and conventional wisdom.
Mortgage News Daily and other online sources further note that under traditional American common law, the 99-year term was not literal, but merely an arbitrary time span beyond the life expectancy of any possible lessee or lessor.
So, can we look forward to more affordable public housing in the near future?
Conrad Raj is Today’s editor-at-large.
Analysis on reducing the HDB lease to 66 years[/h] October 3, 2011 by property
Filed under HDB Mortgage Loans
Leave a Comment
[h=1]Analysis on reducing the HDB lease to 66 years[/h]We are not surprised with suggestions of releasing HDB on shorter lease.
As we analyzed, there is a strong incentive for the Singapore government to realize “land productivity”.
(Source: http://www.scribd.com/doc/33276827/Economic-Strategies-Sub-Committee-Maximizing-Land-Value and http://www.asiaone.com/Business/News/My+Money/Story/A1Story20100222-200190.html)
This means that, low cost simple joys of life such as enjoying a coffee at a neighbourhood coffee shop that sells you a 70 cents coffee is considered LOW Productivity. How much can such businesses give the Singapore government in terms of revenues or property tax?
In order for land productivity to materialize, Singapore government cannot and should not maintain a balanced supply and demand situation. Instead, the Singapore government should produce less supply than there is demand, so that HDB prices and hence land prices can go up.
When land prices go up, then more revenues can be obtained, either via HDB or through various land holding/owning authorities.
[h=2]HDB studio retirement flats with 30 years lease[/h]In the past, the HDB has tried to create a sub-class of HDB flats (Still effective as at today) which are only 30 years lease. HDB tries to create a precedent and hopes that people will gradually accept 30 year land lease via the Lease and Buy back Scheme. On the surface, it seems like a great plan for retirees who are short of money, but in reality, due to the CPF used (with accrued interest), most of these retirees who let go of their normal 3-4-5 rooms HDB to go into such “Studio” and 30 years lease HDBs will have most of their money locked up by CPF, part of the money realized will go into an Annuity with CPF Live.
(http://www.hdb.gov.sg/fi10/fi10325p.nsf/w/MaxFinancesOverviewLeaseBuyback?OpenDocument)
[h=2]People are buying in flats that are very costly on a Per sq feet per year basis.[/h]For example a 99 years flat with 1200 sq feet cost $450,000. That works out to a $375 psf per 99 years.
• Or $3.79 per sq feet per year.
• Or $4,545 per 1200 sq feet per year.
Say for example, a 30 year flat with 500 sq feet cost $120,000. That works out to: -
• $8 per sq feet per year. (way more expensive than that of a 99 year lease)
In another scenario
In another scenario, the government offers a buy back of 40 years from a 70 years lease at $104,000 (valued 236,000 of 70 years → 40 years should be 40/70 x 236,000 = $134,857), thereby “making” $30,857 from the poor HDB home owner.
HDB lease and buy backOf course, this offer by HDB is NOT BY FORCE, it is up to the individual. However we see this as a very BAD deal and urge home owners to reject it outright. Unfortunately, those people who are in those situation may not even have a computer, much less internet access, thereby possibly succumbing to a bad deal as they do not have enough knowledge.
(Source: http://www.hdb.gov.sg/fi10/fi10297p.nsf/ImageView/CORPORATE_PR_05032010_LBS_ANNEXA/$file/Annex+A.pdf)
[h=2]Private developers buy FreeHold land and sell it as 103 years lease hold land[/h]These buying of FH land and selling it as 103 years lease hold land is allowed under the common law.
These reduces the supply of FH/999 land and makes lease hold land more the norm for eventual gradual acceptance.
[h=2]SMALLER UNITS (Mickey mouse units)[/h]With the reserve list bidding deposit dropping from 5% of bid price to 3%, this means that developers will likely bid higher for the land. There is also a cap of $5m on the bid deposit allowing more developers to participate.
(Source: http://www.ura.gov.sg/sales/reservelist/faqrlq11n12.html)
This means that developers wanting to stay in business will have to bid higher prices to win the land bids. As the population has limited income and affordability, in order to make money from their very high land bids, they will have to build houses smaller and sell at a higher per square feet price.
[h=2]Recent developments all point to land productivity[/h]The land productivity measures by the government points the way towards making land more expensive on a per square feet per year basis. We have seen various measures to vary the land lease, vary the size or impose regulations, all trying to check what sticks.
[h=2]Implications of Singapore’s land policies[/h]There should be a class of land that the Singapore government provide for ordinary citizens without so much as worrying about land productivity.
Leave the productivity to Commercial properties, industrial properties, spare the hard working and over-taxed citizens. These Singaporeans merely want a roof over their heads and stay alive. Give them a chance.
Imposing Shorter leases on HDBs will only make them more expensive on a per unit basis with Singaporeans having lesser and lesser “equity” (because they own less of a house, instead of a house with 99 years lease, they own one with 66 years lease) while paying higher and higher prices.
Eventually, shortages in supply whether deliberate or via constraints will drive up the prices of HDB with 66 years leases up to the point where people can still afford it, sapping up most of the household portion of disposable income.
So the key to maintaining reasonable pricing is NOT giving you less of a HDB flat, but creating a balance supply and demand condition to smooth out the prices.
Based on these reasoning, we totally reject Conrad Rai’s argument of proposing HDBs with shorter leases!
See below for Article by Todayonline.com where the writer proposed a 66 year HDB lease.
Why not 66-year HDB leases?
(source: Todayonline.com
www.todayonline.com/Print/Business/EDC110930-0000244/Why-not-66-year-HDB-leases)
Introducing some flats with shorter lease periods would make them more affordable
04:46 AM Sep 30, 2011
by Conrad Raj
The Ministry of National Development’s decision earlier in the year to raise the supply of HDB flats is a step in the right direction.
The move to raise the income ceiling for buyers from S$8,000 to S$10,000 for Build-To-Order flats and from S$10,000 to S$12,000 for executive condominiums is another welcome response from the Government.
The Housing Board is expected to put on offer 25,000 new flats this year and another 25,000 next year to meet pent-up demand for public housing. While the promise of higher supply is said to have slowed down the pace of price rises in the residential property market, prices are still on the high side and public housing needs to be made still more affordable.
At present new flats are sold on a 99-year lease, good for more than three generations. What the Government does after that is anybody’s guess, although in the case of HUDC property, the Government has topped up the leases of flats in estates that have gone private for a fee. Perhaps they will do the same with HDB flats.
But do all leases have to be that long? Perhaps the Government should look at providing flats with shorter leases to make them more affordable.
After all in China, leases on residential property are for 70 years.
In Hong Kong, nobody really knows what is going to happen when the Chinese government’s commitment to let the former British colony remain autonomous ends. While new leases are normally for 50 years and may be renewed, what the Chinese government will do after 2047 is anybody’s guess – yet the buying goes on despite the deadline being just 36 years away.
Although most financial institutions here rarely provide loans on properties with less than 70 years left on their leases, there is nothing in the books to prevent them from giving loans for properties with shorter shelf lives.
In fact according to a financier some financial institutions here do give loans for properties with as short as a 40-year lease.
“We look more at the ability of the borrower to repay the loan rather than the life of the flat,” the financier said.
Just look at the resale market where HDB flats are being sold with more than 30 years of their lease gone.
I, in fact, bought a property at Dover Close East with less than 70 years of its lease left, and flats are still being bought and sold in my estate.
In theory if HDB apartments are sold on a 66-year lease basis, one third less than the present 99 years, they should go for a third less.
But of course the HDB might want to recover its building and other costs much faster and so the actual selling price of these flats might be higher, but it should not be very much more.
Whatever the actual cost recovery basis is, shorter leases should provide substantial savings for buyers, especially the younger crowd who have been in the job market for a shorter period and thus probably would have less savings in both their CPF and bank accounts.
This is not to say that all HDB flats should be sold on a shorter lease plan. Perhaps there should be a mix to allow people preferring the longer 99-year lease period a choice.
In any case, why not have leases for just 33 years (or whatever period the HDB is comfortable with) for those who do not want to pass on their property to the next generation, but want a more affordable flat?
After all the current 99-year period just follows convention elsewhere and is not cast in stone.
According to Wikipedia, the 99-year lease was, under historic common law, the longest possible term of a lease of real property.
Although no longer the law in most common law jurisdictions today, 99-year leases continue to be common as a matter of business practice and conventional wisdom.
Mortgage News Daily and other online sources further note that under traditional American common law, the 99-year term was not literal, but merely an arbitrary time span beyond the life expectancy of any possible lessee or lessor.
So, can we look forward to more affordable public housing in the near future?
Conrad Raj is Today’s editor-at-large.
