By Jalelah Abu Baker
20 Aug 2018
Prime Minister Lee Hsien Loong revealed plans for what is called the Voluntary Early Redevelopment Scheme (VERS) during his National Day Rally speech on Sunday.
Mr Lee said the scheme, which will kick in in about 20 years, is part of a long-term plan to allow the Government to progressively redevelop precincts.
It will take place when the flats reach about 70 years of age, he added. Flat owners can vote for the Government to buy back their homes before their leases run out.
The deterioration in value of older flats and the difficulty in selling them have been in the spotlight recently.
However, the issue with private en bloc may happen to VERS as well, Mr Yam said. Advertisement
"Private en bloc - we’ve seen huge numbers of it over the last few years. But the issue with private en bloc may happen to VERS too, which is the acrimony that will come about, this idea of one group versus another, I want to stay, I don’t want to stay."
While he acknowledged that details were scant, he raised several questions.
“What sort of percentile are you looking at? Are you looking at the same as the private sector? How do you address the concerns of those who, after going through the VERS, find that they have become in one way or another disenfranchised with this flat?” he asked.
He also raised concerns about how HDB will calculate the value of the homes, and how CPF monies will be returned.
“We didn’t go through so many cooling measures to try to dampen the private en bloc market so VERS can take over. You have to consider that private en bloc market is only 20 per cent. VERS will eventually perhaps affect 80 per cent,” he said.
Mr Yam, however, acknowledged that VERS will go “some way” towards addressing the concerns of those who are in older flats today.
Fellow GPC member Saktiandi Supaat agreed that these details have to be addressed, but noted that given that the programme will kick in in about 20 years, there is time to iron out the details.
Ms Cheryl Chan said that the plan has to be well thought out and address several different aspects, like how the home was financed and the age group of the flat owners.
“There is always a possibility that you have arguments surrounding the sale,” she said.
Deputy chairman of the GPC for National Development Chong Kee Hiong was positive about the new scheme.
He said that VERS will allow homeowners to get new flats with the latest technologies.
“If you don't have VERS, residents only have one choice which is to sell their flats with remaining 20-over years of lease left, so this will help them," he said.
[This is a solution that, as the GPC members point out, will present a whole new set of problems.
And there are problems and questions of course.
One way to minimise problems or persuade owners to vote for VERS, is to present them with a non-option like HIP 2.
HIP 2 is just to give owners the impression that they have options - bad options and worse options - than VERS.
The other solution is to allow decaying lease flats (say less than 20 years of lease left) to be allowed to be AirBnB.
So a real vote would be
1) HIP 2. This will cost money. For a flat with "decaying" value. You will also suffer the inconvenience of improvement works.
2) Voluntary Early Redevelopment Scheme (VERS). This will give owners some benefits.
3) Do nothing, and run out the lease. No costs. No benefit.
4) Vote to allow your blocks to AirBnB.You may choose not AirBnB directly. But if your block/your flat is allowed to be AirBnB, then the value of your flat goes up because it now has investment value. The increase in value could be as much as 50% (best case scenario. More realistically, about 30%.)
This means that if your 3-rm flat was worth $320k at peak, but has since declined to $200k because of the decaying lease issue, being allowed to lease out the flat on short term basis (AirBnB practice), would raise the resale value to about $250k to $300k. This would be really helpful to the owners, and a real solution to the loss of value of their "asset" to the owners.
But are we transferring the problem to the "investor" who buy the flat and runs out the lease?
No. The investor-buyer would pay say $250k for the flat with 20 years of lease left. If they rent out the flat at $100 a day, they would get a max of $36,500 a year. Or $365k in 10 years, or $730k over 20 years. But that's assuming 100% occupancy. Assuming just 40% occupancy, they would make over $290k in 20 years, which is more than what they paid ($250k). So when the lease runs out, they would have recovered their investment. And if $290k is too low, they can raise the rate - $120 a day, $150 a day, etc. As the rental is for a 3-rm flat this is like getting a 2 bed-room suite for $150 a day which is value for money.