Is VERS a solution to decaying HDB prices? PM Lee scant on details

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“85% of Singaporeans are living in HDB flats and we intend to keep the values of these homes up,”  said the late Lee Kuan Yew in 2011, 2 months before the general election that year. “It will never go down.”

Mr Lee’s promise, however, was thrown into doubt last year when concerns among older HDB flat owners were raised over the resale value of their ageing flats. Their worries were heightened further when the Minister for National Development, Lawrence Wong, cautioned that homeowners should not assume that their flats will undergo the Selective En Bloc Redevelopment Scheme (SERS).

Mr Wong explained that “as the leases run down, especially towards the tail-end, the flat prices will come down correspondingly.”

“His comments cast a cloud of uncertainty over the fate of the ageing flats, and this depressed HDB resale prices as well as the volume of transactions, as reflected in recent quarterly figures,” the Straits Times said on Monday.

Since Mr Wong’s remarks, speculations have been rife about what the government would do to keep prices from going down.

In his National Day Rally speech last night, Prime Minister Lee Hsien Loong announced that the government will introduce the Voluntary Early Redevelopment Scheme, or Vers.

Under the new scheme, which will only come into effect in 20 years, homeowners can choose to sell the remaining lease back to the government when their flats are 70-years old, through collective sale similar to the SERS programme.

Residents of the precinct selected for Vers will have to vote to undergo the programme.

This will, in fact, go some way to appease those who are worried about the value of their flats, especially if they need to unlock their value for retirement purposes.

PM Lee’s early revelation of the scheme is also to nip rumours and speculations in the bud before they become a political hot potato too far gone to retrieve.

With the next general elections perhaps less than 2 years away (some expect it to be as early as second half of 2019), and with lessons learned from 2011 when housing concerns played a part in the PAP losing a GRC for the first time, the early announcement of the Vers programme was made with an eye to the next GE.

Be that as it may, homeowners will welcome the clarity, albeit limited, on the road forward. At least they can see some light at the end of the tunnel now.

But PM Lee was scant on details of the scheme, and some have already raised questions about it.

For example, the Straits Times’ Opinion Editor Chua Mui Hoong asked: “How much will residents get for their old flats? How much will they have to pay for their new flats? Can families cash out on the remaining lease and bequeath the right to new flats to their adult children? What is the threshold agreement required for a precinct to be Vers-ed?”

Others like ZACD Group executive director Nicholas Mak, asked: “Will the compensation be enough to buy another flat to give the flat owner the same standard of living?”

And what if residents disagree on whether their flats should be sold back to the government? In the SERS programme, acrimony has been the experience in some instances.

These questions will perhaps be answered next year when more details will be released.

In the meantime, homeowners should note that under Vers, compensation will be less generous than under SERS.

This, PM Lee explained, was because there was less financial upside for the government in buying back the ageing flats which will only have about 29 years left of their 99-year lease if Vers kicked in.

Mr Alex Yam, who chairs the National Development government parliamentary committee, also cautioned homeowners to temper their expectations.

“There are, I think, going to be a lot more conditions tied in with Vers… We didn’t go through so many cooling measures to try to dampen the private en bloc market so Vers can take over,” he said.

Indeed, there are concerns that the mere announcement of the scheme by PM Lee will have an effect on prices of HDB flats. International Property Advisor chief executive Ku Swee Yong said flat owners may now start to ask for a higher selling price for their homes, driving up property prices.

So, while Vers may provide some clarity going forward on the issue of the depreciating value of HDB flats, there remains questions which are yet to be fully addressed, including the financial sustainability of the programme which will span decades.

Also, 20 years is a long time and it is also possible that there may be a new government by then. And even if it is a PAP government, it would be a 5G one by then. Will the government of the day, PAP or otherwise, continue with such a programme?

We will have to wait till next year for the details, by which time we could also be in the midst of election fever.

If the PAP is unable to convince Singaporeans that it is able to keep their home prices up, and keep Mr Lee’s promise, there could be a heavy political price to be paid.