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Govt may approve shorter extensions or not top up leases

The government’s recent decisions to either not top up leases of some leasehold sites to the original 99-year term or to approve shorter lease extensions could affect sentiment towards investment sales of such properties.

The decisions may have implications for the likes of other leasehold properties such as DBS Building, UIC Building and Shenton House, market watchers say. ‘We can’t take it for granted that the Government will agree to extend leases for sites it had sold in the past to 99 years,’ an investment sales veteran said.

While some may be tempted to hold back investment sales deals, a property consultant points out that in reality, the economic life of an office building is probably about just 40 years. ‘It’s just the emotional thought of being stuck with say just 60 years lease, that may make some potential investors reluctant to redevelop a property,’ he added.

Knight Frank executive director Foo Suan Peng added: ‘If an investor is planning to develop a new office block and hold it for rental income, he may not necessarily be deterred if he receives a shorter lease top-up or even no lease top-up on the site, since the rental income from the new office block would not vary according to the site’s leasehold tenure.

‘However, for residential collective sale sites, a potential developer may find it tough selling a new condo built on a plot with a remaining lease of say, 70 years or 80 years, in the Singapore context. If he develops the plot into serviced apartments or apartments for lease, though, it may still be a viable proposition.’

DTZ executive director Ong Choon Fah did not think the government’s decisions would scare away investors. ‘The shorter lease-term will be priced into the property. The return has to be recouped within the allowed lease period. What would be good is if investors had clarity on lease top-ups; if you know the risk, you can manage the risk.’

There were calls to take some precautionary steps before inking deals, especially for collective sales of residential sites.

‘Buyers and sellers should check with the authorities about lease extensions before they agree to anything. The authorities for their part should also come up with clearer guidelines on lease top-ups,’ says Credo Real Estate managing director Karamjit Singh.

Agreeing, Knight Frank’s Mr Foo said: ‘If there’s an element of risk that the lease may not be topped up, the buyer will factor this into his pricing. One way to eliminate this risk, would be for the buyer to make the deal subject to the lease being topped up to 99 years.’While that would be one option, Credo’s Mr Singh argues: ‘It does not cover a situation where the authorities may agree to extend the lease, but not to 99 years. ‘Practically, it would be difficult to impute a formula to recalibrate the sale price depending on the number of years that SLA approves for lease extension.’

Instead, Mr Singh suggests ‘that where the redevelopment proposal is in line with the Master Plan, Singapore Land Authority consider processing an in-principle application for a lease upgrade without a need for the applicants to first obtain an outline planning permission (OPP) from Urban Redevelopment Authority’. An OPP may cost anywhere from $5,000 to $100,000, or even more, depending on the size of the proposed redevelopment project - and owners, especially in a residential collective sale, may find this a costly upfront payment.

In early 2005, history was made when Eng Cheong Tower in the Beach Road area became the first collective sale of a 99-year leasehold property. Paving the way for the deal was an unprecedented decision by SLA to grant in-principle approval to top up the site’s lease to 99 years before the site’s sale.

Source : Business Times - 04 Jun 2008

Proposed flat application system gives ownership of choice and saves on effort

Letter from WONG WENG KEET

I APPLAUD the Housing and Development Board’s (HDB) recent initiative regarding balloting under the build-to-order (BTO) scheme, which aims to deter people from throwing their names into the flat-balloting hat frivolously.

However, I feel that the root of the problem lies with the balloting system - it is like a lucky-draw, and when we do not give people ownership, responsibility and most importantly, accountability for their actions and decision-making, they abuse the system and keep “trying their luck” until they “strike lottery” and get the flat they desire thus, putting a strain on public resources.

At the same time, the HDB’s decision to limit additional priority for repeatedly unsuccessful applicants to non-mature estates, is unfair. This policy is in direct conflict to and cancels out the priority applicants have under the Married Child Priority Scheme (MCPS). Perpetually unlucky applicants whose parents live in popular estates such as Redhill and Toa Payoh, are deprived of additional priority unless they move far away from their parents to live in the newer estates.

Doesn’t this defeat the purpose of the MCPS, which is the promotion of stronger ties between generations in extended families, by encouraging them to live near each other?

I would like to propose a new flat application system, which I have coined the bidding-ranking cyclical system (Brics).

Under this system, HDB will announce all its up-coming projects including BTO, balloting exercises for leftover flats from Sers (selective en bloc redevelopment scheme) and others (about 8 to 10 projects) for the entire year by December of the previous year, providing adequate information necessary for potential buyers to evaluate and make informed choices.

In January, the board invites applicants to rank between three and five projects in their choice areas or estates in order of preference, with the most desired ranked 1st. For example, each applicant will be given 20 points to bid for the five projects they have ranked (with a minimum bid of 1 point and a maximum of 7 points per project). First-time applicants will have their points doubled, while those who are first-timers and applying under the MCPS will have their points quadrupled :- but they must fully utilise all their points and do so within the restrictions set by HDB.

HDB will proceed to sort applicants first by ranking and then by points. The applicant with the highest points for each project ranking will be given the 1st position in the queue and so on. If there is a tie in points, a ballot will be used (as a last resort) to determine the queue order. The whole cycle for the year is complete when all projects have undergone five rounds of sorting (for the five rankings). All priority privileges and penalties will continue to apply.

Among the many advantages of Brics:

The ranking-bidding system, working in tandem, gives ownership of choice to the applicant and serves as a differentiating factor.

Transparency on HDB’s part in disclosing all projects for the year curbs speculation and kiasu-ism.

It saves on effort as HDB can do eligibility tests all at one go and does not have to have so many balloting exercises throughout the year.

The multi-tier ranking better matches applicant-flat fits and HDB will be able to sell off most of its new flats.

Hopefully, Brics will be an efficient method of solving all our flat selection woes.

Source : Today - 27 May 2008

It assures those at the back of queue with good reasons for rejecting flats

First-Time buyers can be assured that they will get to select new flats from a reasonable pool before they are sent to the back of the queue, said National Development Minister Mah Bow Tan yesterday.

And, in a separate assurance, the Housing Board said it may exercise flexibility if applicants at the back of the queue have good reasons for rejecting available flats.

The comments came after HDB changed application rules on Thursday, leaving some first-timers worried that buyers offered leftover flats by the HDB will effectively be penalised.

Speaking to reporters yesterday, Mr Mah said that for first-timers, a new home is a ‘big investment, so you don’t want HDB to say take it or leave it…This is also why HDB will make sure there’s a reasonable number of flats for couples to select, and it’s not the last flat in the whole development’.

The new rules are aimed at tightening HDB’s application process to deter first-timers from applying frivolously.

A first-time buyer who rejects an offer to buy a flat twice at HDB’s build-to-order or balloting sales exercises will now lose his first-timer priorities for a year.

That effectively puts him at the back of the queue with the second-timers.

HDB’s move came after recent reports highlighted the relatively low take-up rate of new flats despite thousands of applications.

The problem is that more serious buyers in the queue are being pushed further back. For the HDB, a lot of time and effort is wasted on administering and managing these people, said Mr Mah.

‘We’re trying to move those with urgent needs to the front of the queue,’ he said.

Some first-time home buyers whom The Straits Times spoke to, however, were concerned that the rules were too strict.

Technical support engineer Sharlina Mohd Sahak, 28, said it was unfair if only leftover flats were on offer or if they were in an undesirable location. ‘There are pros and cons to this new rule as it sieves out insincere buyers, but overall I find it a bit harsh,’ she said.

When contacted, the HDB said it expects genuine buyers to book a flat if there is still a unit available.

Even if they do not, they are given a second chance to buy before stringent measures are applied, said HDB. ‘For applicants at the bottom of the queue, HDB may exercise flexibility if they have very good reasons why they did not select any of the last few available flats.’

Housing experts, such as PropNex chief executive Mohamed Ismail, said the latest changes were ‘timely, given the increasing number of unsuccessful take-ups’.

But others, such as Chesterton International head(research and consultancy) Colin Tan, said there could be other reasons such as higher prices to explain higher dropout rates.

Mr Mah said there was ‘no evidence’ to support this argument. It was not likely, he said, because prices are publicised before buyers make their applications.

Source : Straits Times - 24 May 2008

National Development Minister Mah Bow Tan has said that the Housing and Development Board (HDB) has no intention to raise the administrative fee for the application of new flats.

Speaking on the sidelines of the Draft Master Plan Exhibition on Friday, Mr Mah said the fees will remain at the current S$10, so as not to deter genuine flat buyers.

He also justified the need to revise the application rules for new Build-To-Order flats.

Mr Mah said, “In HDB’s case, we are selling heavily subsidised flats; we need to make sure that those who need the flats, first-timers, young couples getting married, do get a chance to own the flat.

“They are given two choices; if they still don’t take it up, I think it’s only fair that we move them to the back of the queue.

“We are not even saying ‘don’t come back’, we are saying ‘please move to the back of the queue’, because obviously your need is not so urgent.” - CNA/ms

Source : Channel NewsAsia - 23 May 2008

Move to weed out less serious buyers and give genuine ones better chances

In a move to deter less serious buyers from jamming the queue for build-to-order (BTO) projects, the Housing Development Board (HDB) has refined the application process for them.

The tweaking came in response to the recent oversubscription for new flats which did not translate to actual bookings as some applicants walked away from flat selection when their turn was due.

HDB director of estate administration and property Yap Chin Beng noted that this created the false impression that there was overwhelming demand and HDB flats were running out - causing anxiety among home buyers.

The new changes, which will take effect from the May BTO exercise, are intended to encourage applicants to consider their options carefully before hopping onto an HDB sale exercise.

First-timer applicants who reject two chances to select a flat will have their priority position suspended for a one-year period in HDB’s sales exercises.

This means they will be treated like second-timer applicants - with only one chance in the ballot instead of two and vying for just 10 per cent of the public flat supply. If they are applying under the Married Child Priority Scheme, they will have only two chances, like second-timers, instead of four.

To give first-timer applicants a greater chance of securing BTO units, additional chances - limited to non-mature estates - will also be accorded to those who had been unsuccessful twice instead of the current practice of giving additional chances only after the fifth try. There will be no additional chance accorded if they participate in the balloting exercise or quarterly/half-yearly sales exercise where supply of flats is limited.

Mr Yap noted that this trend of applicants rejecting their chance to select flats has been compounded since the second half of last year, when the surge in cash-over-valuation for resale flats priced out potential buyers, who flocked to the BTO scheme for its low barrier to entry.

This led to a four to five times oversubscription in some cases, especially for BTO projects in mature estates where supply is limited. But despite the high number of BTO applications, a review at the recent BTO exercises showed a significant number of applicants tried repeatedly but did not select a unit when given the chance at successive sales exercises.

In the last four BTO exercises between last September and November where selection has been completed, about 50-70 per cent of the applicants did not select a flat. At Coral Spring, for instance, some 30 per cent of the 698 four-room units were not selected after all the applicants had been called up for selection.

HDB said it has considered other options, including the proposal to raise the current administration fee of $10 and reverting to the queue system. The fee hike was not adopted after public feedback, saying it would penalise genuine buyers and HDB could be seen as profiteering. The previous queue system itself, also has the flipside of overbuilding based on queue length.

Property agencies applauded HDB’s decision to revise its BTO application process.

‘This programme is trying to make first-timers more serious about booking their flats,’ said ERA assistant vice-president Eugene Lim. ‘It’s addressing a very targeted group of people who are abusing the system.’

PropNex chief executive Mohamed Ismail said that the new moves would be a strong deterrent for people who do not take the purchase of new flats seriously.

Both of them do not think that the poor actual take-up in BTO homes signal weakness in the public housing demand.

‘Public housing is expected to continue to do well this year,’ Mr Ismail said. ‘Even the take-up rate is expected to be strong particularly now that the supply of unsold flats has already dried up.’

Yesterday, HDB launched two new BTO housing projects in Punggol and Sengkang comprising a total of 1,485 premium 4- to 5-room flats. Including these two projects, the total BTO supply planned for this year will be about 8,400 units, which will surpass the total 6,000 BTO units launched in the whole of 2007.

The housing board said that flat buyers can look forward to more BTO projects from June to December this year in towns such as Punggol, Sengkang, Bukit Panjang and Woodlands.

Source : Business Times - 23 May 2008