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Idea for Flats with Shorter Leases May Not Fly

(I think this is a bad idea. Read on…)

Straits Times 02 Mar 12

Summary:

  • A MP has proposed that the Government sell new flats with shorter leases, as that would mean cheaper flats which would be a boon for young couples. (Sometimes, I look at a young couple, and I wonder if their expectations are too high, they are not planning their lives well, or they are spending too much money on things that they shouldn’t be spending on…)
  • Property experts said the proposal is unlikely to fly for now because it would mean overhauling the current housing policy as well as existing financing plans available to homebuyers.
  • MP for Pasir Ris-Pungool GRC, Mr Gan Thiam Poh, urged the Government to consider building more affordable 2- and 3-room units with shorter leases, such as 30 or 60 years.
  • Rising property prices have caused many couples and upgrading families to worry about buying a home. (I have observed that most young couples are always not ready to get married – esp. the guys – and hence, they didn’t plan for their housing needs. If they had been serious about their relationship in the first place, they would have thought about housing. And they would start to save, knowing that it is not going to happen overnight. It’s couples who are just trying out the relationship and are afraid to talk to each other authentically about their future that get into all these problems. Frankly, it is not that difficult to get a new flat through BTO if you are not in a hurry for the flat. You just need to sit down and plan it all out.)
  • With shorter leases, couples can better control their costs.
  • “It is about giving them the option and leeway to spread the financial burden and defer the paying of higher prices until they earn more money.
  • New HDB flats have 99-yr leases. Older flats in the resale market however, have between about 60 – 80 years left on their leases.
  • Mr Nicholas Mak, head of research and consultancy at SLP International, estimated that the price of a 4-room BTO flat in Punggol with a 99-yr lease will fall from $300K to $230K if its lease is shortened to 60 years – or down by about 20%. On a 30-yr lease, the same flat will cost about $140K, about half the original price. He said that while proposal may look good on paper, implementing it will be an adminstrative nightmare. (It looks good on paper, but it is not a logical choice. That in another words, is a BAD idea.)
  • “Shorter HDB lease will run up against the brickwall of current financing options offered by CPF and banks,” he added. (Banks are only willing to loan up to 60-year lease. Doesn’t it mean that buyers will have to pay in cash?)
  • He noted too that “most of us want to sell our property at a profit… with shorter leases, it will not be profitable and may even be a loss”. (Yes, I agree. Of course! Any serious parents will buy a freehold property, knowing that they can pass on the property to their children. Those who can’t afford a freehold, will be willing to compromise with a 99-yr leasehold property. Why would they spend a fortune and buy such a short lease, knowing that the value will drop?)
  • Ms Deon Tan, director of brokerage firm Providence Capital Advisors, said that banks may not be as willing to offer long-term loans for flats with shorter leases. Even if they do, some might place more restrictions like offering lower loan quantums and requiring borrowers to pay back the loan in a shorter time. (Yes, I agree. That is what they will probably do. With the CPF funds and cash all locked up in the property, this idea just backfires.)
  • While such flats may be cheaper, in the long run, it may make it harder for those who outlive the leases to buy new flats. (Nobody can predict how long they can live. My grandfather lived till 101 years old! Can you imagine, if he is all alone, how many times will he have to move! And not only that, he stopped working when he was in his 60s! That is another 50 years of life with no income – my siblings and me entertained him for these 50 years since we stayed together.)
  • Singaporeans may not yet be ready to accept homes with short leases, like those in Hong Kong and China. (I seriously do not like this statement. Just because THEY accepted this without thinking it through properly, doesn’t mean that it is the RIGHT thing. Come on, in Australia and other Western countries, it is all freehold property. So, why are we not following their method instead?)
  • “The aim is ultimately to help everyone to own a roof over their head. Shorter leases cannot solve long-term housing needs,” said Mr Lee Sze Teck, senior manager of DWG Research and Consultancy.


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