More sign up for HDB Lease Buyback

According to the Straits Times news report “Enhanced Lease Buyback Scheme draws more applicants after April changes” (Jun 12) – “Interest in the Lease Buyback Scheme surged when more households became eligible in April, with 450 applications in April and May, the Housing Board said on Friday (June 12).

This total makes up more than half of the existing 965 households on the scheme” (since LBS was launched in 2009).

Only 965 signed up in 6 years?

So, there were only 965 households who took up the scheme in the last six years!

Using the example in the HDB’s web site – for a $450,000 4-room flat with a balance lease of 65 years – if it appreciates at say an average annual rate of 5% (HDB historical rate of appreciation is about 5%) – it may be $1,944,874 in 30 years’ time, with the balance of the 35 years’ lease at that time sold to the HDB.

HDB value increase perpetually or decline to zero?

The value of HDB flats since the founding of the HDB in 1960, has always increased in value perpetually in the last 55 years, because of the Selective En-bloc Redevelopment Scheme (SERS).

Thus, the way the Lease Buyback scheme is being calculated may be like a two-edged sword – does it mean that all HDB flats will decline in value to zero when the 99 year lease is up? Or, will the SERS continue to ensure that all HDB flats will increase in value perpetually?

Since the HDB can acquire flats at will under SERS – and redevelop them into new flats at market prices determined by the HDB – from the HDB’s perspective – no matter  how old HDB flats are – they may always increase in value.

A family loses $1.1m?

The $190,000 ($130,000 top-up to CPF Life plus $60,000 cash) if assumed to be borrowed at an average interest rate of 5% (currently the banks’ housing loan rate is about 1.5%) – will accrue to $821,169 in 30 years’ time.

So, in a sense, does it mean that the flat owner stands to lose $1,123,705 ($1,944,874 minus $821,169)?

If so, then who may have gained $1,123,705 per flat under such a scheme?

Are there any countries in the world that takes away so much of homeowners’ equity in a national reverse mortgage scheme?

Reverse mortgage?

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.

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