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Serious Breaking down the HDB scam known as Lease BuyBack Scheme (LBS) Part 1

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
Recently, comments and blogging by Minister Lawrence Wong on the future of HDB flats that are nearing the half point of their 99 year leases and the options available for flat dwellers have as usual been met with a shocking lack of analysis by the Prostitute Media and property commentators in Singapore. This article is an attempt to delve into the hows and whys, supported with numbers.

How the LBS works:


The theory behind the LBS is that the older flats occupied by older flat dwellers 64 years of age and above can be “monetized” (PAP speak for Sell/Sold) to provide extra cash for the occupants. This will entail the occupants selling back a portion of their remaining balance of the 99 year lease to the HDB. For example, if there is 65 years left on the lease, the occupants can sell the HDB the tail end of the lease (say 35 years) and live in the flat for the other 30 years. The assumption being that the occupants would be 95 years or so by the time the 30 years is up and they should be already deceased by then. In the meantime, the money they get back from the HDB for the 35 years that they sold will provide them with some monthly funds for living expenses.

Why introduce this scheme? Why bring it up now? Why is Lawrence Wong promoting it? There are several reasons for this.

1)
In the example used on the HDB website where a flat with 35 years left on the lease, the website states that the flat has a market value of $450,000, and the HDB is willing to do a LBS on such a flat for $190,000 for the last 35 years of the lease. See http://www.hdb.gov.sg/cs/infoweb/residential/living-in-an-hdb-flat/for-our-seniors/how-it-works. Really, the flat is worth $450,000? Why don’t the flat dwellers just sell it for $450,000 and take the money? The truth is that they can’t. Banks will not lend to flats over 25 years old, and in fact, the HDB themselves will not finance any such purchase of a flat that is 35 years old on the resale market. If the flat is really worth $450,000 as the HDB claims, then any potential buyer has to pay cash for it. Very few entry level buyers have that sort of money lying around. The PAP and the HDB know this. They know that their claims of monetizing the flat for retirement cash are false when no banks will lend to buyers on the resale market. Sellers of old flats will have to lower their price so much that the hope for contribution to their retirement fund from the sale of their flat will just not be there. As a result, the HDB introduce the LBS so that the occupants can have some money in their RA and at the same time, live in their flat rent and mortgage free (assuming the original bank loan has long been paid off). They already know that to monetize it for $450,000 is just not possible.

[FONT=&quot]
The second reason is that no HDB flat is build and designed to last 99 years. The HDB knows that. They have to do a cost benefit analysis on every block they own. The older the block, the more maintenance and repairs are needed to it. Lifts break down more often, pipes burst and leak, concrete spalls and falls off, cracks in the walls, etc. At some point in time, it’s just too much expense to maintain the block, and structurally, the blocks may not be safe and its economic life has run out. In these situations, HDB will do a SERS and move the occupants out [/FONT]
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
PPPART 2

into a newer estate. But this costs them money. They have to give these occupants a new 99 year lease on a new flat at below “market” price to entice them. They could have sold this new flat to some other PR or new citizen for more money. There is an opportunity cost associated with moving people out under SERS. By buying the 35 year tail end of the lease, they have actually taken back the flat after 65 years instead of 99. In other words, just as the flat is showing real sign of an expense pit, they will simply take the units back. Not all the units in the block will be under LBS, but it makes the number of SERS needed less. Even if 10-15 % of the block has been under LBS, that is 10-15% less people to compensate under SERS. The HDB expects that in future, flats will cost more. Hence any compensation under SERS in the future will cost them more. If they LBS the flat now, they do not need to shell this compensation out.

2)
Another aspect of the scam is that the majority of the money given out under LBS is used to top up your RA to the Basic Retirement Sum (BRS) level. The actual cash you get (in the HDB example) is only a fraction of the amount that they give you for the LBS. The rest is used to top up the BRS and then use the BRS to convert into a LIFE Plan for the monthly payments to you and your spouse. Therefore, the PAP gets to retain the money via your CPF even after you have sold the 35 years to them. It’s a good deal for them as their cash outlay is not $190,000 but only $49,000 according to their example.


Breaking down the numbers in the HDB LBS example:

[FONT=&amp]
Illustrating an example[/FONT]


[FONT=&amp]Joint Singapore Citizen (SC) Owners aged 65 years old[/FONT]

[FONT=&amp]Assumptions:[/FONT]


  • [FONT=&amp]4-room flat held under joint tenancy[/FONT]
  • [FONT=&amp]No outstanding loan[/FONT]
  • [FONT=&amp]Balance lease: 65 years[/FONT]
  • [FONT=&amp]Market value: $450,000[/FONT]
  • [FONT=&amp]Choose to keep a 30-year lease[/FONT]
  • [FONT=&amp]Sell the tail-end 35-year lease to HDB for $190,000[/FONT]
[FONT=&amp]
C:\Users\user\AppData\Local\Temp\msohtmlclip1\01\clip_image001.gif
[/FONT]

[FONT=&amp]Husband[/FONT]
[FONT=&amp]Wife[/FONT]
[FONT=&amp]Citizenship[/FONT]
[FONT=&amp]SC[/FONT]​
[FONT=&amp]SC[/FONT]​
[FONT=&amp]Age[/FONT]
[FONT=&amp]65[/FONT]​
[FONT=&amp]65[/FONT]​
[FONT=&amp]Initial Retirement Account (RA) Balance[/FONT]
[FONT=&amp]$20,000[/FONT]​
[FONT=&amp]$5,000[/FONT]​
[FONT=&amp]Current Age-Adjusted Basic Retirement Sum (BRS)[/FONT]
[FONT=&amp]$83,000[/FONT]​
[FONT=&amp]$83,000[/FONT]​
 
Last edited:

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
Part 4

So, let’s say the occupants could actually sell their flat for $450,000. And let’s say that all $450,000 is at their disposal i.e. there is no bank loan to repay, no CPF borrowed money to return, etc. Let’s say there were $20,000 in property agent fees and legal fees, and the couple in this HDB example had to top up a total of $141,000 ($63,000 for the husband and $78,000 for the wife). This leaves a net of $450,000 - $20,000 - $141,000 = $289,000. We can safely assume that leaving this money in a savings account earning less then 1% would be ridiculous. There are many mutual funds that provide low double digit returns.

[FONT=&quot]Top 5 Performing Funds (10 Years) [/FONT]
It’s possible to invest in a mutual fund providing say 12% per annum return in the long run. $289,000 invested at an average return of 12% for 30 years = $8.658 million. But let’s say for the skeptics, even at a 6% return, the balance after 30 years is $1.66 million. Using an investment calculator, if you put $289,000 today into an investment that average a return of 6% AND withdrew $1000 a month for the next 30 years, you would still have $745,338 at the end of the 30 years. All of these options are superior to what the LBS scam offers, and let’s not forget there is still the money in RA fund, which has a combined $166,000. In 30 years time, at 2.5%, it will be worth just under $350,000.


The question then remains, if you sell your flat, where will you live? One big clue is from Cabinet Minister Khaw Boon Wan. He has exhorted retiring Singaporeans to move to nursing/old folks homes in Johor. In the HDB example, the couple is already 65 years old, retirement age. SGD$1000 a month is a pretty comfortable existence in Johor, equivalent to RM$3150.

The other option will be to move into a rental which is not really affordable at the $1000 per month that you are withdrawing. Or else, share a flat rental with someone or move in with your empty nester children or with your grandchildren and reduce your housing costs. For couples who can made arrangements to stay with their children or other family rent free, the LBS is a bad scheme. They should sell their flat for $450,000, invest it as above and bequeath the residual investment funds upon their deaths.


The HDB LBS’s big monetary benefit is that you do not have to rent any accommodations, as you remain in your current one. But if you are planning to remain in your flat, receiving $810 per month per couple for 30 years is ridiculously small. The better option would be not to sell the tail end 35 years. Instead remain in it for the planned 30 years. Add your child to the flat, have the extra 35 year use by your children or grandchildren, after the couple’s death. They will at least not have to rent or pay big bucks for a new or resale flat for 35 years, a substantial savings to them. Use the complete 99 years lease in a way the HDB never intended i.e. to provide housing for yourself and one child for the rest of yours and their respective lives. If the HDB has to SERS you, then hopefully, you can get some decent compensation.


Any solid contributions and thoughts to the above article are welcome. Reproduction of the article is approved, with or without credit.
 

frenchbriefs

Alfrescian (Inf)
Asset
if banks and hdb will not finance the purchase of flats over 35 years old,who the hell are the people paying million dollars for those flats in clementi?
 

frenchbriefs

Alfrescian (Inf)
Asset
where is the government going to get all the money to fund all these "monetised" flats?essentially they are paying hundreds of thousands of dollars for things that dont really exist....i mean what can u do with 30 years of a HDB lease?

this is nothing more than using taxpayers monies and trick accounting to further perpetuate a ponzi scheme.
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
if banks and hdb will not finance the purchase of flats over 35 years old,who the hell are the people paying million dollars for those flats in clementi?

This quote is from the HDB infoweb e-Service site.

From 1 July 2013, CPF usage and HDB loan will be restricted for purchase of flats with remaining lease less than 60 years.

So, if 60 years is the cut off, then the flat is 39 years old. After 39 yrs, even HDB will not finance. I have seen banks not touching anything HDB older then 25 years.Are those clementi flats over 25 years old?
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
where is the government going to get all the money to fund all these "monetised" flats?essentially they are paying hundreds of thousands of dollars for things that dont really exist....i mean what can u do with 30 years of a HDB lease?

this is nothing more than using taxpayers monies and trick accounting to further perpetuate a ponzi scheme.

By pushing people out early from their flats thru SERS and LBS, they can sell the land for higher density and earn back multiple times from the developers bidding on it. Or they just build much higher density and sell to new shitizens that are making up the 6.9 million population target. either way, for every flat that they get back early, they will earn multiples of times from it.
 

nayr69sg

Super Moderator
Staff member
SuperMod
Is the Singapore private property market dependent on HDB flat prices? Do they move on tandem? If they do doesn't it mean a good thing for the private property sector if HDB keeps the price of new flats high and resale flats high with the LBS?
 

mojito

Alfrescian
Loyal
The ownership thing is just a behavioral thing lah. Of course the nation thanks you for contributing to various nation building activities like building mrts, building schools and merging them again, building hawker centers tear down and build them again. Without you, our thriving construction sector can only eatshitanddie.
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
Is renting a better option ?

It depends. if you rent
from the HDB, its a really good deal and truly subsidized. But they make you jump thru all sorts of hoops and frankly speaking, I don't see too many people qualifying for it. If you rent at the market rate, its not a good deal. very expensive and going to be more in the future.
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
Is the Singapore private property market dependent on HDB flat prices? Do they move on tandem? If they do doesn't it mean a good thing for the private property sector if HDB keeps the price of new flats high and resale flats high with the LBS?

There is
no private property market in singapore that I know of. I have repeatedly said it before. If one entity owns more then 80% of all the land in singapore, how can there be a free or private market?. There is a monopoly. If you own more then 80% of all the airlines in the world, do you have a private market? In fact, do you have anything other then a monopoly?
 

nayr69sg

Super Moderator
Staff member
SuperMod
There is
no private property market in singapore that I know of. I have repeatedly said it before. If one entity owns more then 80% of all the land in singapore, how can there be a free or private market?. There is a monopoly. If you own more then 80% of all the airlines in the world, do you have a private market? In fact, do you have anything other then a monopoly?

What about private condos? Who owns them? Still government?
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
What about private condos? Who owns them? Still government?

Over 80% of land and over 90% of residences are controlled by the PAP.

The HDB sets the "floor" price on all properties in Singapore. The price set for HDB is the bottom price for the rest of singapore. The system is designed to milk the maximum from the gullible fools. If HDB sets prices too low, it will kill the rest of the private condo markets. eg. if new HDB flats were sold at cost price of lets say $150,000 per unit, the demand for $1.5 million 99/999 yr leasehold and freehold condos is pretty much dead. The price difference is so much that many buyers will simply prefer to buy HDB with all its restrictions versus the leasehold or freehold properties. By manipulating the price of the HDB flats upwards, they then affect the private condo market. The price manipulation takes the form of increasing demand from the the influx of new citizens and PRs towards the 6.9 million population growth, while at the same time deliberately suppressing new flat construction. We have seen this happening. Some years, fewer then 6000 units were build versus the peak of over 30,000 per year, while the population was allowed to increase thru foreign inflow. This results in idiots paying $700K to $1 million for resale flats and it all allows the HDB to charge over $400K for new units.

Once the floor price has been set this high, the next step is to manipulate land sales to developers. SLA and URA now can justify the minimum tender price for land parcels that they sell to developers. They do this by pointing to the HDB flat prices and developers work out the numbers for their tender based on potential price per sq ft they can get, using HDB PSF as one of the measurements. After buying this land, marked up by SLA/URA, the developers build their high rise, but they pass the price onwards to the end buyer. The end buyer can be a foreigner or local, but what they pay for their units is directly influenced by the govt. The govt makes big money from the land sale as they got most of the land for pennies on the dollar through the Land acqusitions act. Also, they make big money from the fees they charge developers.

Private condos ownership is dependent on whether its freehold or leasehold. If its freehold, the owners in the building own the land on which their building sits, and also own their own units. If its a 99/999 years leasehold on a private condo, they own the building but not the land. the land can be own by a private company, an individual or a govt agency, which leases the land to them.
 

nayr69sg

Super Moderator
Staff member
SuperMod
So in other words, not safe to invest in Singapore property? Or very safe? Freehold safer? 99 year Leasehold no difference? Avoid Singapore market totally?
 

eatshitndie

Alfrescian (Inf)
Asset
So in other words, not safe to invest in Singapore property? Or very safe? Freehold safer? 99 year Leasehold no difference? Avoid Singapore market totally?

sinkie laws have land acquisition act. in other words in north american parlance, it's eminent domain (with suka suka clauses). at least in u.s., local, state or federal gov must justify use of eminent domain and public hearing is required. in sg, if your freehold property is not protected within and adjacent to estates of higher mortals, your lesser mortal lot can easily be acquired by laa laa laa.
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
So in other words, not safe to invest in Singapore property? Or very safe? Freehold safer? 99 year Leasehold no difference? Avoid Singapore market totally?

have you not listened to anything I have said? SIngapore is one of the most controlled property markets in the world. And its all artificial. And you want to invest here? Why don't you buy in Vancouver, the hottest property market in North America. where the words 99 year leasehold and 99 year HDB lease are foreign concepts
 
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