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Thread: More cash upfront under enhanced lease buyback plan

  1. #1
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    Default More cash upfront under enhanced lease buyback plan

    http://www.straitstimes.com/archive/...-plan-20140904

    More cash upfront under enhanced lease buyback plan

    Smaller sum goes into CPF; leases can vary and more will qualify

    Published on Sep 4, 2014 1:33 AM

    By Janice Heng


    MORE elderly flat owners will be able to sell part of their lease back to the Housing Board (HDB) for retirement income under changes to the Lease Buyback Scheme announced yesterday.

    Those who co-own flats can also unlock more cash upfront while putting less in their Central Provident Fund (CPF) Retirement Account. All owners can also choose how many years of their lease to keep, within limits.

    Currently, they can retain only a 30-year lease. All flat owners will get a new option of keeping a 35-year lease. Depending on their age, they can reduce this to as little as 15 years for those aged 80 and older.

    These changes, made in response to feedback, will take effect from April 1 next year, when the scheme will also be extended from three-room and smaller flats to include four-room flats.

    However, National Development Minister Khaw Boon Wan said he does not expect the change to result in a spike in interest in the scheme, which has seen a low take-up rate since its launch in 2009.

    About 800 households have taken part so far, and Mr Khaw told reporters at a media briefing: "I don't think it will be in the tens of thousands... a few hundred definitely, maybe a few thousand."

    Under the scheme, flat owners continue to live in their flats and sell a portion of their remaining lease.

    The changes mean that for households with two or more owners, each owner has to top up his CPF Retirement Account to only half of his individual age-adjusted Minimum Sum, using proceeds from the sale of the lease.

    Previously, proceeds were first channelled to meeting the full Minimum Sum. With the changes, flat owners can get more cash upfront, capped at $100,000.

    "We have always said that the Minimum Sum is enough to look after the basic needs of a couple," said Mr Khaw. Owners will also get a cash bonus if they participate in the scheme - $20,000 for three-room and smaller flats, and $10,000 for four-roomers.

    Fearing that some owners might "just spend or invest (the proceeds) unwisely", Mr Khaw urged seniors to be prudent.

    The Government will also raise the monthly household income ceiling from $3,000 to $10,000, making more seniors eligible. The minimum age is 63.

    With four-room flats included, 75 per cent of elderly HDB households could potentially take part in the scheme, up from 35 per cent now.

    About 290,000 HDB flats are owned by Singaporeans aged 55 or older, and 80 per cent of these flats are fully paid for.

    Mr Khaw said that the best option for elderly couples is to live with their children and rent out their flat. "Should you need it, the option is there... but most people do not need it."

    Asked if five-room flats might qualify eventually, he said: "Let's do it for the four-room (flats) first."

    Property experts welcomed the changes. PropNex Realty chief executive Mohamed Ismail Gafoor said of the scheme: "It is finally ready to take off."

    [email protected]

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    Mr Khaw said that the best option for elderly couples is to live with their children and rent out their flat.

    Anyone against his best option, HDB is for self stay not investment or retirement money printing machine.

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    Default Lease buyback: 75% of elderly HDB households can benefit

    http://www.businesstimes.com.sg/arch...nefit-20140904

    Published September 04, 2014

    Lease buyback: 75% of elderly HDB households can benefit

    By Lynette Khoo

    [email protected] @LynetteKhooBT


    [SINGAPORE] Three in every four elderly HDB households can benefit from the enhanced lease buyback scheme (LBS), up from 35 per cent previously. But a huge jump in take-up rates of the scheme is unlikely, said Minister for National Development Khaw Boon Wan on Wednesday.

    Other enhancements to the LBS, which will also kick in from April next year, are aimed at offering households greater flexibility on the length of lease to retain and the amount of proceeds to be received in cash upfront - issues that naysayers of the scheme have earlier picked at.

    Mr Khaw said that he expects the take-up rate for the enhanced scheme to increase by a few hundred or thousand, but not jump by "tens of thousands".

    Many residents that he spoke to in his Sembawang GRC hailed the LBS enhancements "a good idea" but expressed that they will not tap the scheme now as they are financially supported by their children or have passive income from subletting a room.

    "But it does not matter whether it is a thousand or ten thousand. The scheme is there and we will make sure that it will be implemented the way we have described it," Mr Khaw said.

    The scheme has seen a low take-up rate since its inception in 2009, when it allowed elderly households in three-room or smaller flats to retain a 30-year lease and sell back the remaining to HDB. The sales proceeds are used to top up their CPF Retirement Account (CPF RA), which can in turn be used to buy annuity plan.

    So far, only about 800 households have signed up for the scheme, of which some 340 households joined only after some enhancements were made in 2013.

    According to MND, Singapore is in a sweet spot for the enhanced LBS given that 80 per cent of the 290,000 HDB flats owned by seniors aged 55 years and above are fully paid-up and sitting on net equity.

    Besides extending the scheme to four-room flats, the government is raising the household income ceiling from S$3,000 to S$10,000. Households joining the scheme can also choose the length of the lease to retain, up to 35 years, based on their age and preferences, instead of having one standard 30-year lease.

    Instead of topping up their CPF RA to the full age-adjusted Minimum Sum, joint flat owners need to top up to only half of their Minimum Sums. This allows joint owners to receive more cash upfront, but still subject to a cap of S$100,000.

    But Mr Khaw urged the elderly to exercise prudence with the excess cash proceeds - a point that he also stressed in his blog on Wednesday.

    "While these enhancements are good, I do worry about some elderly spending unwisely away the substantial cash proceeds," he blogged. "For example, many overseas properties are being marketed here. There are bound to be disappointments and even losses."

    The elderly have the option of voluntarily using these cash proceeds to top-up their CPF RAs or their spouses' CPF RAs, Mr Khaw said.

    PropNex Realty chief executive Mohamed Ismail said he expects "multi-fold increase" in the applications for the scheme, with possibly more than 1,000 applicants within a year when changes to LBS kicks in.

    ERA Realty key executive officer Eugene Lim noted that while the pool of eligible households is expanded, this is unlikely to cause a dent to the supply of resale flats in the market.

    There remains a prevailing mindset among the elderly that the HDB flat is an asset that they wish to bequeath to the next generation, he said.

    Cushman & Wakefield research director Teo Li Kim noted that one downside of the LBS scheme is still the uncertainty concerning life expectancy. "While HDB has given assurance that no one will be displaced if they outlive the 30-year lease, there is no clause covering such an event in the LBS contract," she said.

    Mr Khaw told reporters that the scheme is continually reviewed to stay relevant to its targeted beneficiaries as their preferences and life expectancies change over time.

    He also conceded that any changes in HDB resale prices could temporarily affect the scheme's demand, since the value of the lease is calculated based on prevailing market value. But there are bound to be market upturns and downturns within a 30-year lease period, he said, adding that this is a long term scheme.

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    KHAW’S CONUNDRUM IN HDB HOUSING
    March 13, 2013 · by voiddecker · in Housing
    HDB FlatsA baby step for Khaw Boon Wan, a giant leap for singles — even if it comes with a restrictive set of criteria. I know that’s giving the minister too much credit for a long overdue move, but who can blame him for being so cautious? Whatever major policy change the government enacts on the HDB front is bound to draw flak from certain quarters of the citizenry. A baby step too slow for some is a baby step too far for others.

    If the minister needs a lesson, he can just look at the recent move by MAS to curb vehicle loans. The intention was good, but, alas, the road to political hell is paved with good intentions. After complaints from MPs, families with kids, the disabled, car dealers and their dogs, the authority has been forced to backtrack on certain fronts, such as granting exemptions for the disabled and extending the period car dealers are allowed to own used cars. One can only wonder if there had been any consultation with stakeholders and the public outside the authority’s Shenton Way bronze tower before the sudden announcement.

    There have been consistent calls on the government to stop the practice of allowing HDB flat owners to collect rent on their flats after upgrading to private properties. Most agree that it limits the supply in the resale market, which is a contributing factor to the current sky high prices. It also led to questions on the role of public housing that is making Mr Khaw lose sleep over. While I have not seen anyone publicly defend the practice, perhaps because they are all quietly and happily reaping the fat rental income, it doesn’t mean we won’t get some outcry should the practice be outlawed.

    Mr Khaw appears to acknowledge the problem as well, but he is also afraid of the rental market collapsing. There are currently about 40,000 HDB flats being let out as a whole unit, and about an equal number of units with partial sublet. The minister has said, “There are something like 80,000, 90,000 families out there – which is a lot – who are depending on rental income. So they will suffer, for example, if there is a collapse in the rental market.” He seems especially concerned about seniors who depend on this rental income for their retirement needs.

    Even if we may not agree with protecting these owners at a high cost for the rest of us, the minister does have a point of not causing shock to the system. Forcing these owners to sell will create another problem in that the supply of flats in the rental market will shrink drastically.

    Remember that PRs are now subjected to higher Additional Buyer’s Stamp Duty from the latest round of cooling measures, making it harder for them to purchase a HDB flat and more likely to turn to renting. From the announcement last week, there will also be new quotas on renting HDB flats to foreigners to prevent enclaves from forming. Along these was the news that JTC is phasing out its rental scheme for housing of foreign talent. So if all those HDB owners are forced to sell, where are these foreigners and PRs going to find a place to rent?

    But there must be a solution that will minimise the immediate impact to the market. For example, we can limit the number of years owners can hold on to their HDB flats after upgrading. The period should be sufficiently long enough, say 5-10 years or a typical property boom bust cycle, so that they won’t be forced to sell in a down market. By allowing owners to choose when to sell within a certain period, it will also help to moderate the market when high prices prompt more owners to sell, lest the market crashes when their deadline is up. Current and future property ladder aspirants will also not be deprived of benefiting from this completely.

    There are also suggestions of increasing the minimum occupation period, to ten years perhaps. How does that help anything? I have argued before that the MOP causes buyers to over-leverage. Young couples go for bigger flats than they need, such as 5-rooms, for fear of outgrowing the space with kids in coming years. Increasing the MOP will only make it worse. As with all other types of markets, one with greater volumes of buying and selling is healthier. We only need to look at the current lack of supply to know the problem with further stifling the market with a higher MOP. Not to mention the increasing number of sob stories the HDB has to tend to in appeals to sell early.

    Share this:
    http://www.voiddecker.com/2013/03/kh...n-hdb-housing/

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    HDB Flats as an Investment Medium

    Posted on February 24, 2012 by amourtan
    HDB flat prices have skyrocketed over the past few years. Owners expectedly smirk as their net worth climbs into stratosphere. Some figure that their retirement could possibly bank on the rising property market as their can downsize their house later and profit the balance. The younger generation, however, is not so fortunate. How are our little knights and princesses going to live happily ever after if they can’t afford their own castle?

    The Singapore government has predictably taken notice of this issue and expectedly implemented cooling off measures for the property market. One of the strategies is to increase the supply of new flats into the marketplace. Witness the numerous Build-to-Order flats released over the past year or so. This should ideally curb the rampant upward swings of the housing prices in the short to mid-term. However, the question remains, is the HDB flat a good investment medium given the circumstances? Will the prices collapse given the higher supply of flats and rein in the foreign worker count after the election? Will the falling birth rates and an increasingly single population cause a fall in the demand of flats and thus resulting in a reduction in flats’ prices? Would-be flat owners are unsurprisingly concerned.

    First, we look at the situation from the angle of the yields of flats as if they are rented. Even if you were to live in your flat, this is your imputed rent as should you not have purchased a flat, you would have to rent it somewhere else. We look at 3, 4 and 5 room flats in Jurong West, Ang Mo Kio, Seng Kang and Toa Payoh.

    Flat Price Rent Yield
    Jurong West 4-room $400,500 $2,200 6.6%
    Jurong West 5-room $475,000 $2,400 6.1%
    Seng Kang 4-room $450,000 $2,300 6.1%
    Seng Kang 5-room $511,000 $2,400 5.6%
    Ang Mo Kio 3-room $341,500 $1,900 6.7%
    Ang Mo Kio 4-room $468,000 $2,450 6.3%
    Toa Payoh 3-room $348,000 $2,000 6.9%
    Toa Payoh 4-room $481,500 $2,500 6.2%
    As you can see, while the prices of HDB flats are high, the rentals are equally eye-popping. Thus, the yields of flats range from 5.6% to 6.9%. Under the current economic circumstances, this is a respectable gross yield if you consider the alternatives. Saving deposits earn next to nothing. Money markets earn 0.5%. STI ETF earns 3.3%. 20-year SGS bonds earn 2.4%. You get the idea (even the ill-fated mini-bonds have only 4% returns). Note that HDB and STI ETF yields are in real terms, i.e. their values should rise with inflation while that of debt instruments such as saving deposits, money markets and SGS bonds are nominal yields. Given the high yields of HDB flats, a crash of 50% or more in the prices of HDBs is unfathomable if we assume rentals were to remain constant. If that unfortunate crash were to happen, gross yields will get to double-digit level and loads of people will take money out of the banks and investment vehicles and snap up HDB flats!

    A lot of people are uneasy that HDBs have 99-year tenure. The land that your flat sits on does indeed have 99-year tenure. However, you own the structure sitting on top of it. What happens after the 99-year tenure is unknown yet as there’s no flat that’s that old. However, you should be able to renew the tenure of the land and not have to rebuild the structure again. You should suffer slight depreciation charges against your flat over time as some areas of the building might need to be upgraded.

    Even if the Singapore government were to decide to confiscate the flat after the 99-year tenure, HDBs are still of good value as you would have “earned” back the principal in less than 20 years via the rentals. While your rental should rise with inflation, your mortgage installments are however fixed at a constant rate. This is assuming that interest rates remain at its current low level and the high rentals will not fall. However, the circumstances might change and topple the ideals.

    House ownership brings with it a new sense of pride and belonging. If your time horizon is long term and you expect the rental not to fall and you can afford the down payment, HDBs are a good investment as the installments over a 30-year period is even lower than the rental, i.e. aside from the down payment; you pay nothing and own the flat outright after the 30-year installment period. For couples finding a place to live, the government has sizeable subsides to encourage home ownership. This is a once in a lifetime opportunity not to be squandered away.

    Considering that the government population policy is to allow foreign migrant workers to replace the falling birth rates and then some more to boost economic growth, we should see the demand of flats to increase with time, this coupled with the fact that we are land-scarce put an upward pressure on housing price/rental over the long term. Over the shorter term, things are less certain as prices also ebbs-and-flows with the economy which has unforeseeable cycles. All-in-all, buying a flat now would’ve locked in the current price/rental over the future. For those buying to live in it, you can consider the purchase price as pre-paid rent for the next 99 years. Whether the purchase makes sense or not 30 years from now is an unknown, it really depends on your foresight and luck.

    http://amourtan.com/2012/02/hdb-flat...stment-medium/

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    HDB lease buyback – $1.1m loss per Singaporean?

    Posted on September 4th, 2014 under Articles, CPF, HDB 0
    We refer to the article “HDB Lease Buyback Scheme changes: More cash a draw, but some prefer to bequeath their flats” (Straits Times, Sep 4).

    “Bend over backwards”?

    It states that “The revamp raises the income ceiling from $3,000 to $10,000.

    Under the new rules, they must sell at least 20 years back to the HDB, but those aged 70 and older can keep just 25 years and sell the rest. Those aged 75 and older may keep just 20 years on their lease. Those 80 or older can choose to keep just 15 years.

    All eligible flat owners will be able to keep a new maximum of 35 years on their leases.”

    From all the announced changes to the lease buyback scheme, we seem to be trying to “bend over backwards” to get more people to sign on to the scheme.

    So far, the take-up rate of 800 households after so many years is dismal.

    4-room lose even more?

    On a proportional basis, we have estimated from our calculations that the loss by a HDB 4-room flat-owner under the scheme, may be even more than that for 3-roomers.

    Why is this so?

    Let’s look at the detailed calculations.

    We had calculated that a 3-room flat-owner may lose $$713,121 (“Each HDB flat lose $700,000 – Enhanced Lease Buy-back?“, Aug 15).

    For a 4-room flat – using the figures from the chart accompanying the above referenced news report -

    Each flat lose $1.1m?

    The $450,000 flat – if it appreciates at say an average annual rate of 5% (HDB historical rate of appreciation is about 6%) – may be $1,944,874 in 30 years time.

    The $200,000 ($130,000 top-up to CPF plus $60,000 cash plus $10,000 cash bonus) if assumed to be borrowed at an average interest rate of 5% (currently the banks’ housing loan rate is about 1.5%) – will accrue to $864,388, in 30 years time.

    So, in a sense, does it mean that the flat owner stands to lose $1,080,486 ($1,944,874 minus $864,388)?

    If so, then who gained $1,080,486 per flat under such a scheme?

    Are there any countries in the world that takes away so much of homeowners’ equity in a national reverse mortgage scheme?

    Reverse mortgage?

    In a typical reverse mortgage in other developed countries, the homeowner would borrow against the equity of his home, and receive the net proceeds of the market value less the loan plus accrued interest, on his demise.

    $1.1b lost per year?

    If “I don’t think it will be in the tens of thousands … a few hundred definitely, maybe a few thousand” comes true – 1,000 flats a year taking up the scheme may mean a loss of $1.08 billion (1,000 x $1.08 million) for these elderly Singaporeans. At this rate, after say 10 years, we may have lost $10.8 billion.

    Each Singaporean lose $2.1m?

    As if the $1 million loss per Singaporean in our CPF scheme (“CPF: Each Singaporean lost $1m?“, Jun 9) isn’t bad enough – now we may have another $1.1 million loss under the lease buyback scheme – giving a total loss of $2.1 million per Singaporean!

    S Y Lee and Leong Sze Hian

    P.S. Come with your family and friends to the 4th Return Our CPF protest on 27 September 4 pm at Speakers’ Cornerhttps://www.facebook.com/events/516436478486589/Share this:

    http://leongszehian.com/?cat=11

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    HDB BTO price increase 14%, but resale dropped 5%?

    Posted on July 20th, 2014 under Articles, HDB 0
    4-room BTO flat price increased 14.4%?

    HDB has just launched BTO flats in the mature estate of Toa Payoh, with 4 – room prices starring from $413,000.

    http://www.hdb.gov.sg/fi10/fi10296p....E?OpenDocument

    In the November 2012 Toa Payoh Crest BTO, 4 – room prices were from $361,000.

    http://esales.hdb.gov.sg/hdbvsf/eampu11p.nsf/0/12NOVBTO_page_8931/$file/12NOVBTO_about0.htm

    This is an increase of 14.4%.

    But Resale Price Index decreased 5.1%?

    The HDB Resale Price Index http://www.hdb.gov.sg/fi10/fi10321p....x?OpenDocument

    has dropped by about 5.1% from 206.6 in the 2nd quarter of 2013 to 196.0 (2nd quarter 2014), and about 3.4% from 202.9 to 196.0 from the 4th quarter of 2012 to the 2nd quarter of 2014.

    So, if the Resale Price Index dropped by 3.4%, why did the price increase by 14.4%?

    BTO prices delinked from resale prices?

    It may be bad enough that in the past, we were told for years that HDB BTO prices were pegged to resale prices, and then recently that they have been delinked – only now to appear as a if they increase much more when resale prices dropped quite a lot in the same estate.

    Transparency and accountability please?

    Can we have more transparency and accountability as to how HDB flats’ prices are determined.

    Land costs 60%?

    Is it about 60% of the price is allocated to land costs?

    HDB lose billions every year?

    How much profits has the HDB been making all these years?

    Govt not spending a single cent on HDB?

    Is the Government still not spending a single cent on public housing (HDB) as it makes profits from the sale of HDB flats?

    S Y Lee and Leong Sze Hian

    P.S. Come with your family and friends to the 3rd Return Our CPF – HDB protest on 23 August 4 pm to 6.30 pm at Speakers’ Corner https://www.facebook.com/events/648543138548193/

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    The alternative news in 1 day? (part 40) – HDB BTO price increased 4 times more than resale price?

    Posted on January 25th, 2014 under Articles, HDB 0
    I refer to the article “First annual fall in HDB resale prices since 2005” (Straits Times, Jan 25).

    Resale prices fell for the first time in 8 years

    HDB resale flat prices fell for the first time in eight years, sliding 0.6 per cent last year after a 6.6 per cent jump in 2012.

    BTO prices pegged to resale prices?

    We have been told for years that the prices of HDB BTO flats are pegged to resale flat prices, under the market subsidy pricing policy.

    BTO prices have “stabilised”?

    And then we were told that since the last elections in 2011, BTO prices have “stabilised” despite rising resale prices in the last 2 years’ plus, because of a change in pricing policy to make flats more affordable.

    Have BTO prices fallen now that resale prices have fallen?

    So, when I read the subject article that resale prices had fallen for the first time in 8 years, I was curious as to whether BTO prices had fallen too now, compared to ideally about a year ago.

    The prices for Punggol Vue (standard flats) in the January 2014 launch are from $179,000 to $218,000 for 3-room flats.

    2 years ago, in January 2012, the prices for Water Sunbeam (Punggol) (standard flats) BTO launch were from $152,000 to $196,000.

    Cheapest 3-room increased 18%?

    So, the cheapest 3-room BTO standard flat in Punggol increased by about 18% ($179,000 divided by $152,000) against a 6.0% increase in resale flat prices in the last 2 years.

    Increased 3 times more relative to resale prices?

    Why is it that at least from this example (I had to find BTOs standard flats in the same area in the last 2 years and there weren’t any others that I could find to match the areas in the 2014 January BTO launch) – the cheapest 3-room has gone up 3 times (18 divided by 6%) more in terms of the price increase relative to the resale price increase?

    Also, since Punggol Vue has no 4 or 5-room flats – I am unable to do any analysis with the 4 and 5-room flats in the Waterway Sunbeam BTO in January 2012.

    4-room increased by 12.5% in 6 months?

    However, there was a Punggol Opal in July 2012 which had 4-room flats (standard flats) from $289,000 to $341,000.

    In contrast, 4-room flats in Waterway Sunbeam 4-room flats were priced from $257,000 to $333,000 in January 2012.

    This means that the cheapest 4-room standard flat in Punggol increased by 12.5% in just 6 months from January to July 2012.

    4-room increased by 4 times more than resale price increase?

    Since resale prices rose by 6.6% in the whole year of 2012, why is it that the cheapest flat increased by almost 4 times the rate of increase (12.5% divided by 6.6 times 2) in the 6 months?

    BTO prices “stabilised”?

    Is this what we call BTO “prices have stabilised”?

    Leong Sze Hian

    http://leongszehian.com/?cat=11&paged=6

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