Tuesday, 9 September, 2014 RESIDENTIAL MARKET Those outliving lease under LBS wont be left homeless The Ministry of National Development (MND) made it clear on Monday that under the Housing & Development Boards (HDB) lease buyback scheme (LBS), those who outlive the remaining lease of their flat will not be left homeless. The ministry is also studying the option of insurance for the elderly to insure against the likelihood of their outliving the lease. Minister for National Development Khaw Boon Wan noted, however, that such an insurance scheme cuts both ways. The benefits of such insurance are restricted only to a minority who outlive the lease, while there is downside for the majority, who will have to forfeit having any unconsumed lease refunded to their estate beneficiaries. Our commitment is nobody will be left homeless, Mr Khaw said. The HDB will look into the circumstances of each case to work out an appropriate housing arrangement, taking into account the elderlys health condition, financial status and the availability of family support. Mr Khaw was fielding questions from Members of Parliament (MPs) who raised concerns about the elderly outliving their retained leases under the LBS, which allows the elderly to monetise their flat by selling the tail-end of the lease to the HDB. MP Baey Yam Keng asked the Minister if the HDB could specify the value of lease extensions when an elderly signs up for the LBS. Mr Khaw explained that the government cannot commit to something so uncertain due to the market vagaries of property prices. Those who are concerned about outliving their lease can take up the option of retaining a maximum lease of 35 years under the enhanced LBS from April next year, he said. Under the enhanced LBS that kicks in next April, joint flat owners only need to top-up to half the age-adjusted Minimum Sum, which allows them to receive more proceeds in cash than before, but still subjected to a cap of S$100,000. The scheme is also extended to four-room flats and households with income of up to S$10,000. Mr Khaw pointed out that as for LBS flat owners whose flats are selected for the Selective En bloc Redevelopment Scheme (SERS), they will receive compensation for the residual lease of their flat and also SERS rehousing benefits. Compensation for the residual lease will be based on either the market value or the stated refund value, whichever is higher. Other MPs also asked how the HDB determines the value of the lease under the LBS. Mr Khaw explained that the flat is valued by a professional private valuer appointed by the HDB, based on widely accepted industry standards and valuation practice. But how the value is split between the front-end retained lease and the tail-end sold lease is not a straight line depreciation due to the time value of money and that property with a shorter outstanding lease depreciates faster than one with a longer lease. Going strictly by industry valuation standards, valuers are likely to value the tail-end of the lease much lower than the lease retained by the owner, Mr Khaw said. This is why the HDB disallows subletting of the entire flat or resale under the LBS, he added. When valuers value the front-end of the lease to be retained, they take that into account and discount it, so instead of the 75-25 split, it then ends up roughly 60-40. The significant improvement of value of the tail-end lease sold to the HDB results in higher cash proceeds for the owners - making the LBS a lot more attractive and meaningful to the owners, Mr Khaw said. He noted that the property cycle can affect all monetisation options, whether it is lease buyback, right-sizing or disposing the flat. The key is to make sure that there is proper counselling so that the flat owners are fully aware of the options and do not rush into making a decision, he said. Source: Business Times – 9 September 2014 Resale prices of condos up a tad in August Resale prices of non-landed private homes rose a slight 0.4 per cent in August, compared to July, but analysts say this cannot be construed as a turnaround in price performance. They pin it instead on some pent-up revival in buyers interest, among other factors. This was according to flash data released by the Singapore Real Estate Exchange (SRX) on Monday. Augusts price gain was surprisingly led by properties in the city area and city fringe, which reported increases of 4.8 per cent and 1.5 per cent, respectively. In contrast, resale prices in the suburbs fell 1.1 per cent. This may go against the conventional thinking that high-end homes would be the most affected by cooling measures and loan curbs, but this was simply because their prices have already fallen drastically in previous months and there was no way to go but up. Buyers are finding high-end properties more affordable than before, but they are still very much concerned about weak leasing interest for high-end homes as companies tighten expatriates housing allowances. This price increase in August is unlikely to be repeated in the following months . . . This is a pent-up investors interest that is expected to be short-lived. There is still ample unsold developer stock and lacklustre leasing demand. Another explanation is that the figures were tilted by the greater number of transactions in the prime District 11 (Novena, Newton, Thomson) and the fact that their median transaction over X-value (TOX) were very positive, meaning that buyers paid higher than the properties estimated market value. This masked the fewer transactions in Districts 9 (Orchard Road, River Valley) and 10 (Bukit Timah, Holland, Balmoral) where units changed hands below market value. The minor recovery in the overall SRX price index and those of the core central region (city area) and rest of central region (city fringe) in August does not signal that the private residential price trend has reached the bottom. As some buyers wait on the sideline for prices to soften before they re-enter the market, it would result in a self-fulfilling prophecy of prices falling further. Proof that the market remained quiet in August (also the hungry ghost month, during which it is considered inauspicious to buy property) lay in the flat resale volume. An estimated 418 non-landed private homes were resold in August, versus 417 in July. On the leasing front, rental volume rose 3.6 per cent, with about 3,539 units rented in August. But rental prices continued to fall for the seventh straight month, slipping 0.6 per cent in August, led by the city area and suburbs which fell 2 per cent and 1.1 per cent, respectively. In contrast, rental prices in the city fringe rose a marginal 0.4 per cent. ERA Realty key executive officer Eugene Lim said this shows that there is still demand for rented property but landlords have to price their rentals more realistically in what is now a tenants market. With more projects being completed, there is an increase in the competition for tenants. Landlords have to be realistic about rents to secure tenants quickly; and very often, it would mean lowering the rent to attract or keep good quality tenants. The weak rental market feeds into the cycle, further deterring buyers from purchasing private property for investment, he added. Analysts continue to expect an overall drop of 4-8 per cent in the next 12 months, led by city-area condominiums. Source: Business Times – 9 September 2014 Why unsold lease is worth more than portion sold If a Housing Board flat owner keeps half his remaining lease and sells the other half back to the Government, what he keeps is worth more than what he sells - even though the number of years for each is the same. This aspect of the Lease Buyback Scheme has puzzled many and yesterday National Development Minister Khaw Boon Wan explained what was behind the unusual situation. The reason, he said, is that a propertys value does not fall at a steady rate. First, there is the so-called time value of money. Under the scheme, a flat owner keeps the next 30 years of his lease. The Government pays now to buy the far-flung remainder of the lease - say, the final 30 years. But $1,000 today, for instance, is worth more than $1,000 in several years time, said Mr Khaw. This is why the immediate half of a lease is worth more than the future half. Second, properties with a very short lease left tend to depreciate faster than properties with a very long lease remaining. As a result, when half the lease is kept and half sold, the first half is likely to be valued at about 60 per cent and the second at 40 per cent, said Mr Khaw in reply to Ms Foo Mee Har (West Coast GRC). He later added that this 40 per cent, which the owner receives, is already higher than would be the case under strict computation. The first half of the lease is rightly worth 75 per cent, and the other half just 25 per cent. But that would mean much lower proceeds under the scheme. This is why HDB introduced conditions. Owners who have sold part of their lease cannot resell the flat and cannot sublet it entirely, though they can sublet rooms. Because of those conditions put in, when valuers value the front end of the lease to be retained, they take that into account and discount it, he said. This is why the second half is worth 40 per cent instead of 25 per cent. So that enables the Lease Buyback Scheme to be a lot more attractive and to be a lot more meaningful to the owners. He was replying to Workers Party MP Png Eng Huat (Hougang), who wanted to know why such restrictions existed. The need for substantial sales proceeds is also why HDB requires at least 20 years of lease to be sold back, Mr Khaw told Ms Lee Bee Wah (Nee Soon GRC). Mr Hri Kumar Nair (Bishan-Toa Payoh GRC) wanted the Ministry of National Development to reveal how its calculations are made. How valuers value properties is not secretive, replied Mr Khaw. Its an established practice and there are tables which are published by valuers. If owners object to the valuation of their flats, they can appeal, he added. Ms Foo and Mr Baey Yam Keng (Tampines GRC) wondered how property cycles would affect the scheme as payouts are based on market value. Mr Khaw said the ups and downs of the property market will affect all monetisation options, from lease buyback to selling ones flat and moving into a studio apartment. The key is proper counselling so that a flat owner is aware of all the options, he said. Since the Lease Buyback Scheme began in 2009, 1,083 seniors from 812 households have taken part in it. The sales proceeds go towards topping up their Central Provident Fund savings which are used to buy the CPF Life annuity. The average monthly annuity payout for people in the scheme is $550. The highest payout is $1,200, and the lowest $50, which was for an owner with only a 5 per cent share of the flat. Source: The Straits Times – 9 September 2014
Posted on: Tue, 09 Sep 2014 15:09:26 +0000
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