Monday, April 16, 2018

Make the HDB Lease Buyback Scheme more popular

I wish to comment on the difficulty faced by seniors in selling their old HDB flat.

The government has a scheme to meet their needs. It is called the Lease Buyback Scheme. Details of this scheme are set out here.

http://www.hdb.gov.sg/cs/infoweb/residential/living-in-an-hdb-flat/for-our-seniors/lease-buyback-scheme

I suspect that this scheme is not popular and that few people have taken it up.

Let me make a guess why it is not so well received. This is just a guess. I shall be happy if someone is able to give more substantive information.

Suppose the remaining lease of the HDB flat is 50 years and the owner has to sell off the tail end of the lease of 25 years. The owner would expect to get 50% of the current market price.

However, it does not work this way. We have to take into account the time value of money. The next 25 years that the owner stays in the flat is certainly more valuable than the last 25 years.

The owner should get only 27% of the current market value. This is based on the discounted value of the 25 and 50 year lease.

If the owner expects 50%, and that is an unrealistic expectation, he will consider the offer of 27% to be unattractive. Perhaps this is why the scheme has not been successful.

I obtain the 27% by looking at the figures shown in this table, i.e. 54.6/74.7 = 73%. Deduct from 100% to get 27%.

https://www.sla.gov.sg/Portals/0/Services/Land%20Lease%20Conditions/DP%20policy%20wef%2031%20Jul%202000.pdf

One possible approach is for the HDB to appoint a financial adviser to give independent and impartial advice to the owner. Maybe, the financial adviser can convince the owner that the offer of 27% (or whatever is the actual percentage) to be fair.

The financial adviser can be paid a fee by HDB to give this work. Maybe, it can be $250 or whatever is a fair amount to compensate for the time needed for them to explain the calculation to the owner.

The HDB can make it more attractive by offering a bonus of 20% higher than the calculated value, and this bonus can be funded by the government. This is how the bonus can work.

If the market value of the flat is $200,000, and the sale of the last 25 years of the lease is 27%, it will work out to $54,000. If the bonus of 20% is given, this will add another $10,800 to make $64,800. The owner may find it attractive as they get a bonus that is funded by the government.

Do you like this idea? If so, give me a Like and Share it.

Tan Kin Lian




1 comment:

Unknown said...

Why not have the govt buy the front part of the lease rather than the tail end part?

Since the front part is more valuable, the person gets more for retirement & there shouldn't be any need for bonus.

The leaseholder will really be using up the tail end of the lease since at the end of X years he will have to return the flat if he's still alive.

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