Friday, 28 July 2017

Is the Lease Buyback Scheme a worthwhile option to monetize your home?

Came across a blogger's post about the Lease Buyback Scheme (LBS) available at HDB. This pique my interest and I decided to check out its info graphics at HDB's website.

HDB Info graphics

Quoting directly from HDB's website its example of LBS. This is what I get below.

Source: HDB Lease Buyback Scheme (as of 28 July 2017) 

From the Info Graphic, we can infer two assumptions: i) a 65 year old flat is valued at $450,000 and ii) at the tail end of its 35 year lease, the HDB flat is valued at approximately $190,000. Let's delve into the two assumptions further.

Leasehold Valuation of Singapore Property

The Singapore Land Authority (SLA) has a leasehold table which shows how much value of your property is retained as the number of years on its lease runs down. The detailed breakdown of the leasehold table can be found here on page 3.

From the table, a property of 65 year lease remaining will retain 83% of its value; while a property with a remaining lease of 35 years will retain 64% of its value if we are to follow SLA's table. That means if you had bought a brand new 99 year HDB flat at $545,000; with 65 years left on its lease, the property should be valued at approximately $450,000 and when it has 35 years of its lease left, the valuation should be approximately $348,000.

Comparing HDB's illustrated example and following from SLA's valuation table, the difference in value of selling the tail end of your flat lease to HDB vs at the open market is about $148,000 (including the $10,000 LBS bonus which HDB gives on top of the $190,000). To summarize, you may be making a loss of $148,000 (in today's value) by signing to LBS compared to selling it in the open market in the future.

A few thoughts 

The simple exercise has opened a few thoughts in my mind:

Does it mean that HDB valuers hold the view that should an influx of HDB owners decide to sell their 35 year lease remianing HDB flat, they would not be able to sell at the market predetermined value? If so, does it mean SLA's Leasehold Table does not apply to HDB's flat? And does it mean we should be depreciating our HDB flat's value at a faster rate?

In fact the appreciation of our HDB's flat value may not be as great as we think because depreciation at the front end of the lease is in fact higher than what we think; resulting in a much lower valuation at the tail end of the lease.


Based on HDB's illustrative example, it does not make much financial sense to take the LBS scheme unless you hold a very pessimistic outlook that prices of Singapore property market is set to fall by about 42.5% in real value during your lifetime. Contrary to what majority of the 
population is expecting.

Let's Gather Data

No doubt that the example HDB provides may be only illustrative by nature and they are in fact paying $340,000 to flat owners who are surrendering the tail end of their flat's 35 year lease under LBS. 

However, all of these will require true data. For those who have signed for the LBS, You may comment below or email me at

Do Provide the following:
  • No of years of lease sold under LBS;
  • The total value all homeowners obtained from LBS;
  • No of years left in your HDB's lease (include the years of lease sold to HDB under the LBS);
  • Location of flat by stating which MRT Station it is closest to;
  • Rough distance of how far the flat is from that particular MRT station [Please state in Km or if it is only 500 meter and below from the MRT station, just state 500 meters] (From there, I will be able to get a rough sensing of where the flat is and seek out its resale value by using HDB's resale flat price inquiry.)
Please only state the above 5 pointers and not other confidential or personal details. I look forward to hearing from you all. 

Saturday, 15 July 2017

How a trip to Courts offered me Personal Finance Lesson and its Company model

Recently, my laptop that had accompanied me since my last year of university has been acting up; a sign that a tech refresh to a new laptop may be needed. So I was off for a window shopping trip to identify a laptop good for writing and reading annual reports.

Flexi Plan (which will put you to ruins)

One of those that caught my eye (because it was literally big) was a Lenovo 15.6" inch laptop. It screen size was big and ideal for staring at annual reports and investing forum. Not sure if it was reasonably priced, but it was going selling for $1,499; but what caught my attention even more was Court's Flexi Plan, an installment plan

Apparently at Courts, you can buy many items on installment; and for this laptop, it was being offered on a 60 month installment plan for $61 monthly. 

While the monthly installment sum seemed small, the maths didn't add up. For the laptop on installment, I will be paying a cool $3,660 after 5 years for it. 

Courts Business Model  

Courts has a pretty unique business model- 1) It sells furniture and IT accessories at its retail price for a small margin and 2) It sells furniture and IT accessories in installments at a high margin. Essentially courts is a financier offering consumers "money" to buy items at a loan shark high rate. In fact, in its recent full year results, Courts proudly presents its revenue mix.

Fortunately for the Singapore segment, a small but still significant portion of consumers are tapping on Courts's Installment Plan to finance their furniture and IT accessories purchases. In my opinion, that is still a crazy amount of people taking themselves on a journey of financial ruin.

Of course, to shareholders of Courts Asia, this is music because Courts is able to earn a fat profit margin as it is lending money to consumer at a high interest rate.

Flexi Ruin Plan

Back to my laptop plan. A simple maths will show that over the installment plan, I will be shelling out $3,660 for the laptop if I do not pay $1,499 for the laptop upfront. That is nearly 244% of the upfront retail price Courts is selling.  For $3,660, I would have been able to afford 2 of the same laptop and still be able to buy a brand new Xiaomi hand phone from the spare change!

Seriously, who are those 18.2% on Courts credit scheme?

Let's reverse the scenario. Assuming you put $1,499 in a bank product and wish to withdraw $61 monthly to fund your retirement for the next 5 years. How much must your $1,499 grow annually to fund this?

The answer is a 45.14% annul return.

If you are to ask me: achieving a 45.14% annual return over the next 5 years is no easy task. In fact even the world's best investors including Warren Buffett wont be able to match that. So why should consumers punish themselves by being on these monthly installment plan which are charging a hefty rate (even more than credit card interest)?

No doubt, it is likely there are many people who will default on Court's Installment Plan but that is because the hefty interest rate is killing them. The above is a simple example of a bad debt and how you can lead yourself on a path of financial ruin.