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VERS - game changer for HDB market

· Buying a property

VERS

What Is It?

With more HDB flats reaching the halfway mark of their lease and with the possibility of private developers getting a piece of the housing redevelopment pie, it is timely to discuss and debate the issues surrounding the new Voluntary Early Redevelopment Scheme

Like many HDB flat owners living in mature HDB estates, retiree Ms Lew has been worrying about the remaining lease on her 700 sq ft, three-room HDB flat in Marine Parade, and wondering how much it would fetch in the resale market. Like the other 7,862 HDB flats in Marine Parade, Lew’s flat was built between 1972 and 1975.

Lew bought her resale flat some 10 years ago because she likes the convenience of the location and the amenities there. She is also looking forward to the completion of the new Marine Terrace MRT station on the Thomson-East Coast Line that is currently under construction just across from her block. “I knew the flat was leasehold, but I wasn’t thinking of the implications when I bought it,” she says. She reckons that her lease has another 50-plus years left.

The reality of the depleting lease sank in when Minister for National Development Lawrence Wong, in his blog post on March 24, 2017, cautioned HDB flat owners not to assume that their flats would automatically be eligible for the Selective En- bloc Redevelopment Scheme. Wong wrote, “SERS, as the name implies, is on a selective basis. It is only offered to HDB blocks located in sites with high redevelopment potential.”

To allay the fears of HDB home- owners like Lew, Prime Minister Lee Hsien Loong addressed the issue of depleting leases of older HDB flats during his National Day Rally speech on Aug 19. He announced a new Voluntary Early Redevelopment Scheme, to be rolled out in about 20 years. He said HDB estates built in the 1970s, such as Marine Parade, Bedok and Ang Mo Kio, would be among the first to undergo VERS. Unlike SERS, which is decided by the HDB and residents do not get to vote, VERS will be open to voting.

About 250,000 flats out of the HDB housing stock of more than a million have already reached 45 to 55 years old, which means they have 40 to 50 years left on their leases. That’s about 25% of the HDB housing stock.

The prime minister also announced that every HDB flat would undergo two rounds of upgrading works dur- ing the 99-year lease period, with the Home Improvement Programme (HIP) for flats that hit the 30-year mark, and a new HIP2 to be rolled out for ageing flats at the 60- to 70-year mark. HIP will be extended to HDB blocks constructed between 1987 and 1997 and will involve another 230,000 flats in estates such as Pasir Ris, Yishun, Tampines and Jurong.

Asset enhancement a necessity

79% of Singapore resident households live in HDB flats. Another 15.6% live in condominiums and apartments, while 5.1% live in landed property. Singapore’s home ownership rate is a high 90.7%, according to the Department of Statistics.

If the government is able to successfully execute HIP2 and VERS, Singapore will be the only country in the world to have truly solved the public housing issue, where ageing estates will be rejuvenated and there will be no urban decay, slums or racial enclaves. That will make Singapore a role model for the rest of the world.

Conceptually, VERS will give owners of 99-year leasehold flats an exit by cashing out or moving into a new flat. The alternative would be that their HDB flat will have zero value at the end of the 99-year lease. The proceeds from VERS are based on the remaining lease of 20 to 29 years, and are unlikely to match the amount offered by property developers for en bloc sites in the private residential market. The government has already said the pay- out from VERS will be significantly lower than from SERS.

Only about 5% of HDB blocks in mature estates are suitable for SERS, according to HDB. Of about 80 HDB precincts that have been identified for SERS, 61 have undergone redevelop- ment, another eight are in the midst of being redeveloped and 11 have yet to be redeveloped. About 130 precincts have benefited from retrofit- ting via HIP1 with the addition of the extra utility room for every unit and lifts that stop at every floor. The bill for the lease buyback scheme, SERS and the number of precincts scheduled for HIP1 just a few years ago is about $4 billion.

While the broad concept of VERS has been outlined, there are many details that have yet to be worked out. “We will need time to do so,” says Minister Wong. These include the extent of the coverage for VERS and how compensation will be computed. “In particular, we will ensure that we implement VERS in a fiscally sustainable way so that it will not be a bur- den for the next generation,” he adds.

According to Minister Wong, residents who do not get VERS or are not in favour of it will continue to live in their flats and benefit from two rounds of upgrading. If they need a place to live at the end of the lease, the government will help them get another flat — a new built-to-order [BTO] flat if they are eligible, a re- sale flat with a shorter lease or a two- room flexi flat — for their retirement.

For the elderly who wish to age in place and do not have sufficient savings, lease buyback is an option for them. VERS is not a solution for them now.

Changing the perception of public housing

For the government, large-scale redevelopment efforts such as VERS present a good opportunity to rebuild some of the older precincts and introduce “new and exciting concepts of living” into the older towns, said Minister Wong in Parliament on Sept 10. “To achieve this, we will need to carefully study how to select the precincts and to stage the redevelopment precinct by precinct, town by town,” he said.

With VERS, the government will essentially be able to redevelop entire precincts like greenfield sites, similar to the upcoming Bidadari and Tengah estates. The new generation of HDB flats and precincts is likely to be very different from those of today.

The next-generation HDB estates could feature “Smart Nation Plus” initiatives, use new and more efficient construction methods as well as offer infrastructure and lifestyle amenities that will make them desirable neighbourhoods. Units can also be modular or prefabricated, which means they can be built quickly. Homeowners could h have the flexibility to make changes within their HDB flat according to the changes in their lifestyle needs over time.

VERS could be a game changer for the HDB housing market. It will also change the perception of public housing, making it a desirable form of housing over the long term.

Residents in these future HDB towns will also have the assurance that their properties will be upgraded twice during their 99-year lease, and that they have the option to exit via VERS when the lease hits 70 years.

HDB homeowners are still able to buy a private residential property to upgrade or as an investment if they want to, without having to sell their HDB flat. The higher additional buyer’s stamp duty acts like a wealth tax. There will still be upgrader demand. Most still hope to invest in residential property as a nest egg for retirement.

Master developer’ opportunities?

Will property developers be able to participate in VERS like they have in collective sales of ageing private property? Last year, the government announced that it would launch a pilot scheme for a “master developer” approach, with the first site being in the Kallang area. The government had earlier decided on a master developer approach for certain sites, especially new districts or areas to be rejuvenated.

If the master developer scheme works out, it could well be applied to selected HDB precincts.

Minister Wong says, “I will not rule out the possibility of having private developers being involved and we will study the suggestion carefully. But let’s be very clear: Our aim is to redevelop public housing estates. We will ensure that any redevelopment is done in a way that preserves the character of our HDB towns and supports HDB’s mission to provide affordable and quality homes for Singaporeans.”

No one will be without a home

VERS ensures that people will not be without housing when the lease of their flat expires.

Those living in three-room flats in first-generation HDB estates such as Queenstown, Bukit Merah and Toa Payoh are already seeing the impact that a depleting lease has on the prices of their properties. In Queenstown, for example, a 678 sq ft, three-room (two bedrooms and one living/dining area) HDB flat on Commonwealth Drive with a 99-year lease starting from 2015 costs $600,000, while a 689 sq ft, three-room flat on Commonwealth Crescent built in 1970 is priced at $290,000.

However, even then, prices have increased significantly over time. Tan recalls how a three-room flat in Queenstown was priced at $10,000 to $11,000 in 1972. That was when he returned to Singapore after graduating at the top of his class with a Diploma in Urban Valuation from the University of Auckland, New Zealand. The price of a three-room flat then was the equivalent of 1.5 years of his starting salary. “It was certainly affordable then,” he relates.

Forty-five years on, the median monthly salary of a fresh graduate from the National University of Singapore, Nanyang Technological University or Singapore Management University was about $3,500 in 2017. Three-room BTO flats in 2017 were priced from $145,000, excluding government housing grants. That is equivalent to 3.5 years of the salary of a fresh graduate today.

However, graduates are more likely to opt for a four-room BTO flat than a three-room flat, points out Lim. A four-room BTO flat is priced from $236,000, excluding housing grants, and that trans- lates into 5.6 years’ the salary of a fresh graduate. BTO remains the most affordable housing for young graduates.

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