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MPs ask how flats in lease buyback plan are valued

SINGAPORE — The enhancements made to the Lease Buyback Scheme (LBS) drew a flurry of questions from parliamentarians yesterday, with some asking how the Government determines the value of flats that are eligible.

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SINGAPORE — The enhancements made to the Lease Buyback Scheme (LBS) drew a flurry of questions from parliamentarians yesterday, with some asking how the Government determines the value of flats that are eligible.

Others wanted to know what would happen under various scenarios, such as if a flat on the scheme came up for sale en bloc or whether flat owners would be able to obtain their proceeds in a one-off cash payment if they meet their Central Provident Fund (CPF) Minimum Sum requirement.

During the National Day Rally last month, Prime Minister Lee Hsien Loong announced that the scheme would be extended to owners of four-room flats. Other tweaks to the scheme were subsequently announced: Relaxing the Minimum Sum top-up rules, allowing home owners to choose a range of leases to keep and increasing the household income ceiling for eligible participants. These changes will come into effect in April next year.

Hougang Member of Parliament Png Eng Huat asked if the Government would consider relaxing restrictions on the sale and subletting of the LBS flat and the minimum occupation period. Currently, those on the scheme cannot sublet the entire flat nor sell it.

In response, National Development Minister Khaw Boon Wan said these rules will not change as the LBS is an option for those who want to continue living in their homes.

He also explained that the restrictions, in fact, help the Housing and Development Board (HDB) to buy the lease back at a price higher than its value, resulting in a higher payout for the home owner.

A person who has lived in his flat for 30 years and wishes to sell half of the remaining 70 years on the lease would not be able to obtain half of the lease’s total value as a result of depreciation. This is due to the fact that money is worth more today than in the future and that shorter leases depreciate quicker.

“If it’s a strict computation (of the value), it is 75:25. The tail half of your lease is a lot less than the front end of the lease which you are retaining,” he said. “If you work on that basis, the cash proceeds on the lease buyback will be much less,” Mr Khaw said.

Hence, the HDB “quite rightly” introduced conditions for the scheme — one cannot sell or wholly sublet their flats under the LBS.

“Because of those conditions, when valuers value the front end of the lease to be retained, they take that into account and discount it so that instead of 75:25 split, it then ends up roughly 60:40,” he said. This 25 per cent to 40 per cent jump is a “significant improvement in the value”, he added.

The minister also explained that the LBS proceeds are calculated by taking the market value of a flat and its remaining lease, minus the value of the lease retained by the household and any outstanding loan amount.

Should an LBS flat come under the HDB’s Selective En bloc Redevelopment Scheme, the owner will receive compensation based on the remainder of the lease on their flat at the time.

They will also be given the option of buying a new replacement flat with the same lease as their LBS flat or a fresh 99-year one at a subsidised price.

Mr Khaw also said those who have topped up their CPF Retirement Accounts to meet the Minimum Sum requirements can take any remaining proceeds of up to S$100,000 in a lump sum.

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