Early redevelopment scheme 'gives owners of ageing flats viable exit option'

Potential buyers of older flats who might have hesitated to enter into a sale would be more assured to go ahead now, say market watchers

Mon, Aug 20, 2018

PRIME Minister Lee Hsien Loong's announcement of the Voluntary Early Redevelopment Scheme (Vers) on Sunday will provide home owners of ageing flats with a viable exit option, consultants believe.

The announcement comes after the government last year cautioned home buyers not to assume that all old public housing flats will be automatically eligible for the Selective En bloc Redevelopment Scheme (Sers) - a scheme where the government buys back blocks of old flats from residents and gives them compensation and rehousing benefits.

At Sunday's National Day Rally, Mr Lee said the Vers scheme will likewise help to progressively redevelop precincts. It will occur from the 70th year of a building's lifespan, which should start 20 years from now.

He wanted to do this also to prevent a bunching-up of redevelopment projects in old estates when all the leases of the buildings within a precinct expire at the same time.

This is because of how HDB had built in a "tremendous rush" in the housing shortage crisis in the 1970s and 1980s. Several older estates were built within short periods, such as Marine Parade within three years.

"Therefore, if we do not plan ahead, 99 years later, all the leases in such towns will expire around the same time, and all the flats will be returned to the state within a few years. And we will have to find new homes for a lot of people at once. And HDB will have to tear down and rebuild all the old flats in a hurry, just like when we first built Marine Parade, Ang Mo Kio and Bedok. I don't think that's a good idea. The towns will become construction sites all over again, with cranes all over the place," he said.

He pointed out that the compensation terms will be less generous compared to Sers, because the latter is a "very limited scheme" to unlock value from selected HDB blocks or precincts which have high development value. Only around 5 per cent of flats are suitable for Sers.

In contrast, Vers projects would have lower redevelopment value and therefore less financial upside. As such, the scheme will be made voluntary, and residents in the precinct will have to vote for Vers to proceed.

"This is a long term plan," he said. "We will not start doing Vers for another 20 years. We need the time to work out how to select the precincts, how to pace the redevelopments out, the specific terms of the government's offer and so on.

"We also need to study how to afford Vers for the long term. But I think such a scheme is necessary."

He also announced that HDB will expand its Home Improvement Programme (HIP) to upgrade 230,000 additional flats that were built between 1987 and 1997. Work on these flats will begin when the flats turn 30 years old, which will happen soon. Previously, only flats built up to 1986 would be offered the HIP.

He also unveiled HIP II - a programme to upgrade flats a second time when the flats reach 60 to 70 years old.

HIP II will start in about 10 years' time. This is because at 60 to 70 years old, flats will start to show their age again, and the government does not want its public housing to "degenerate into ragged slums, which has happened in many other cities".

HIP II will also help residents to retain the value of their flats as their leases run down.

Mr Lee added that HIP II is a "huge financial commitment" for the government. The first HIP will cost the government more than S$4 billion; HIP II will probably cost even more because the flats will be twice as old by then. "But it is well justified, and we will do it so long as (the Ministry of Finance) has the money."

Ong Teck Hui, national director of research and consultancy at JLL, said Vers will help to address the uncertainty that owners of older flats have been facing about the depreciating value of their ageing flats.

Potential buyers of older flats who may previously have been hesitant about entering into a sale would now also be more assured to proceed with the purchase.

Christine Li, senior director of research at Cushman & Wakefield, noted that in March last year, National Development minister Lawrence Wong had expressed concern at suggestions that some buyers were forking out high prices for older flats, in anticipation of the benefits of Sers. At the time, he had warned buyers to do their due diligence and be realistic when buying flats with short leases.

Ms Li welcomed the news: "Vers is like an exit for HDB home owners just like collective sales are for private home owners... This is a way to make it equal for both the private and HDB markets... It will be interesting to see how much the compensation for Vers is."

An analysis by OrangeTee on flats in Toa Payoh earlier this year showed a price gap widening between public flats older than 40 years and those under 40 years old.

Ms Li felt the new measures would help HDB resale prices to stabilise, and the gap between older and newer flats to narrow.

HDB resale prices showed their first uptick in nine quarters for the three months ended June, according to HDB's official statistics.