Arcachon
07-03-20, 11:53
https://www.clc.gov.sg/docs/default-source/commentaries/balas-table.pdf
Is 3.5 Percent A Suitable Discount Rate?
Is a discount rate of about 3.5% a reasonable choice for SLA’s Leasehold Table?
Land is a scarce resource and produces regular income over the years,
whether in the primary form in terms of land rent, or the secondary form in
terms of rental of completed developments. The income is quite stable and of a
lower risk, hence a lower discount rate of 3.5% is justifiable.
In comparison, Singapore’s inflation rate averaged 2.68% from 1962 until
2016, while in June 2013 the Monetary Authority of Singapore (MAS) instructed
financial institutions to adopt a 3.5% “stress test” interest rate in processing
housing loans under the Total Debt Servicing Ratio framework. Moreover, the
Government’s cost of capital averaged 3.4% for the past 12 years (2005 to 2016).
These rates are broadly in line with the Leasehold Table’s implicit discount rate.
Furthermore, the Leasehold Table has gained wide acceptance since it was
published on SLA’s website in 2000.
Is 3.5 Percent A Suitable Discount Rate?
Is a discount rate of about 3.5% a reasonable choice for SLA’s Leasehold Table?
Land is a scarce resource and produces regular income over the years,
whether in the primary form in terms of land rent, or the secondary form in
terms of rental of completed developments. The income is quite stable and of a
lower risk, hence a lower discount rate of 3.5% is justifiable.
In comparison, Singapore’s inflation rate averaged 2.68% from 1962 until
2016, while in June 2013 the Monetary Authority of Singapore (MAS) instructed
financial institutions to adopt a 3.5% “stress test” interest rate in processing
housing loans under the Total Debt Servicing Ratio framework. Moreover, the
Government’s cost of capital averaged 3.4% for the past 12 years (2005 to 2016).
These rates are broadly in line with the Leasehold Table’s implicit discount rate.
Furthermore, the Leasehold Table has gained wide acceptance since it was
published on SLA’s website in 2000.