VERS vs SERS

The details for VERS has not been announced. They will announce it closer to its implementation. That is, in about 20 years time.

For SERS, flat owners will be given compensation for their flat, and given priority to choose a replacement flat if that is what they want. There is also something like a "moving and renovation grant".

We will keep this comparison simple and just focus on the compensation for the flat, and what that will costs the government for SERS, and project or speculate what it might be for VERS.



For example, in the most recent SERS affecting 3 blocks in MacPherson (Blk 81 - 83 MacPherson Lane), this was reported:

Slated for redevelopment are Blocks 81 to 83 MacPherson Lane, comprising 313 flats that are around 50 years old, along with 27 shops with living quarters and two eating houses. The last Sers project in 2016 involved eight blocks in West Coast Road.

Residents will be offered new flats ranging from two-room flexi units to five-room units on fresh 99-year leases in Circuit Road.

Compensation will be based on market value at the time of the Sers announcement. Based on recent market transactions of comparable flats, the estimated compensation ranges from $210,000 to $260,000 for two-room flats, and $290,000 to $330,000 for three-room flats, the HDB said.

On top of market compensation, flat owners will be paid reasonable expenses, which comprise a $10,000 removal allowance, and stamp and legal fees to buy a replacement flat of equivalent value to the Sers flat.

On average, such "reasonable expenses" amount to $13,150 for a two-room flat and $14,700 for a three-room flat, the HDB said.

New replacement flats will be sold to the flat owners at subsidised prices, which are frozen at the time of the Sers announcement. Eligible flat owners are also given a Sers grant of up to $30,000 to buy a replacement flat.

The estimated selling prices of new replacement flats in Circuit Road are between $164,000 and $231,000 for two-room flats, and $307,000 and $346,000 for three-room flats. New four-room flats would cost between $421,000 and $513,000, while new five-room flats cost between $575,000 and $631,000.

Eligible Sers flat owners can also opt for an ex-gratia payment of up to $60,000 on top of the compensation for their flats, instead of the Sers rehousing benefits.

Assuming a ten-storey block has 10 units at each storey, one block would have 100 flats.

Assuming this is a block of 3-rm flats, and assuming the market value for a 3-rm flat is $300,000.

Assuming that ALL the flat owners choose the $60k ex-gratia payment instead of taking the rehousing benefit (i.e. $30k housing grant, and $14.7k reasonable expenses grant). That means that each flat owner will claim $360k.

For each 100 unit block, it would cost $36m to acquire those flats.

That's for SERS.

For VERS, PM Lee had already cautioned that the package of benefits would not be as generous. So instead of a $60k ex-gratia payment, let's half -- no, let's set it at just one third - $20k.

So each flat owner will get market value + $20k.

Maybe. This is just speculation.

The govt DOESN'T HAVE to give anything above market value.

And what is the market value of a HDB flat with 20 years of lease left?

At best, I would say, the rental income for those 20 years. Discounted to the present value.

So for a 3-rm HDB flat, you can rent it out for say $1500 a month. Annually, that is $18k. Ten years rental income is $180k, and 20 years $360k. But that's $360k OVER a period of 20 years. What's the present value of that? According that link, at 2% interest rate, the Present Value would be less than $300k (about $297k, rounded up). If interest rate is higher (say 4%), the present value would be less than $250k.

Of course in 20 years or more, inflation would affect the rental, and interest rates may be different. So this is just to give an idea. What this means is that a 3 rm flat with 20 years of lease left may be able to bring in $360k in rental (in today's dollars), but would be discounted by $60k to $110k depending on interest rate.

So that would be the market rate.

It's not too bad by today's prices. You could get a new HDB flat for that market value. Maybe the govt will top up your compensation to help you get a new flat. With a new 99 year lease.

But the point is, it is not free. The govt has to pay compensation to buy those flats and then sell the owners replacement flats. Those are costs which given the budget situation today, the govt of the future, may not be able to afford.

So is there a better option than VERS? How can the market value of the units be raised? If the govt buys over flats under VERS, what do they do with the flats?