Sunday, May 9, 2010

Projected value of ageing flats too rosy

I refer to the article, 'What if you can't afford to retire?' (April25).

I am surprised with the example given by the Society of Financial Service Professionals' Mr Leong Sze Hian that a Housing Board flat valued at $200,000 now could be worth $864,388 in 30years.

Suppose a flat has 70years of lease left. In 30years, it would be down to only 40years left. Is it really possible that such a unit can fetch more than $864,000?

Mr Leong's rosy picture is not sustainable. The value of a leasehold property must come down at some point. Where exactly the turning point along the 99-year timeline is depends on several factors, such as government intervention.

It is possible to control the price movement by making available cheap lease top-up options. But if no extension is allowed, the value of a flat can move towards zero when the lease is fully expended.

This uncertainty has never been addressed. HDB flats with less than 65 years of lease left are changing hands as though they are freehold properties. Age is not factored into pricing negotiations. Surely this can't last. Imagine the consequences: A nation with a growing ageing population holding on to fast depreciating assets and not having enough funds for retirement.

Wong Pang Yee

Source: Sunday Times, 9 May 2010

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