HDB Info graphics
Quoting directly from HDB's website its example of LBS. This is what I get below.
Source: HDB Lease Buyback Scheme (as of 28 July 2017)
From the Info Graphic, we can infer two assumptions: i) a 65 year old flat is valued at $450,000 and ii) at the tail end of its 35 year lease, the HDB flat is valued at approximately $190,000. Let's delve into the two assumptions further.
Leasehold Valuation of Singapore Property
The Singapore Land Authority (SLA) has a leasehold table which shows how much value of your property is retained as the number of years on its lease runs down. The detailed breakdown of the leasehold table can be found here on page 3.
From the table, a property of 65 year lease remaining will retain 83% of its value; while a property with a remaining lease of 35 years will retain 64% of its value if we are to follow SLA's table. That means if you had bought a brand new 99 year HDB flat at $545,000; with 65 years left on its lease, the property should be valued at approximately $450,000 and when it has 35 years of its lease left, the valuation should be approximately $348,000.
Comparing HDB's illustrated example and following from SLA's valuation table, the difference in value of selling the tail end of your flat lease to HDB vs at the open market is about $148,000 (including the $10,000 LBS bonus which HDB gives on top of the $190,000). To summarize, you may be making a loss of $148,000 (in today's value) by signing to LBS compared to selling it in the open market in the future.
A few thoughts
The simple exercise has opened a few thoughts in my mind:
Does it mean that HDB valuers hold the view that should an influx of HDB owners decide to sell their 35 year lease remianing HDB flat, they would not be able to sell at the market predetermined value? If so, does it mean SLA's Leasehold Table does not apply to HDB's flat? And does it mean we should be depreciating our HDB flat's value at a faster rate?
In fact the appreciation of our HDB's flat value may not be as great as we think because depreciation at the front end of the lease is in fact higher than what we think; resulting in a much lower valuation at the tail end of the lease.
Based on HDB's illustrative example, it does not make much financial sense to take the LBS scheme unless you hold a very pessimistic outlook that prices of Singapore property market is set to fall by about 42.5% in real value during your lifetime. Contrary to what majority of the population is expecting.
Let's Gather Data
No doubt that the example HDB provides may be only illustrative by nature and they are in fact paying $340,000 to flat owners who are surrendering the tail end of their flat's 35 year lease under LBS.
However, all of these will require true data. For those who have signed for the LBS, You may or email me at
Do Provide the following:
- No of years of lease sold under LBS;
- The total value all homeowners obtained from LBS;
- No of years left in your HDB's lease (include the years of lease sold to HDB under the LBS);
- Location of flat by stating which MRT Station it is closest to;
- Rough distance of how far the flat is from that particular MRT station [Please state in Km or if it is only 500 meter and below from the MRT station, just state 500 meters] (From there, I will be able to get a rough sensing of where the flat is and seek out its resale value by using HDB's resale flat price inquiry.)