[Discussions] Long Term Returns of Singapore Properties

[Mecisteus]

The study was co-authored by a team at NUS, consisting of Prof Sing, Prof Agarwal, NUS Business School professor Low Tuck Kwong and PhD student Zhang Xiaoyu.

Written by some Professors yo.

 

[existential_reality]

The study takes into account freehold properties as well, though the building depreciates freehold land value appreciated over 30 years negating the depreciated value of the building

As for 99 years leasehold private buildings similar applies, assuming the land was not rezoned in the master plan and lease top up permitted existing developments can have their lease topped up by developers.

Additionally there is appreciation of the historical DC, DC (development charge) for the previous building would have already been paid when the building was build which would save the developer huge redevelopment cost considering DC charges have increased over time.

At the end of the leasehold, you will still get back 0.

Why the latter doesn't make sense? Please enlighten.

 

[SKenny]

The study seems to be supportive of the resilient price of older HDB. However it raises a serious issue with this old HDB flats.

In that study, at 40 years HDB would have only decline just under 30%, while private leasehold will be down more than 55%.

We all know that when the lease runs out at 99 years both of these classes will be worth zero (assuming no enbloc or Sers). The conclusion has to be that from 40 years onwards, HDB will need to decline at a much fast rate than private leasehold. In fact, more than 1.5 times faster.

 

[Mecisteus]

We all know that when the lease runs out at 99 years both of these classes will be worth zero (assuming no enbloc or Sers). The conclusion has to be that from 40 years onwards, HDB will need to decline at a much fast rate than private leasehold. In fact, more than 1.5 times faster.

A big size of the population wealth is tied to the value of HDB flats.

I am very confident the government will do something to try and preserve that value.

VERS is just 1 of the schemes. And this scheme will take into effect a long way to go in the future.

So the rumours about HDB flats going to 0 is just a FUD.

https://www.channelnewsasia.com/new...-rule-out-role-of-private-developers-10701518

 

[SKenny]

A big size of the population wealth is tied to the value of HDB flats.

I am very confident the government will do something to try and preserve that value.

VERS is just 1 of the schemes. And this scheme will take into effect a long way to go in the future.

So the rumours about HDB flats going to 0 is just a FUD.

https://www.channelnewsasia.com/new...-rule-out-role-of-private-developers-10701518

So it it just a rumour about HDB flats going to 0 when its lease expires?? This is not LW said. When lease expires, the value will be ZERO.

This is a fact.

 

[Mecisteus]

So it it just a rumour about HDB flats going to 0 when its lease expires?? This is not LW said. When lease expires, the value will be ZERO.

This is a fact.

Deep inside his heart, I think he regretted saying that.

After he opened the mouth, resale prices keep going down.

On the other hand, government will not allow it to reach ZERO.

Before ZERO, something will happen.

 

[Parka]

A big size of the population wealth is tied to the value of HDB flats.

I am very confident the government will do something to try and preserve that value.

VERS is just 1 of the schemes. And this scheme will take into effect a long way to go in the future.

So the rumours about HDB flats going to 0 is just a FUD.

https://www.channelnewsasia.com/new...-rule-out-role-of-private-developers-10701518

When people buy any leasehold or even freehold property, they have already invested the same amount of money into the country.

As for preserving the value, seriously there aren't many options. Even with VERS, the government would only buy back at the market value. And since your property has already depreciated, how much money can it fetch?

 

[RMCWMR]

The study seems to be supportive of the resilient price of older HDB. However it raises a serious issue with this old HDB flats.

In that study, at 40 years HDB would have only decline just under 30%, while private leasehold will be down more than 55%.

We all know that when the lease runs out at 99 years both of these classes will be worth zero (assuming no enbloc or Sers). The conclusion has to be that from 40 years onwards, HDB will need to decline at a much fast rate than private leasehold. In fact, more than 1.5 times faster.

In theory yes. But in reality, no. For HDB, most are owner occupiers. So they won't sell if the price ain't right. As for as gov takes it back i think the chances are slim. There is alot of social reprecussion to just evict residents from their hdb.

 

[NewInvestor]

Deep inside his heart, I think he regretted saying that.

After he opened the mouth, resale prices keep going down.

On the other hand, government will not allow it to reach ZERO.

Before ZERO, something will happen.

I agree with Mike. I m confident that something will happen before ZERO. That's just politics. There is still a long time to go before ZERO.

 

[NewInvestor]

In theory yes. But in reality, no. For HDB, most are owner occupiers. So they won't sell if the price ain't right. As for as gov takes it back i think the chances are slim. There is alot of social reprecussion to just evict residents from their hdb.

Political repercussions too. Since most HDB owners are voters.

 

[ELKYme]

Hmmm....
https://www.straitstimes.com/singapore/housing/govt-taking-back-191-homes-in-geylang-when-lease-ends

It is what it is, a 99-years lease. Believe HDB buyers bought knowing that it’s a 99-year lease, no?

The banks for sure know about it:

“With less than 35 years of lease left, banks are unwilling to extend loans to finance the purchase of these flats.”
https://www.straitstimes.com/singap...old-hdb-flat-here-are-some-things-to-consider

I agree with Mike. I m confident that something will happen before ZERO. That's just politics. There is still a long time to go before ZERO.

 

[SKenny]

Like raid Singapore Reserves to bail you out?
Fat hope lah! They already clearly stated you can't raid their reserves to bail you out! When you buy 99-years leasehold properties, you already expect your property to be worth $0 at end of 99-years and you can't bail-out using Singapore's Reserve!

Short of a bail out of the highest order, there isn't really a way out of this.

The govt has over-promised, over-gloified the increasing value of HDB. Now the expectations is distorted.

If a leasehold property like HDB will hold its value perpetually, then why do people need to buy freehold?

 

[Urbanchap]

This VERS in 20 years time is largely an election gimmick that's FOC for MIW for next 4-5 GEs. When flat is 70yo, what the garmen can compensate is only a fraction of what they are selling for now. Those with 50yo flats now expecting a windfall in 20yrs time will gonna be disappointed.

If we assume straight line depreciation, a 50yo flat selling for 500K today should be worth only 300K in 20years time. What if it keeps its value at 500K in 20yrs time? Then in the final 30yrs, the price drop will be even more drastic ie. 500k over 30yrs.

 

[SKenny]

I agree with Mike. I m confident that something will happen before ZERO. That's just politics. There is still a long time to go before ZERO.

Actually the sharp decline has started. Not many people are aware of it yet.

What is the price of a new (less than 10 years) 3 rooms HDB in Toa Payoh? It is very high!

What is the price of a 40+ years old 3-room in Toa Payoh. According to the HDB resale price list, the lowest price is $185k! I saw a few more transactions at $190k, $195k! Way lower than what most people expect.

When I look at the flats (via google map) I saw that they have already undergone govt upgrading. There are some extended space in the flat and the surrounding areas look nice. However this didn't stop the decline in value.

 

[naveen99]

Political repercussions too. Since most HDB owners are voters.

The dogs know that the 70% zombies can easily be made to accept the reality of declining HDB values, regardless of whatever was promised to them earlier by LKY, and will have minimal long term political repercussions on them. Any impact, will be marginal and temporary for one election.
The dogs have mastered the art of understanding the psyche of the zombies.

 

[naveen99]

Deep inside his heart, I think he regretted saying that.

After he opened the mouth, resale prices keep going down.

On the other hand, government will not allow it to reach ZERO.

Before ZERO, something will happen.

Don't bet on it.

 

[theMKR]

Don't bet on it.

actually i would bet at least 10k on that assuming 1:1 payout

 

[Urbanchap]

Before ZERO, something will happen.

Maybe owner will tiao lou

Seriously, in future if there are still ppl staying in 99yo flats with no where to go, its easier and cheaper for garmen to offer them rental flats than to give them a new flat.

The next generation will not want to pay for the folly of the current generation.

 

[Mecisteus]

What is the price of a 40+ years old 3-room in Toa Payoh. According to the HDB resale price list, the lowest price is $185k! I saw a few more transactions at $190k, $195k! Way lower than what most people expect.

So after another 20 years, the value probably go to $100k or $50k?

You just use a simple discounted cashflow analysis of the property.

If the 3 room flat can be rented out at $1.5k for the rest of its 50 years lease at a 3% discount rate, guess what is the PV of this flat?

It is $465k !

Even if you reduce the rate to $1k per month, the PV works out to $300k.

 

[SKenny]

So after another 20 years, the value probably go to $100k or $50k?

You just use a simple discounted cashflow analysis of the property.

If the 3 room flat can be rented out at $1.5k for the rest of its 50 years lease at a 3% discount rate, guess what is the PV of this flat?

It is $465k !

Even if you reduce the rate to $1k per month, the PV works out to $300k.

I am not disputing that there is value in these old flats. In fact, when the market panic, there will be even better value in them. It would be a great time to downgrade for some of us!

All I am saying is that there will be significantly price decline for these old flats. And that this sharp decline has already started.

BTW, your DCF analysis ignored the cost of renting/owning/maintaining the flat.