Lease Buyback will benefit from Sers?

We refer to the article “Lease buyback: Owners can still benefit from Sers” (Straits Times, Sep 9).

Value depreciates towards end of lease?

It states that “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.”

HDB has always increased in value?

– We beg to differ with the above explanation because HDB flats have to date, historically always maintained their value and appreciation, due to SERS.

No value at end of 99 year lease?

If the value declines as we approach the end of the lease – then, does it mean that a HDB flat will be worthless when the 99 year lease expires?

Asset enhancement?

If so, then perhaps the consistent rhetoric that HDB is an asset enhancement policy, may fall flat on its face.

In other words, the Government cannot have its cake and eat it too – that HDB is asset enhancement, but declines in value with the lease, when we calculate the lease buyback payment.

At least not to the extent that a 4 – room flat owner may lose about $1.1 million (as calculated in our previous analysis.

Reverse mortgage?

Moreover, in a typical reverse mortgage in other developed countries, the homeowner would borrow against the equity of his home, and receive the net proceeds of the market value less the loan plus accrued interest, on his demise or sale of the residence.

S Y Lee and Leong Sze Hian

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