15 May, 2018
SINGAPORE — With owners of older HDB flats worried about the value of their homes as their leases shorten, Ms Cheryl Chan, Member of Parliament for Fengshan constituency, proposed taking a “multi-prong” approach to help sellers and buyers by changing the valuation method for ageing units and extending the lease for flats in mature towns of selected precincts.
To further help Singaporeans put a roof over their heads, she also proposed reassessing the property loan structure and allowing selected older flats to be leased directly from the Housing and Development Board (HDB).
In Parliament on Monday (May 14), during the first day of a debate on the President’s Address, Ms Chan said that housing is a “top concern” for the “vast majority of Singaporeans”, and it is time the Government take into account other considerations for HDB flats that are 50 years and older, and enhance the Selective Enbloc Redevelopment Scheme (Sers).
On the matter of older flats, Ms Chan noted that owners have difficulties selling their property with a greater supply of housing units in the market and a reducing lease, while buyers find such flats priced out of their reach.
These flats should not be valued, therefore, using “the comparison method” of past market transactions.
“I suggest the valuation to be based instead on its remaining lease, length of time occupied by current owner, and its right-sizing potential,” she said.
This will enable older homeowners to unlock their cash, right-size (or downsize) to a smaller unit, and move nearer to their children if they prefer.
It also allows young families or singles to get affordable flats in mature estates from the resale market and “enhance the social mix”, she added.
[It would seem that the MP is suggesting a way to lower the valuation, and make the flat affordable to young buyers. However, what is to prevent the home owners from asking for a lower price in the first place? The valuation is just a theoretical price. Flats have been sold above and below valuation. The final price is for the buyer and seller to negotiate.
Is she suggesting that having a high valuation will keep prices artificially high? She has a point. If you were told that your flat is "valued" at $400k, you won't sell below that if you can help it. But if your flat is on the market for 9, 10 months with no buyers, and your agent is explaining that the age of the flat prevents buyers from meeting your price, then holding onto your asking price is just a way of saying "I'm not selling."
The higher valuation may also allow the buyer to get a larger loan. This may be a two-edge sword. But a lower valuation would be more restrictive.
Is she a property agent by trade or training? No. I would suggest she explores this proposal with some experts.
In any case, her suggestion boils down to this: to raise demand for older (more than 40 years old) resale flats, just lower their prices. BUT instead of letting the market do so, instead of letting demand and supply set the price, she is simply proposing govt intervention or some external intervention to set the price (valuation) lower. So she wants a new valuation formula that would "revalue" older flats more "realistically". This will make owners of older flats who may be sitting smugly on their over-valued flat rather unhappy. Regardless of whether they want to sell or not.
That's not very politically savvy. Honest maybe. Savvy no.]
Moving to her point about Sers, where flats are vacated and demolished to facilitate future development, and homeowners are given compensation and the option to relocate to other public housing units, Ms Chan observed that it can be tough to carry out redevelopment given the lack of new land plots in mature estates.
“As HDB flats are typically built precinct by precinct, so rather than selling new land plots for private property, allow the private developers to top up the land lease of HDB flats for future development,” she proposed.
[Leases on SERS-ed land are "topped up". This is a proposal?
May 18 Amendment. Apparently, I did not understand her proposal. Until this FB comment clarified the idea for me:
The OBVIOUS answer (to almost everyone) is to systematically SERS all the old flats. As the lease is 99 years, if just 2% of flats are SERS each year, there is no problem.
PROBLEM: SERS costs money. A lot of money. And the govt is already in deficit if the budget does not already include revenue from NIRC. If you do not know what that means, it means the govt is already dipping into our reserves. Well, the income from our reserves, and just half of it, but that still means that our reserves are not growing as fast as it could.
If nothing is done, then in about 60 years, the lease on the first 7% of HDB flats would run out and the govt will lose 7 percentage points of votes. In about 70 years, another 30 percentage points. And the PAP govt will be out. If they are still in govt up to 70 years from now.
The other solution is to let pte developers En Bloc HDB estates. MND and HDB will need to come up with a plan and scheme. First, a precinct will be identified for Pte En Bloc Redevelopment. The blocks in the precinct should be at least 40 years old. Second, the residents will be surveyed if they want PER for their block and neighbourhood and what is the "reserve price". If more than X% (say 80%) is in favour, HDB/MND will call for a PER tender. Third, the tender will cover the purchase of the remaining lease of the current owners (to be paid to the owners), and a Lease top-up charge (to be paid to MND). Or MND/SLA can simply state upfront what is the lease top-up charge. So the pte developer can just bid on their best offer to the owners.
PER can be for a completely pte development (condo, etc), or it could be a DBSS. Maybe for a start, it should all be DBSS.
PER will also have fewer "benefits" than SERS. Other than compensation for acquisition of the flat with the remaining lease, there would be none of the other SERS benefits. Except maybe some priority for HDB BTO selection.Letting private developers "SERS" HDB flats could work. It does not require any govt budget. However, it does "drain" the land bank of SLA and HBD. So the question is how much land is SLA/MND prepared to let slip into private developers hands. At least for the next 99 years.]
Likewise, the Government can convert plots of land meant for private housing to public housing in future when the lease is up, she added, thus creating a better mix of private and public housing in the long run.
[And now she moves to town planning? This suggestion has little to do with helping HDB residents unlock the value of their ageing flats.]
Her suggestions came as the HDB resale market continues to be lacklustre, as flash estimates last month showed that prices of resale flats have fallen for six consecutive quarters. Some property analysts attributed this to the realisation among prospective buyers that not all old flats will be eligible for Sers, and the declining value of HDB flats with less than 65 years worth of lease left.
In a Facebook post in March last year, National Development Minister Lawrence Wong noted that only 4 per cent of HDB flats have been earmarked for Sers since its launch in 1995. “For the vast majority of HDB flats, the leases will eventually run out, and the flats will be returned to HDB, which will in turn have to surrender the land to the State,” he said then.
As of December 2016, there were a total of about a million HDB flats in Singapore. Among these, about 7 per cent were at least 40 years old. Another 29 per cent were between 30 and 40 years old, HDB had previously said.
[4% SERS-ed in 20 years. And there are 7% which are 40 years or older. And another 29% which are 30 - 40 years old.
The problem is SERS is an expensive scheme. And the govt is already in deficit if they did not draw on the NIRC. So they cannot afford SERS anymore.
Correction May 2018: I recently found out that land acquisition such as SERS would be funded by the reserves because, it is acquiring land which goes to the govt land stock, and when it is sold, the proceeds goes to the reserves. Or if it is leased, the proceeds goes to the reserves. That means a net increase for the reserves unless the land is acquired at a higher price than when it is sold or leased. Which is unlikely. However, SERS would still have other costs because there are additional compensation that is NOT land acquisition, and the owners are given priority for BTO which is an opportunity cost.]
REVIEW PROPERTY LOAN STRUCTURE
To support Singaporeans in need of a home, Ms Chan recommended that the authorities also re-assess the property loan structure and Central Provident Fund (CPF) policies in funding property purchases.
This means pegging the loan period and CPF funds usage for members up to age 55.
“With a changing job landscape, most workers are not limited by their will to work or the legal retirement age; but rather the possibility of being offered a steady income job beyond that age. As the gig economy presents more variability in a steady income, the need for one to be repaying mortgage beyond age 55 is likely undesirable,” she reasoned.
For those who are not in the low-income group but are in need of interim housing, Ms Chan suggested that they be allowed to rent units — subject to a maximum period — directly from the HDB. These would be selected flats with 45 years lease or less.
[I agree. The future is renting. Home ownership has its drawbacks. However, there is a need for a mindset change. Even now, as you read this, many of you will be recoiling. Home ownerhsip is practically a Singaporean Right. But in the economy of the future, maybe not. The adults today are probably invested in this Singapore Right. But the young Singaporeans who may attain adulthood in the next 5 years, might be more open to the idea of renting for a while, or even for life. ]
She noted that those who need interim housing could include families in transit, young working adults with little need for permanent place due to their job nature, and single parents who need immediate shelter after their matrimonial flat is sold.
“(This could) give them the flexibility and space to manage or rebuild their lives,” she added.
See Also (Related Links)
Home ownership stifles entrepreneurship
Singaporeans need to afford to fail.
How to give Singaporeans Roots and Wings.