Tuesday, April 18, 2017

HDB 99 Year Lease Time Bomb



At least TWO PAP Ministers (Khaw Boon Wan & Lawrence Wong) have confirmed my point about the HDB 99 Year Lease being ZERO in value when the lease expired. This is an important critical fact that most Singaporeans have ignored for decades and despite of such reality, Singaporeans are still pumping huge amount of money willingly into HDB resale market which in turn, pushes up the new BTO HDB flats!

This is one of the important reason why I would insist a TOTAL de-link of new BTO prices from resale market prices because it doesn't make sense at all.

There are two broad ways of analysing the impacts and implications of this HDB 99 Years Leasehold issue. i.e. Macro Level vs Micro Level.

Minister of National Development Lawrence Wong has recently flip-flopped over this HDB 99 year lease issue. First he admitted that when the lease is up, the HDB flat will have ZERO value and the "Leasers" (which Singaporeans always thought themselves to be "owners") will have to return the HDB flat to HDB and HDB has to return the land to SLA. But a couple of days later, in a dismay effort to cushion off the shocking effect on Singaporeans, Lawrence Wong came up with the notion that "HDB is a good store of value"!

How could HDB flats which will depreciate and end up with ZERO value eventually to be a "good store of value"? That's totally nonsensical and illogical.

There are many people and well known bloggers who have written on this topic and got many points right but miss a few critical points altogether.

Micro Perspective

The former MND Minister Mah Bow Tan and up to now, Lawrence Wong, keeps talking about "Monetize HDB flat for Retirement", which is a totally flawed concept. I would have debated against Mah Bow Tan on this point LIVE on TV if he had dared to accept my challenge back in GE 2011 and I would have shot straight into his face with this 99 Year Leasehold issue of HDB and ask him how could it be possible to "Monetize HDB for Retirement" when most Singaporeans would face great difficulty in selling off their HDB flats when it passed the 50 year lease mark?

Yes, the Time Bomb doesn't start to blow up with it reaches 99 Year but rather, when your flat reaches 50 year old. How many people are able to fork out over $3000 or even $2000 monthly to pay their mortgage for your 50 year old resale HDB flat? Or even if they could afford to, why would they want to buy your flat knowing that it is going to depreciate further and become ZERO in value in the next few decades?

I believe the projections by the chart above (by Soh Yun Yee) is just too overly optimistic. HDB flats which pass that 50 year mark, would have suffered a steep fall in value thereafter!

And look at it this way, for HDB flats, you cannot own TWO HDB flats at the time! Thus it means that if your parents passed away and left you their HDB flat while you still own a HDB flat, you will have no choice but to sell one away! i.e. either you sell off your own HDB flat or your parent's HDB flat! Many Singaporeans will face this problem and with the upcoming silver bombing due to aging population, the resale market will be flooded with lots of old HDB flats with lease less than 60 years or 50 years while demand will be extremely small!

Thus, what is the impact? A major collapse of resale market for HDB flats which have less than 50 years lease!

This is the FUNDAMENTAL difference between a Private Property vs HDB flats with the same 99 year lease. For Private Property, you could still keep that property which you inherit from your parents and rent it out, really "monetize" it, but for HDB? You can't.

For Private Property, there is a good chance for you to seek private en-block and monetize it fully, renewing the lease again when you do so. But for HDB? You will have to wait for HDB to initiate that SERS which is basically non-existence now because it is not PROFITABLE for HDB to do so! This is the reason why only 4% of HDB flats had gotten SERS and Minister Lawrence Wong has "hinted" or rather "WARNED" that Singaporeans should not expect their HDB flats to enjoy SERS!

Macro Perspective

Uncle Leong has rightly pointed the following:


There are 1 million HDB flats, of which 70,000 or 7 per cent are over 40 years old. About 280,000 units are 30 to 40 years old. That’s one in three flats 30 years or older.

But what is exactly the implication? It means that by 2020, the problems of 99 Years Lease will start to surface. Yes just 3 more years. Most HDB flats were built in late 1960s, 1970s to 1980s. From 1970s to 1980s, we have housing estates like Tiong Bahru, Tanglin Halt, Queenstown, Bukit Merah, Bukit Ho Swee, Toa Payoh, Hougang (old Hougang), Ang Mo Kio, Bedok, Jurong etc built within this period. It would also mean that many flats from these towns will face the problems when they cross 50 years lease, starting from 2020 (1970 to 2020, it is 50 years)!


It also means that if PAP government just stop doing SERS or do it at extremely slow rate, when the lease expired for all these HDB flats in these towns, where are these Singaporeans going to find another HDB flat to live in? Where to find even HALF the size of these towns (assuming flats will be built double the height of the old ones) add together to house them?

By 2060, we will start seeing these problems exploding.

On the other hand, do you really think your HDB flats could last 99 years? I am doubtful that most HDB flats could even last 70 years while some could not even last 50 years due to poor quality of the material used during the late 1970s to 1980s construction boom. HDB upgrading could only solve parts of these massive problems. Some old HDB flats even have obvious cracks and problems of concretes falling off that walls before they reach 50 years old!

Conclusion

99 Years Lease HDB flats are good policy deal IF AND ONLY IF the flats are kept at extremely low cost and there are continuous efforts to en-block and rebuild them starting from 30 years old onwards. At least 50% of the flats built from 1960s to 1980s should be SERS or en-block and rebuilt before the 99 years lease expired. This will ensure we have enough land for cross generations usage and cater for gradual population growth.


It is not meant to be "Asset Enhancement" nor "Monetize for Retirement" but PURELY cater to the housing needs of Singaporeans of ALL GENERATIONS. 

Unfortunately PAP has strayed too far away from its initial ideology just to insert all means to milk Singaporeans while kicking the cans of problems down the generations instead of maintaining a good balance in providing for the critical basic needs of Singaporeans.

I would not mind to replace my 99 years lease HDB flats with another one when it is near expiry if I have bought my first HDB flat CHEAP at cost plus and continue to buy my second replacement flat CHEAP at cost plus as well!

But the crazy Asset Enhancement Scheme introduced by PAP government during Goh Chok Tong's era has really screwed us up badly with the poison of greed to entice Singaporeans to use more of their CPF funds to pump up the HDB flats while sold the FALSE dream of forever "Enhanced" value of their HDB flats so that they could "Monetize their HDB Flats for Retirement"! It has mixed up and over-drawn, over-stressed our CPF which should be strictly for our retirement needs!

Singaporeans are blinded by the poison of greed of short term gain in buying and selling their HDB flats in one or two generations, but they have unknowingly, sold out their own retirement plan and their future generations' welfare by falling for such poisonous enticement.

Goh Meng Seng

9 comments:

Anonymous said...

This is an important critical fact that most Singaporeans have ignored for decades and despite of such reality, Singaporeans are still pumping huge amount of money willingly into HDB resale market which in turn, pushes up the new BTO HDB flats!
Goh Meng Seng

This is called market forces at work mah. As economics 101 will teach you, the worth of anything is measured by the biggest amount of money the market is willing to pay for it.

Similarly market forces also make PAP won 70% votes while parties like PPP won only 23% votes, and despite PPP being led by a veteran, credible and economics trained (and from the prestigious NUS some more) political leader.

So sad. No wonder this political leader even once harboured the thought of quitting politics altogether. Enough of party hopping, party forming and party leader.

Melvin Chan said...

1. Monetising of the HDB is for retirement, not asset transfer to the next generation. It addresses some of the issue of wealth transfer that widens the income gap and disadvantages those that do not benefit from wealth transfers. There are lease buy back schemes to monetise the HDB for retirement.

2. You mentioned oversupply with people dying off and beneficiaries having been forced to sell due to HDB rules. Shorter leases also leads to lower resale prices. At the same time, you feel that new HDBs are over-priced and should be priced cheaper. Well, I think that if population growth is somewhat controlled, then the market will likely find an equilibrium when HDB can reduce the number of new flats being built, while older flats in matured estates, which are a huge draw currently, are priced cheaper because of the factors you mentioned. That equilibrium will ensure that public housing, will generally be affordable for the majority.

3. SERS is like a lucky draw. It only benefits a small group of people and I'm glad is to be scrapped.

4. It was advised for everyone to consider the length of the lease when paying for a resale HDB. Caveat Emptor. Perhaps you are barking up the wrong tree and it is those that are touting SERS and driving up HDB resale prices that should be taken to task. And that was precisely the Minister's point.

Admin said...

Melvin Chan,

1) First of all, HDB cannot be effectively "monetized" for retirement if the value of it is going to dip drastically after 50 years. Have you tried using the Lease buy back scheme? It is just like making you like a beggar begging for money! The Lease Buy back scheme is illogical and "relatively under-priced" as compared to current situation.

2) If someone sell at higher price, that means there is someone who is the sucker. If someone buy at lower price, there must be a sucker as well. There will be Disequilibrium which will lead to a terrible crash in the system before that "balance" or "market equilibrium" could be reached. As long as PAP continues its totally irrational pricing policy of hedging BTO prices to market prices, we will definitely face that crash eventually. As long as the resale market is pushed up by irrational population growth outpacing building of new flats, we will definitely crash one day. It is a bit hard to explain this but the supply and demand of housing is quite different from the normal supply and demand logic of other goods and services.

3) The point is this, if SERS is not done systemically, we will definitely face a horrible and terrible situation whereby HALF of Singapore's HDB estate will have HDB lease expiry in 2060-2080 and where are you going to create enough housing to house those who are staying in these flats? We have to get into the second development phase of "phasing housing needs".

4) Nope. I don't think I am barking up the wrong tree. The ROOT of the problem starts with PAP's Asset Enhancement Scheme without telling Singaporeans they have to "Monetize" their HDB flats later for retirement. And then, they screws it up by releasing HUGE liquidity from CPF for people to buy HDB flats, pushing up the prices. Asset Enhancement Scheme is the biggest time bomb implanted by PAP government ever because it created unrealistic expectation from the population but now, PAP turns around to talk about Caveat Emptor?

Goh Meng Seng

Eugene Ang said...

Get a new govt to change the assets policy and rules might help in maintaining stabilizing HDB property prices. It is just rules to play. Can comes out minimize 5 years occupation period. Change allow citizens to use CPF. It all depends how citizens voice to the current govt and allows a good long term plan to change for future generation. If not is will be a time bomb, we have allow the current govt to this to citizens.
Why not the current govt think out of the book.
I believe singapore properties will not go down if the current govt is looking into it.
I believe inflation will still goes on.

Anonymous said...

Get a new govt to change the assets policy and rules might help in maintaining stabilizing HDB property prices.
Eugene Ang 10:57 PM

How to, when even the strongest among the opposition themselves said they are not ready to be govt?

And seriously speaking, had the opposition, instead of PAP, won 93% seats in GE 2015, what kind of govt will it be when Goh Meng Seng, Chee Soon Juan and Low Thia Khiang are not even on speaking terms with each other, let alone work together to form a better govt than PAP?

So any wonder why they lost so badly contesting 100% seats in GE 2015? Simply because majority voters were not taking any chances by electing such a govt.

Anonymous said...

As economics 101 will teach you, the worth of anything is measured by the biggest amount of money the market is willing to pay for it.
Anon 10:58 AM

To add "...or the market is forced to pay for it".

Anonymous said...

More than a million units marching towards the day of reckoning . Bear in mind HDB units are actually "lottery"( not a good thing). Few will reap above millions but many will find it tough to sell or if at all( bad units such as poor facing, noise, location, etc etc)

With an aging population and flats have already been milked for what it is worth, the prospect of "pay back time" is looming nearby.

People are just wasted away(money problems) quietly and in he dark without many knowing the reality of a prosperous exterior created by the present regime

Anonymous said...

Hong Kong has a lot of leasehold properties too and property prices per square feet are higher. Do the majority of residents there worry? Will any government ignore such potential factor which may trigger social unrest and instability? No! Government will work out something to resolve it.HK will face thus issue earlier than Singapore because flats there are older in the average. So, let's learn how HK government handles it and make some improvement.

Anonymous said...

Time bombs are overflowing everywhere. Violence are erupting and surfacing at all levels. Ownership at the top are only interested in viewing through the lens of addressing the best in township. Third grade leadership.