On 18 April, Mr Chua Bean Chong wrote to the Straits Times Forum page to highlight the apparent disparity between the prices of a new 4-room Build-To-Order HDB flat and that of a repurchased flat of the same size in Ang Mo Kio.

Mr Chua’s letter came about 3 weeks after Minister for National Development, Lawrence Wong, had reminded home buyers “not to assume that all old Housing Board flats will be automatically eligible for the Selective En bloc Redevelopment Scheme (Sers).”

He said that for most flats, their leases (99 years) will run out eventually and the flats will have to be returned to the HDB. And the HDB would then have to surrender the land which the flats are on to the State.

“As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly,” he said. “So buyers need to do their due diligence and be realistic when buying flats with short leases. This is especially important for young couples, who have to plan for a much longer future.”

Mr Wong’s remarks generated much disquiet and discussion, with some asking what then about the government’s “asset enhancement” promise which in turn allows the flat to be monetised for retirement needs.

If the value of a flat is lower as it ages, what would be the prices of repurchased or repossessed flats which are put up for resale under the HDB’s Sale of Balance Flats programme?

This was Mr Chua’s question in his letter, in which he said “prices of these flats do not reflect the [shorter] lease period.”

He gave examples of two 4-room HDB flats in Ang Mo Kio.

He wrote:

“[A] four-room flat (91 sq m) in Ang Mo Kio Avenue 5, with a remaining lease of 52 years, was being sold for $357,200, while a similar four-room flat (93 sq m) in Ang Mo Kio Avenue 21, with its 99-year lease to begin next year, was being sold for $404,000.

“I would have assumed that the price of a flat with a 52-year remaining lease would be a percentage of the price of a new one with 99-year lease – in this case, around $212,200.”

 In his reply on 27 April, HDB’s Director (Marketing & Development), Ignatius Lourdesamy, said, “In pricing new flats for sale, the HDB takes into consideration several factors, including the prevailing market conditions, the flat’s attributes (for example, its remaining lease, the floor level, size and orientation) and its location.”A generous discount is applied to every flat before the final subsidised price for Singaporeans is arrived at.”

These same principles apply for flats sold under the Sale of Balance Flats scheme, he explained.

Turning to the examples cited by Mr Chua, Mr Lourdesamy said the unit in Ang Mo Kio Avenue 5 had a remaining lease of 62 years, and not 52 years. He then explained the difference in amenities in the locations of the two flats in question.

He clarified that the first flat was on the 7th floor, and “is close to amenities such as the Ang Mo Kio MRT station and bus interchange, Ang Mo Kio Hub and Town Centre.”

“As for the $404,000 unit in Ang Mo Kio Street 21, although it is a new flat with a 99-year lease, the unit is on the second floor and located on the western fringe of the town.

“Given the widely differing attributes of the two flats, it would not be appropriate to make a direct comparison of their prices.”

“Furthermore, the price of a property is not directly proportional to the length of its lease.

“Based on valuation principles widely used by professional valuers in Singapore, a lease’s value is front-loaded in the initial years of the lease to take into account the time-value of money.”

Mr Lourdesamy’s explanation, however, may not convince Mr Chua much, given that the latter had said in his letter of 18 April:

“Even taking into consideration the older flat’s location and amenities available, the $145,000 difference between the assumed price and the actual price is considerable.”

Here are the two letters in full:

HDB pricing does not reflect flat lease period

18 April 2017

The report (HDB leases and what’s in store for retirement as society ages; April 15) brought up a concern that high-priced resale HDB flats do not reflect the shorter lease available and that the Government will have the right to retake the expensive flat with no compensation.

Recently, I noticed an interesting class of housing available called repurchased flats, which are flats that were previously sold and subsequently returned to the HDB.

It seems that prices of these flats do not reflect the lease period.

For example, a four-room flat (91 sq m) in Ang Mo Kio Avenue 5, with a remaining lease of 52 years, was being sold for $357,200, while a similar four-room flat (93 sq m) in Ang Mo Kio Avenue 21, with its 99-year lease to begin next year, was being sold for $404,000.

I would have assumed that the price of a flat with a 52-year remaining lease would be a percentage of the price of a new one with 99-year lease – in this case, around $212,200.

Even taking into consideration the older flat’s location and amenities available, the $145,000 difference between the assumed price and the actual price is considerable.

It seems that it is not only buyers who are not sensitive towards the lease issue – the HDB is not either.

Chua Bean Chong


Many factors considered before price of HDB flat is set

27 April 2017

We thank Mr Chua Bean Chong for his letter (HDB pricing does not reflect flat lease period; April 18).

In pricing new flats for sale, the HDB takes into consideration several factors, including the prevailing market conditions, the flat’s attributes (for example, its remaining lease, the floor level, size and orientation) and its location.

A generous discount is applied to every flat before the final subsidised price for Singaporeans is arrived at.

We adopt the same pricing principles for flats sold under the Sale of Balance Flats exercises.

The length of the remaining lease of the flat is just one of the factors used to determine its price.

The two four-room flats cited by Mr Chua were offered in the November 2016 Sale of Balance Flats exercise.

The unit in Ang Mo Kio Avenue 5, priced at $357,200, is a repurchased flat with a lease of 62 years left, not 52 years as indicated by Mr Chua.

This seventh-floor unit is close to amenities such as the Ang Mo Kio MRT station and bus interchange, Ang Mo Kio Hub and Town Centre.

As for the $404,000 unit in Ang Mo Kio Street 21, although it is a new flat with a 99-year lease, the unit is on the second floor and located on the western fringe of the town.

Given the widely differing attributes of the two flats, it would not be appropriate to make a direct comparison of their prices.

Furthermore, the price of a property is not directly proportional to the length of its lease.

Based on valuation principles widely used by professional valuers in Singapore, a lease’s value is front-loaded in the initial years of the lease to take into account the time-value of money.

Ignatius Lourdesamy
Director (Marketing & Development)
Housing and Development Board

 

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