Our thoughts: The Lease Buyback Scheme (LBS) is an innovative scheme that addresses 2 concerns; retire with asset-rich but cash poor, and who should bear the responsibility to take care of your parents. As we know, HDB cannot be mortgaged but when you are sick, cannot work and no one to care for you, having a regular monthly source of money goes a long way to enjoy the later part of your life.
To sum up this news in 3 pointers:
- Is it dependant on market conditions – The value of the flat’s lease, and hence the sales payout is determined from the market value of the flat.
- Calculation of sales proceed – Calculation of the sales proceed is not based on a straight line. Also, properties with a shorter outstanding lease tend to depreciate faster than properties with a longer lease.
- Can i sublet or sell the unit after taking up LBS – Applicants cannot sublet the whole flat, nor sell the unit in the open market after they have taken up LBS. They can, however, choose to sublet a room.
For the full article from ChannelNewsAsia here
Under the Lease Buyback Scheme (LBS), the value of the flat’s lease is determined from the market value of the flat, based on industry-accepted standards and valuation practice, Minister for National Development Khaw Boon Wan said in Parliament on Monday (Sep 8).
Under the scheme, eligible seniors can choose to retain part of their flats’ lease and sell the remainder back to the Housing and Development Board (HDB) for retirement income. Authorities had announced enhancements to the LBS last week, to allow greater flexibility and more seniors to benefit.
In Parliament, questions were raised as to how the sales proceeds for those participating in the scheme are calculated.
Ms Foo Mee Har, MP for West Coast GRC, asked: “Even when the duration of the lease sold to HDB is equal to the duration of the lease retained by the owners, why are the sale proceeds to owners lower? How does HDB calculate the depreciation in determining the value of the lease that they purchase? Would they vary the depreciation rate depending on the years of lease retained? How is the calculation done?”
Mr Khaw responded: “So it doesn’t mean that for the first ‘X’ years of a lease to be retained, its value will equal the tail-end of the lease that the owner is selling to HDB. It is not a straight line.”
Mr Khaw pointed to two reasons for this. The first is the time value of money – a thousand dollars today is worth more than a thousand dollars in 35 years’ time. The second reason is that properties with a shorter outstanding lease tend to depreciate faster than properties with a longer lease.
Mr Khaw said: “The end result is, if I may use the example that the member (Ms Foo) gave, which is a 50-50, equal period. The valuers are likely to value the first part of the lease, which will be retained by the owner, at about maybe 60 per cent. So instead of 50-50 share of the full value of the lease, it will be roughly 60-40. So the lease that they are selling is probably worth about 40 per cent of what the market value of the lease is today.”
The restrictions imposed on flats under the LBS are also taken into account as those under the scheme cannot sublet the whole flat, nor sell the unit in the open market. They can, however, choose to sublet a room.
In response to Ms Foo’s question about how HDB determines the value of the lease under the scheme, Mr Khaw said: “The Lease Buyback Scheme proceeds is the market value of the flat with its full remaining lease, less the value of the first 30 years of lease retained by the household and any outstanding housing loan.”
A professional valuer from HDB’s Panel of Private Valuers first assesses the market value of the flat with its full remaining lease, after a physical inspection of the flat and reference to recent comparable market transactions, Mr Khaw said.
“Adjustments are made to reflect restrictions placed on the LBS flat – namely no subletting of whole flat and no resale. Because of these adjustments, the LBS proceeds are higher,” he said.
OTHER QUESTIONS ON LEASE BUYBACK SCHEME
Workers’ Party MP Png Eng Huat also asked if HDB would consider relaxing restrictions on the subletting of flats under the scheme, as well as the minimum occupation period.
Flat owners who have spare bedrooms can choose to sublet them after taking up the LBS, Mr Khaw said. There are no plans to relax the minimum occupation period which is applied to the purchase of all HDB flats, he said.
Another question that came up was what happens to flats under the LBS, if they are chosen for the Selective En-Bloc Redevelopment Scheme (SERS). Mr Khaw said these households will receive compensation based on the balance lease of their flat at the time of the SERS announcement.
The Ministry of National Development said this compensation will be the market value of the balance lease or the Lease Buyback refund value, whichever is higher. The market value varies according to the property market situation and the flat’s remaining lease, while the refund value is what the owner under the scheme would have received if he terminated the lease voluntarily.
They will also get SERS re-housing benefits. This includes the option to buy a new replacement flat with the same balance lease as their LBS flat or a fresh 99-year lease, at a subsidised price.
Enhancements to the Lease Buyback Scheme kick in next year.