• Published Date: 23 Feb 2019

    HDB's Reply


    Renewing HDB estates in financially viable way
    Date: 23 Feb 2019


    Since the announcement of the Voluntary Early Redevelopment Scheme (Vers) last year, there has been public interest in its design and implementation. 

    This complex long-term undertaking requires significant public resources, and we should take time to carefully work through the details to ensure a fiscally sustainable scheme. 

    Some have suggested alternatives to Vers. For example, Ms Christine Li (Is there a more permanent solution than Vers for HDB Flats?, Jan 20) suggested selling freehold HDB flats with an embedded call option (Feco), that is, a buyback clause at the end of 99 years. 

    While this is an interesting idea, it will be fiscally challenging to implement. The higher prices for the Feco flats, as suggested by Ms Li to account for the freehold tenure, will not generate sufficient revenue for the Government to buy back these flats at a later stage. 

    Alternatively, if we were to raise the selling price of the flats, this would have an impact on the affordability for home buyers. 

    Either way, considerable fiscal subsidies will be required, and it will be difficult to sustain such funding over time. The Housing Board will continue to take in feedback and ideas, as we study the best way to go about rejuvenating our public housing estates. 

    Meanwhile, HDB's existing programmes like the Home Improvement Programme, Neighbourhood Renewal Programme, and Remaking Our Heartland initiative will continue to provide residents in older towns with a quality living environment, while helping to ensure that HDB flats remain a good store of value. 

    Indeed, a recent study by the National University of Singapore found that older HDB flats depreciate less in value compared to leasehold private housing because of these government programmes. 

    We have also put in place a range of monetisation options like the Lease Buyback Scheme for flat owners who wish to unlock the value of their flats. 

    HDB is committed to improving the quality of our housing estates. We are setting higher standards of quality in new towns like Punggol and Tengah, and also upgrading existing towns. 

    We will strive to do all this in a way that is sustainable and fair to current and future generations. 

    Daniel Chan Kian Sen 

    Director (Projects & Redevelopment) 

    Housing & Development Board 



    Commentary in The Straits Times


    Is there a more permanent solution than Vers for HDB flats?
    Date: 20 Jan 2019

    From: Christine Li (Ms)


    How about having freehold units with buyback clause at end of 99 years?

    The Voluntary Early Redevelopment Scheme (Vers) that will allow home owners to vote on whether to sell their Housing Board flats to the Government once the leases on the apartments near their end was arguably the most significant policy announced last year. 

    Vers provides owners of older HDB flats some peace of mind as it will help to boost liquidity for homes with decaying leases. 

    But as it will not be rolled out until 20 years later, and with details yet to be unveiled by the Government, there are lingering concerns over Vers in terms of the payout and execution. 

    What is clear is that it will be different from the Selective En bloc Redevelopment Scheme (Sers), where the Government identifies selected HDB blocks or precincts with high redevelopment value and takes them back for redevelopment. 

    Home owners subjected to such a compulsory acquisition get duly compensated and a new flat with a fresh 99-year lease in a nearby location. 

    In the case of Vers, it is apparent that most sites will not have very high redevelopment potential, and flat owners should not expect a "windfall", unlike in the case of Sers or in the private collective sale market. 

    Another issue is the threshold of home owners required to vote in favour of Vers for it to go ahead. 

    A 100 per cent vote threshold - as favoured by some - will make it too prohibitive for Vers to take place, given the large number of residents in any HDB precinct. 

    But if the consensus requirement is below 100 per cent, we are bound to see tensions between neighbours whichever way the result goes, a scenario we have already witnessed in the private collective sale market where the threshold is 80 per cent. 

    At this juncture, Vers is probably still the best stop-gap option to preserve the market value for existing 99-year leasehold flats, but I believe we can have a more permanent solution for future Build-To-Order (BTO) flats to tackle the decaying lease issue. 

    In announcing Vers at last year's National Day Rally, Prime Minister Lee Hsien Loong explained why the HDB cannot sell flats on freehold tenure. 

    In such a scenario, flats will be bequeathed to home owners' descendants in perpetuity. Over time, our society will be split into property owners and those who cannot afford a property. The Government will also have limited options to take back the freehold flats for redevelopment and Singapore will run out of land for future generations. 

    Freehold HDB flats is a no-go, but what about selling a freehold HDB flat with strings attached? 


    For example, the Government could launch a new scheme to sell Freehold HDB flats with an Embedded Call Option (Feco) to allow a buyback clause at the end of 99 years. 

    Let me elaborate. 

    Feco flats give the Government the right, but not the obligation, to acquire them back any time after 99 years by paying the freehold market value. 

    In practice, the Government will always acquire Feco flats at the end of the 99th year. This will serve the same purpose as the current 99-year BTO flats, where leases run out and flats are returned to the state at the end of the lease term. 

    Feco flats will also be priced slightly higher to account for the freehold tenure. 

    Using the Singapore Land Authority's leasehold table as a guide, the freehold value will be about 4.2 per cent higher than the value of current BTO flats sold under a 99-year leasehold tenure. 

    Feco flats will still be highly subsidised as it has always been the Government's intention to make public housing affordable for the masses. 

    The Government will then inject the full sum received from Feco sales into GIC to be invested. After a holding period of 99 years, GIC will have accumulated enough reserves for the Government to pay for the acquisition of the flats. This scheme is like how our Central Provident Fund has worked for our retirement needs. 

    Historically, annual price appreciation of HDB flats averages 2.8 per cent, based on holding periods ranging from five to 25 years. GIC, on the other hand, has achieved annualised returns ranging between 4.3 and 5.7 per cent, also based on holding periods ranging from five to 20 years. 

    Let us assume a new Feco flat with a market value of $500,000 is sold today at a subsidised rate of $250,000. Based on an assumption of a 3 per cent historical appreciation of the HDB flat and a 4 per cent annualised return on the GIC investment portfolio, at the end of 99 years, the initial investment quantum of $250,000 would have ballooned to $12.1 million. 

    This will exceed the freehold market value of the flat at $9.3 million. The financials are made feasible due to the extremely long investment horizon of 99 years. Is a 4 per cent annualised return too optimistic? 

    No, if you consider that the current floor interest rate for the CPF Special Account is also 4 per cent. 


    Feco flats will have the benefit of preserving the resale and market value of older flats since they are still deemed freehold. This is very much in line with the Government's asset enhancement policy. 

    The call option will allow the Government to acquire HDB flats to make way for future generations' housing needs if the population continues to grow. It is also self-funded by the return from the sovereign wealth fund, which eliminates the strain on the Government's budget. 

    Most importantly, it minimises the risk of having social divisiveness due to voting. 

    For the Feco scheme to work, GIC's annualised return must exceed the HDB's annual price appreciation in the long run. 

    This can be achieved as the Government has much control over the price appreciation of HDB flats through supply and demand side measures to ensure the sustainability of the property market. Additional stress tests may be needed to ensure the scheme can withstand external shocks during a financial crisis. 

    • The writer is the senior director and head of research for Singapore at property consultancy Cushman & Wakefield.