Serious Breaking down the HDB scam known as Lease BuyBack Scheme (LBS) Part 1

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An honorable member of the Coffee Shop Has Just Posted the Following:

Recently, comments and blogging by Minister Lawrence Wong on the future of HDB flats that are nearing the half point of their 99 year leases and the options available for flat dwellers have as usual been met with a shocking lack of analysis by the Prostitute Media and property commentators in Singapore. This article is an attempt to delve into the hows and whys, supported with numbers.

How the LBS works:


The theory behind the LBS is that the older flats occupied by older flat dwellers 64 years of age and above can be “monetized” (PAP speak for Sell/Sold) to provide extra cash for the occupants. This will entail the occupants selling back a portion of their remaining balance of the 99 year lease to the HDB. For example, if there is 65 years left on the lease, the occupants can sell the HDB the tail end of the lease (say 35 years) and live in the flat for the other 30 years. The assumption being that the occupants would be 95 years or so by the time the 30 years is up and they should be already deceased by then. In the meantime, the money they get back from the HDB for the 35 years that they sold will provide them with some monthly funds for living expenses.

Why introduce this scheme? Why bring it up now? Why is Lawrence Wong promoting it? There are several reasons for this.

1)
In the example used on the HDB website where a flat with 35 years left on the lease, the website states that the flat has a market value of $450,000, and the HDB is willing to do a LBS on such a flat for $190,000 for the last 35 years of the lease. See http://www.hdb.gov.sg/cs/infoweb/res...s/how-it-works. Really, the flat is worth $450,000? Why don’t the flat dwellers just sell it for $450,000 and take the money? The truth is that they can’t. Banks will not lend to flats over 25 years old, and in fact, the HDB themselves will not finance any such purchase of a flat that is 35 years old on the resale market. If the flat is really worth $450,000 as the HDB claims, then any potential buyer has to pay cash for it. Very few entry level buyers have that sort of money lying around. The PAP and the HDB know this. They know that their claims of monetizing the flat for retirement cash are false when no banks will lend to buyers on the resale market. Sellers of old flats will have to lower their price so much that the hope for contribution to their retirement fund from the sale of their flat will just not be there. As a result, the HDB introduce the LBS so that the occupants can have some money in their RA and at the same time, live in their flat rent and mortgage free (assuming the original bank loan has long been paid off). They already know that to monetize it for $450,000 is just not possible.


The second reason is that no HDB flat is build and designed to last 99 years. The HDB knows that. They have to do a cost benefit analysis on every block they own. The older the block, the more maintenance and repairs are needed to it. Lifts break down more often, pipes burst and leak, concrete spalls and falls off, cracks in the walls, etc. At some point in time, it’s just too much expense to maintain the block, and structurally, the blocks may not be safe and its economic life has run out. In these situations, HDB will do a SERS and move the occupants out


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