Older flats 'can still be retirement asset'
Lawrence Wong addresses concern about dwindling value of ageing leasehold homes
By Ng Jun Sen, The Straits Times, 13 Apr 2017
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Even as home values fall towards the tail-end of the lease, the Housing Board flat can still be a nest-egg for retirement, National Development Minister Lawrence Wong wrote on Facebook yesterday.
"They provide a good store of asset value, so long as you plan ahead and make prudent housing decisions," he wrote.
Lawrence Wong addresses concern about dwindling value of ageing leasehold homes
By Ng Jun Sen, The Straits Times, 13 Apr 2017
"They provide a good store of asset value, so long as you plan ahead and make prudent housing decisions," he wrote.
He was addressing concerns over the 99-year lease issue that surfaced after he cautioned against paying high prices for older leasehold flats on his blog last month.
The post generated debate and discussion over the dwindling value of homes as they age.
Leasehold property will hit zero value at lease expiry and the land it is on will have to be returned to the land owner, which in HDB's case is the state.
Mr Wong said the ageing home can still be seen as a retirement asset through monetisation options for the elderly.
He wrote: "The general point is that the HDB leasehold flat is not only a good home, but also a nest- egg for future retirement needs."
Three options are available: Downsizing with the Silver Housing Bonus (SHB) scheme, selling the remaining lease back to HDB with the Lease Buyback Scheme (LBS) or subletting the home.
Through the SHB scheme, a 65-year-old couple who bought a four-room flat can sell it and down- size to a smaller one, receiving a cash bonus of up to $20,000.
Mr Wong said: "They can also get quite a lot of money from the sale proceeds - around $100,000 upfront in cash, plus $500 per month of additional income for their retirement (on top of what they would get through CPF Life)."
If they want to continue living in the same flat, LBS allows homeowners of four-room flats or smaller to sell back the remaining years of the lease to HDB for a cash bonus and a stream of retirement income.
The scheme has grown in popularity since it was first launched in 2009. A total of 952 households have taken up the scheme from April 2015 to December last year, when the LBS was extended to include four-room flats.
The scheme has grown in popularity since it was first launched in 2009. A total of 952 households have taken up the scheme from April 2015 to December last year, when the LBS was extended to include four-room flats.
This is compared to the 965 households which signed up for it over a six-year period from 2009 to 2015, an HDB statement said.
"The cash amount is not as much as if they were to right-size, but that is because they can continue to stay in the same flat," Mr Wong noted.
The owners can also rent out a room for additional income.
R'ST research director Ong Kah Seng said that while these schemes do help, more can be done to reach out to the elderly who might not know about them.
"While the response has improved significantly, generally the elderly are not thronging into applying for these options," said Mr Ong.
International Property Advisor chief executive Ku Swee Yong said owners hoping to tap the SHB scheme must be able to sell their current flat to another buyer in order to be able to downsize.
He said: "With people now becoming more wary of buying older resale flats, it won't be easy for elderly couples to sell their old homes in future."
He said: "With people now becoming more wary of buying older resale flats, it won't be easy for elderly couples to sell their old homes in future."
Buying an old HDB flat? Here are some things to consider
The Straits Times, 12 Apr 2017
Data shows that buyers don't mind old HDB flats, paying similar prices for units whether they are 25 or 50 years old.
But beware a potential sharp fall when flats cross 64, with less than 35 years of lease remaining. That's when financing restrictions kick in.
Minister for National Development Lawrence Wong cautioned last month that the vast majority of flats will be returned to HDB when their leases run out.
Flat buyers would best not think of the 99-year lease as a clock that can be reset, The Straits Times' Wong Siew Ying wrote in a commentary.
We summarise some things to consider if you are planning to buy an old flat:
1. HOW MANY OLD FLATS ARE THERE ON THE MARKET?
There are about one million HDB flats. Of these, 70,000 or 7 per cent are more than 40 years into their leases. About 280,000 units are between 30 and 40 years old, according to HDB figures. That works out to about one in three flats being 30 years or older.
2. WHAT ARE THE AVERAGE RESALE PRICES FOR THESE FLATS?
Average resale prices of flats with 60 years and under of lease was $364,052 in 2016, relatively stable compared with $364,264 in 2015, said Mr Eugene Lim, key executive officer at ERA Realty Network.
For example, the median per sq ft price paid for flats in Bedok with lease commencing in 1970 (aged 46 years in 2016) was $407, just slightly lower than $414 for those built in 1995 (aged 21 years). Median transaction prices were much higher for newer flats built after 1995.
3. WOULD PRICES BE AFFECTED BY MINISTER WONG'S COMMENTS?
Property consultancy Edmund Tie & Company believes it may dampen demand especially for highly priced old units. It noted that there has been more discussion on the lease issue among buyers recently.
"There's more awareness, people are concerned if they put in a lot of money in the flat, whether they can recoup it in the future... We may see prices of the more expensive units easing 3 to 5 per cent this year," said Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company.
4. WOULD PRICES STILL BE ROBUST 10, 20 YEARS LATER, AS MORE FLATS HIT 50, THEN 60 YEARS OLD?
Analysts expect property values to drop more sharply towards the tail-end of the lease when loan restrictions and constraints in using Central Provident Fund (CPF) savings to finance the flat kick in.
Analysts highlight three possible key points in the flat's lease cycle that will mark steeper falls in value:
- At 64 years
With less than 35 years of lease left, banks are unwilling to extend loans to finance the purchase of these flats. That applies to flats that are at least 64 years old.
- At 69 years
With less than 30 years of lease remaining, CPF money cannot be used for down payment or to service the monthly mortgage.
- At 79 years
At this point, the property has to be paid for in cash.
"When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go," International Property Advisor chief executive Ku Swee Yong noted.
The Straits Times, 12 Apr 2017
Data shows that buyers don't mind old HDB flats, paying similar prices for units whether they are 25 or 50 years old.
But beware a potential sharp fall when flats cross 64, with less than 35 years of lease remaining. That's when financing restrictions kick in.
Minister for National Development Lawrence Wong cautioned last month that the vast majority of flats will be returned to HDB when their leases run out.
Flat buyers would best not think of the 99-year lease as a clock that can be reset, The Straits Times' Wong Siew Ying wrote in a commentary.
We summarise some things to consider if you are planning to buy an old flat:
1. HOW MANY OLD FLATS ARE THERE ON THE MARKET?
There are about one million HDB flats. Of these, 70,000 or 7 per cent are more than 40 years into their leases. About 280,000 units are between 30 and 40 years old, according to HDB figures. That works out to about one in three flats being 30 years or older.
2. WHAT ARE THE AVERAGE RESALE PRICES FOR THESE FLATS?
Average resale prices of flats with 60 years and under of lease was $364,052 in 2016, relatively stable compared with $364,264 in 2015, said Mr Eugene Lim, key executive officer at ERA Realty Network.
For example, the median per sq ft price paid for flats in Bedok with lease commencing in 1970 (aged 46 years in 2016) was $407, just slightly lower than $414 for those built in 1995 (aged 21 years). Median transaction prices were much higher for newer flats built after 1995.
3. WOULD PRICES BE AFFECTED BY MINISTER WONG'S COMMENTS?
Property consultancy Edmund Tie & Company believes it may dampen demand especially for highly priced old units. It noted that there has been more discussion on the lease issue among buyers recently.
"There's more awareness, people are concerned if they put in a lot of money in the flat, whether they can recoup it in the future... We may see prices of the more expensive units easing 3 to 5 per cent this year," said Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company.
4. WOULD PRICES STILL BE ROBUST 10, 20 YEARS LATER, AS MORE FLATS HIT 50, THEN 60 YEARS OLD?
Analysts expect property values to drop more sharply towards the tail-end of the lease when loan restrictions and constraints in using Central Provident Fund (CPF) savings to finance the flat kick in.
Analysts highlight three possible key points in the flat's lease cycle that will mark steeper falls in value:
- At 64 years
With less than 35 years of lease left, banks are unwilling to extend loans to finance the purchase of these flats. That applies to flats that are at least 64 years old.
- At 69 years
With less than 30 years of lease remaining, CPF money cannot be used for down payment or to service the monthly mortgage.
- At 79 years
At this point, the property has to be paid for in cash.
"When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go," International Property Advisor chief executive Ku Swee Yong noted.
Will you still love your HDB flat when it's over 64?
Data shows that buyers don't mind old HDB flats, paying similar prices for flats whether they are 25 years old or 50. But beware a potential sharp fall when flats cross 64, with less than 35 years of lease remaining. That's when financing restrictions kick in.
By Wong Siew Ying, The Straits Times, 12 Apr 2017
In the natural order of things, depreciation sets in as the lease on a property decays over time - meaning as the asset ages, its value should fall in tandem.
Housing Board (HDB) flats which are mostly sold on 99-year leases, however, appear to defy this logic - at least for now - supported by healthy home demand and the growing economy.
Values of older flats in mature estates remain resilient, with some choice units fetching high prices. A five-room flat in Queen's Road went for $950,000 last year despite having only 57 years left on the lease. That worked out to be $706 psf based on a size of 1,346 sq ft, consultancy OrangeTee said.
But prices are unlikely to keep rising through the flat's 99-year lease. The likelihood is that values will fall at a faster clip when the flat's remaining lease is below 35 years.
OLD IS GOLD?
Property agents say buyers may prefer older flats as they are more spacious. Also, some buyers may want to live near their parents in mature estates.
Buyers may also bank on their HDB block being picked for the Selective En bloc Redevelopment Scheme (SERS). Under SERS, the HDB acquires ageing blocks for redevelopment. It compensates residents at market rate for their old flats, and lets them buy new units nearby at subsidised rates.
"From our engagement with buyers of old leasehold flats, it seems that most (think) they would qualify for SERS well before the end of the 99-year lease," noted Mr Eugene Lim, key executive officer at ERA Realty Network.
Such speculative buyers are willing to pay up to a 10 per cent premium over the market price for the old flats, PropNex Realty chief executive Ismail Gafoor said.
Such unrealistic mindsets prompted a blog post by National Development Minister Lawrence Wong last month, urging home buyers not to assume that all old flats will be selected for SERS. In fact, only 4 per cent of HDB flats have been identified for SERS since 1995. The vast majority of flats, Mr Wong noted, will be returned to HDB when their leases run out.
TIMELY REMINDER
Observers say Mr Wong's comments are a timely reminder and a reality check for those over-paying for old flats, or buying them in hopes of profiting from SERS.
It also creates an opportunity to educate home buyers on issues relating to HDB lease decay as flats continue to age.
There are about one million HDB flats. Of these, 70,000 or 7 per cent are more than 40 years into their leases. About 280,000 units are between 30 and 40 years old, according to HDB figures. That works out to about one in three flats being 30 years or older.
More than just a roof over the head, public housing and home ownership has been a key pillar of Singapore's nation-building. HDB flats are also seen as a store of value that can be unlocked when needed. They are also regarded as a reasonable hedge against inflation.
The issue of decaying HDB leases and addressing the implications on retirement adequacy will pose a challenge for the Government in the decades to come.
"It will have to manage expectations that a sizable number of HDB home owners will see the value of their flats being zero at the end of their 99-year lease," said Singapore Management University (SMU) law don Eugene Tan.
Mr Christopher Gee, senior research fellow at the Institute of Policy Studies, said: "Retirement security for a majority of Singaporeans is dependent on the housing market cycle, and the presumption that housing prices at least preserve their value over time."
PRICES STILL HOLDING UP
Property agency ERA said 1,869 flats with 60 years or below of lease were sold last year, up by about 11 per cent from the 1,679 units transacted in 2015. Deals involving such old units account for less than 10 per cent of total resale HDB transactions last year.
Average resale prices of flats with 60 years and under of lease was $364,052 in 2016, relatively stable compared with $364,264 in 2015, said Mr Lim of ERA.
Real estate portal SRX Property, meanwhile, said buyers appeared to be "rather agnostic" about the price of flats aged between 25 and 50 years, based on its analysis of HDB resale transactions in at least three estates last year.
For example, the median per sq ft price paid for flats in Bedok with lease commencing in 1970 (aged 46 years in 2016) was $407, just slightly lower than $414 for those built in 1995 (aged 21 years). Median transaction prices were much higher for newer flats built after 1995.
Dr Tu Yong, associate professor at the National University of Singapore's Department of Real Estate, noted: "Lease decay and depreciation is natural. But other factors like location and demand may push up the value, so the effects of lease decay are not so obvious."
Property prices are also dependent on factors such as size of units and their rarity. Rare terraced flats, for instance, accounted for most of the top five HDB deals for older units last year, said OrangeTee. For example, a four-room terraced flat of 1,163 sq ft in Stirling Road, Queenstown, was sold for $980,000 last year, with 51 years of lease left.
DEPRECIATION: AN ILLUSTRATION
So HDB flat prices are robust now - but will it be so 10, 20 years later, as more hit 50, then 60 years old?
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It is hard to ascertain the pace at which flat values will fall. There is no available information on the rate of value depreciation for HDB flats with each passing decade.
However, analysts expect property values to drop more sharply towards the tail-end of the lease when loan restrictions and constraints in using Central Provident Fund (CPF) savings to finance the flat kick in.
International Property Advisor chief executive Ku Swee Yong said there are possibly three key points in the flat's lease cycle that will mark steeper falls in value as its resale appeal wanes, due to financing restrictions.
First, at less than 35 years of lease left when banks are unwilling to extend loans to finance their purchase. That applies to flats that are at least 64 years old.
Second, at under 30 years' lease remaining when CPF money cannot be used for down payment or to service the monthly mortgage (flats that are 69 years old). And third, when leases go under 20 years (flats that are 79 years old).
"When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go," Mr Ku noted.
The amount of CPF money that can be used to finance the flat purchase is also lower for units with a remaining lease of at least 30 but under 60 years.
Even before these key milestones, owners may start to find it difficult to sell their ageing units, Mr Ku said. He offers an example: A buyer pays $860,000 for a 43-year-old five-room flat in a mature estate, with 56 years left on the lease in 2017. Say he wants to sell the flat in 2033, with 40 years of lease left. Assuming the flat is in good physical condition, and its price falls at 1 per cent a year, it would be valued at $732,000 then.
If rules don't change, a buyer can only get a bank loan with a 10-year tenure to finance the flat, or an HDB loan with a 20-year tenure.
For a bank loan, the monthly mortgage payment will be $5,200 (for an 80 per cent loan over 10 years) and $3,500 for an HDB loan (90 per cent loan over 20 years).
"How many households would want, or have the ability, to service that kind of mortgage?" he asked, adding that households can choose newer flats with longer leases, and take loans with longer durations and lower monthly mortgages.
This could make re-selling pricey older units challenging.
99-YEAR LEASE CLOCK
Market watchers are divided on whether Minister Wong's comments on SERS will immediately dent sales prospects for older flats. "For now, because of overall demand, prices of HDB resale flats will not be negatively affected," says PropNex chief Mr Ismail.
However, property consultancy Edmund Tie & Company believes it may dampen demand especially for highly priced old units. It noted that there has been more discussion on the lease issue among buyers recently.
"There's more awareness, people are concerned if they put in a lot of money in the flat, whether they can recoup it in the future... We may see prices of the more expensive units easing 3 to 5 per cent this year," said Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company
To be sure, this matter of lease decay is not new. Every flat buyer ought to know that an HDB flat comes with a 99-year lease at best, and the buyer's rights are in accordance with the terms and conditions in the HDB lease agreement.
Ms Tang Wei Leng, managing director at Colliers International, Singapore, said: "The HDB owner or lessee has paid a price for the right of use to the property for the lease period. It is therefore fair that the value will run down to zero when the lease expires."
SERS is a niche programme affecting 80 sites so far. It rejuvenates ageing estates and gives flat owners a chance to get a new home with a fresh 99-year lease. But it is an expensive undertaking for the Government, which has said it will continue to offer SERS but only very selectively. In fact, SMU's Associate Professor Tan said he won't discount the possibility that SERS might be scrapped in future for fiscal reasons.
Barring any new schemes, this means most HDB flats will go back to the state once the lease is up.
Flat buyers would best not think of the 99-year lease as a clock that can be reset, but as a guide to planning their home purchase - ensuring the unit meets their budget and needs over the lease period.
Data shows that buyers don't mind old HDB flats, paying similar prices for flats whether they are 25 years old or 50. But beware a potential sharp fall when flats cross 64, with less than 35 years of lease remaining. That's when financing restrictions kick in.
By Wong Siew Ying, The Straits Times, 12 Apr 2017
In the natural order of things, depreciation sets in as the lease on a property decays over time - meaning as the asset ages, its value should fall in tandem.
Housing Board (HDB) flats which are mostly sold on 99-year leases, however, appear to defy this logic - at least for now - supported by healthy home demand and the growing economy.
Values of older flats in mature estates remain resilient, with some choice units fetching high prices. A five-room flat in Queen's Road went for $950,000 last year despite having only 57 years left on the lease. That worked out to be $706 psf based on a size of 1,346 sq ft, consultancy OrangeTee said.
But prices are unlikely to keep rising through the flat's 99-year lease. The likelihood is that values will fall at a faster clip when the flat's remaining lease is below 35 years.
OLD IS GOLD?
Property agents say buyers may prefer older flats as they are more spacious. Also, some buyers may want to live near their parents in mature estates.
Buyers may also bank on their HDB block being picked for the Selective En bloc Redevelopment Scheme (SERS). Under SERS, the HDB acquires ageing blocks for redevelopment. It compensates residents at market rate for their old flats, and lets them buy new units nearby at subsidised rates.
"From our engagement with buyers of old leasehold flats, it seems that most (think) they would qualify for SERS well before the end of the 99-year lease," noted Mr Eugene Lim, key executive officer at ERA Realty Network.
Such speculative buyers are willing to pay up to a 10 per cent premium over the market price for the old flats, PropNex Realty chief executive Ismail Gafoor said.
Such unrealistic mindsets prompted a blog post by National Development Minister Lawrence Wong last month, urging home buyers not to assume that all old flats will be selected for SERS. In fact, only 4 per cent of HDB flats have been identified for SERS since 1995. The vast majority of flats, Mr Wong noted, will be returned to HDB when their leases run out.
TIMELY REMINDER
Observers say Mr Wong's comments are a timely reminder and a reality check for those over-paying for old flats, or buying them in hopes of profiting from SERS.
It also creates an opportunity to educate home buyers on issues relating to HDB lease decay as flats continue to age.
There are about one million HDB flats. Of these, 70,000 or 7 per cent are more than 40 years into their leases. About 280,000 units are between 30 and 40 years old, according to HDB figures. That works out to about one in three flats being 30 years or older.
More than just a roof over the head, public housing and home ownership has been a key pillar of Singapore's nation-building. HDB flats are also seen as a store of value that can be unlocked when needed. They are also regarded as a reasonable hedge against inflation.
The issue of decaying HDB leases and addressing the implications on retirement adequacy will pose a challenge for the Government in the decades to come.
"It will have to manage expectations that a sizable number of HDB home owners will see the value of their flats being zero at the end of their 99-year lease," said Singapore Management University (SMU) law don Eugene Tan.
Mr Christopher Gee, senior research fellow at the Institute of Policy Studies, said: "Retirement security for a majority of Singaporeans is dependent on the housing market cycle, and the presumption that housing prices at least preserve their value over time."
PRICES STILL HOLDING UP
Property agency ERA said 1,869 flats with 60 years or below of lease were sold last year, up by about 11 per cent from the 1,679 units transacted in 2015. Deals involving such old units account for less than 10 per cent of total resale HDB transactions last year.
Average resale prices of flats with 60 years and under of lease was $364,052 in 2016, relatively stable compared with $364,264 in 2015, said Mr Lim of ERA.
Real estate portal SRX Property, meanwhile, said buyers appeared to be "rather agnostic" about the price of flats aged between 25 and 50 years, based on its analysis of HDB resale transactions in at least three estates last year.
For example, the median per sq ft price paid for flats in Bedok with lease commencing in 1970 (aged 46 years in 2016) was $407, just slightly lower than $414 for those built in 1995 (aged 21 years). Median transaction prices were much higher for newer flats built after 1995.
Dr Tu Yong, associate professor at the National University of Singapore's Department of Real Estate, noted: "Lease decay and depreciation is natural. But other factors like location and demand may push up the value, so the effects of lease decay are not so obvious."
Property prices are also dependent on factors such as size of units and their rarity. Rare terraced flats, for instance, accounted for most of the top five HDB deals for older units last year, said OrangeTee. For example, a four-room terraced flat of 1,163 sq ft in Stirling Road, Queenstown, was sold for $980,000 last year, with 51 years of lease left.
DEPRECIATION: AN ILLUSTRATION
So HDB flat prices are robust now - but will it be so 10, 20 years later, as more hit 50, then 60 years old?
However, analysts expect property values to drop more sharply towards the tail-end of the lease when loan restrictions and constraints in using Central Provident Fund (CPF) savings to finance the flat kick in.
International Property Advisor chief executive Ku Swee Yong said there are possibly three key points in the flat's lease cycle that will mark steeper falls in value as its resale appeal wanes, due to financing restrictions.
First, at less than 35 years of lease left when banks are unwilling to extend loans to finance their purchase. That applies to flats that are at least 64 years old.
Second, at under 30 years' lease remaining when CPF money cannot be used for down payment or to service the monthly mortgage (flats that are 69 years old). And third, when leases go under 20 years (flats that are 79 years old).
"When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go," Mr Ku noted.
The amount of CPF money that can be used to finance the flat purchase is also lower for units with a remaining lease of at least 30 but under 60 years.
Even before these key milestones, owners may start to find it difficult to sell their ageing units, Mr Ku said. He offers an example: A buyer pays $860,000 for a 43-year-old five-room flat in a mature estate, with 56 years left on the lease in 2017. Say he wants to sell the flat in 2033, with 40 years of lease left. Assuming the flat is in good physical condition, and its price falls at 1 per cent a year, it would be valued at $732,000 then.
If rules don't change, a buyer can only get a bank loan with a 10-year tenure to finance the flat, or an HDB loan with a 20-year tenure.
For a bank loan, the monthly mortgage payment will be $5,200 (for an 80 per cent loan over 10 years) and $3,500 for an HDB loan (90 per cent loan over 20 years).
"How many households would want, or have the ability, to service that kind of mortgage?" he asked, adding that households can choose newer flats with longer leases, and take loans with longer durations and lower monthly mortgages.
This could make re-selling pricey older units challenging.
99-YEAR LEASE CLOCK
Market watchers are divided on whether Minister Wong's comments on SERS will immediately dent sales prospects for older flats. "For now, because of overall demand, prices of HDB resale flats will not be negatively affected," says PropNex chief Mr Ismail.
However, property consultancy Edmund Tie & Company believes it may dampen demand especially for highly priced old units. It noted that there has been more discussion on the lease issue among buyers recently.
"There's more awareness, people are concerned if they put in a lot of money in the flat, whether they can recoup it in the future... We may see prices of the more expensive units easing 3 to 5 per cent this year," said Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company
To be sure, this matter of lease decay is not new. Every flat buyer ought to know that an HDB flat comes with a 99-year lease at best, and the buyer's rights are in accordance with the terms and conditions in the HDB lease agreement.
Ms Tang Wei Leng, managing director at Colliers International, Singapore, said: "The HDB owner or lessee has paid a price for the right of use to the property for the lease period. It is therefore fair that the value will run down to zero when the lease expires."
SERS is a niche programme affecting 80 sites so far. It rejuvenates ageing estates and gives flat owners a chance to get a new home with a fresh 99-year lease. But it is an expensive undertaking for the Government, which has said it will continue to offer SERS but only very selectively. In fact, SMU's Associate Professor Tan said he won't discount the possibility that SERS might be scrapped in future for fiscal reasons.
Barring any new schemes, this means most HDB flats will go back to the state once the lease is up.
Flat buyers would best not think of the 99-year lease as a clock that can be reset, but as a guide to planning their home purchase - ensuring the unit meets their budget and needs over the lease period.
HDB leases and what's in store for retirement as society ages
Experts weigh in on how HDB flat owners should prepare for the future as their home ages with them, and how other places have dealt with lease expiry.
By Ng Jun Sen, The Straits Times, 15 Apr 2017
National Development Minister Lawrence Wong's blog post of March 24, in which he cautioned buyers of older resale flats against paying high prices on the assumption that their flats would be "SERS-ed", has set some home owners thinking and counting down the remaining years on their HDB flat leases.
Mr Wong made clear that the Selective En bloc Redevelopment Scheme (SERS) - under which the HDB acquires ageing blocks for redevelopment, compensates residents at market rates for their old flats and lets them buy new units nearby at subsidised rates - was never intended for all flats.
Interviews with home owners in three mature estates of Toa Payoh, Queenstown and Geylang - where, from 2014 to last year, there were the most resale transactions of flats with less than 60 years left on their 99-year lease - found that many had indeed expected a windfall from SERS. Mr Wong's word of caution has left young home owners - like the one who gave his name only as Mr Lim, 30, who bought a Lorong 8 Toa Payoh flat two years ago - wondering whether he will still have a home when his lease expires in 57 years.
A Queenstown resident, who owns a three-room Mei Ling Street flat that has 51 years of lease remaining, remains hopeful that he will be among the lucky minority to be picked. "They SERS-ed the Tanglin Halt area nearby. Shouldn't the Government pick us too?"
Then there is IT engineer Andy Zhang, 40, who broke the record last year for spending the most on a standard, non-terraced flat that is more than 40 years old. He paid $950,000 because the flat's location in Bukit Timah shortens his commute to his job in the city and means his seven-year-old daughter can walk to her primary school nearby. Still, he could not hide his look of concern when told the million-dollar flat will turn to zero value in 57 years' time, and the Government will have the right to retake his flat with no compensation.
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A chart by Drea, which provides market analysis, showed that in Geylang, Toa Payoh and Queenstown, the average price of a low-floor unit is about the same for a 30-year-old flat as for a 50-year-old one. That suggests home buyers are currently insensitive towards the lease issue.
On Wednesday, Mr Wong once again addressed the issue of HDB leases, but, this time, he assured home owners that HDB flats can still be seen as retirement nest eggs as they "provide a good store of asset value, so long as you plan ahead and make prudent housing decisions".
ASSET ENHANCEMENT
There are historical reasons for why HDB flat owners expect the value of their home to keep rising. In the 1990s, when asset enhancement was a key goal of the Government, then Prime Minister Goh Chok Tong said in a 1992 speech: "It is in your interest to ensure that the value of your flats continues to rise." That was his argument for why flat owners should support the Government's upgrading programme.
In 1994, then Senior Minister Lee Kuan Yew also spoke of HDB flats as investments: "I would start off with a five-room or an HDB executive... quickly, before my income ceiling takes me beyond that. You buy a flat in Bishan, it's going today for half a million. So I would get there first, stay five years, seven years, and then move out."
For years, HDB prices rose steadily. It was only when recessions hit Singapore around the turn of the century that resale prices went on a roller-coaster ride. By 2013, then National Development Minister Khaw Boon Wan signalled a need to relook the HDB flat's role as an asset. "Looking ahead, as we may no longer get the same kind of returns from reselling an HDB flat as in the past, how will its role as an asset be affected?"
So what does that mean for home owners who need to rely on their HDB flats as a source of retirement income? They should not assume that the price of their flat will go up, says OCBC Bank's vice-president and senior investment strategist Vasu Menon. "Hoping for an HDB flat to appreciate in price by the time you retire, so that you can unlock value by selling the flat, is not a sound strategy."
His advice to HDB dwellers is to have other sources of retirement income, such as investments in stocks, bonds and unit trusts. Then, if the value of their flat appreciates by the time they retire, it will be a "bonus".
Mr Vinod Nair, chief executive of MoneySmart.sg, warns against treating property as "a silver bullet" that will give home owners enough money for retirement. Even before the recent discussion on SERS, it was "fast becoming clear that buying Singapore property for investment was no longer going to be as lucrative as 10 years ago", he adds.
Monetisation schemes are available to HDB owners, and that was a point Minister Wong was at pains to put across in his latest post.
Three options are available.
The Lease Buyback Scheme, launched in 2009, allows owners of four-room flats or smaller to sell the remaining years of the lease back to the HDB. The proceeds go to the Central Provident Fund (CPF) Life national annuity scheme in the flat owner's name, which gives him a lifelong cash payout.
The elderly can also downgrade to smaller flats or HDB studio apartments and benefit from the Silver Housing Bonus scheme, under which the Government gives them a cash bonus of up to $20,000. The proceeds from the sale of their larger flat will go to topping up their CPF Retirement Account. There is also the option of subletting a room for rental income.
But these monetisation schemes depend on prevailing market conditions and come with eligibility criteria. To qualify for the Lease Buyback Scheme, a flat must have at least 20 years of lease left. Five-room and larger flats are excluded.
Home owners who plan to monetise their flats also need to take into account the age of their flats. Those who wish to downgrade and benefit from the Silver Housing Bonus need to be aware that would-be buyers are subject to CPF loan restrictions if a flat has less than 60 years remaining on its lease. The problem is compounded when one considers Singapore's rapidly ageing population. According to the Population White Paper of 2013, the number of those aged 65 and above will hit 900,000 by 2030, when for every one elderly person, there will be only two working adults. That means the older generation will be seeking to downsize their ageing flats, selling to a shrinking pool of younger buyers.
That is why R'ST director Ong Kah Seng believes that "beyond the next 10 years, this (current) set of flat-monetisation options for the elderly may be insufficient as we are entering an ageing society".
WHEN LEASES EXPIRE
Since no HDB flat has yet hit 99 years, no one really knows what will happen when a flat's lease expires. Of the total stock of about one million HDB flats, 70,000, or 7 per cent, are more than 40 years old. About 280,000 units are between 30 and 40 years old.
Experts weigh in on how HDB flat owners should prepare for the future as their home ages with them, and how other places have dealt with lease expiry.
By Ng Jun Sen, The Straits Times, 15 Apr 2017
National Development Minister Lawrence Wong's blog post of March 24, in which he cautioned buyers of older resale flats against paying high prices on the assumption that their flats would be "SERS-ed", has set some home owners thinking and counting down the remaining years on their HDB flat leases.
Mr Wong made clear that the Selective En bloc Redevelopment Scheme (SERS) - under which the HDB acquires ageing blocks for redevelopment, compensates residents at market rates for their old flats and lets them buy new units nearby at subsidised rates - was never intended for all flats.
Interviews with home owners in three mature estates of Toa Payoh, Queenstown and Geylang - where, from 2014 to last year, there were the most resale transactions of flats with less than 60 years left on their 99-year lease - found that many had indeed expected a windfall from SERS. Mr Wong's word of caution has left young home owners - like the one who gave his name only as Mr Lim, 30, who bought a Lorong 8 Toa Payoh flat two years ago - wondering whether he will still have a home when his lease expires in 57 years.
A Queenstown resident, who owns a three-room Mei Ling Street flat that has 51 years of lease remaining, remains hopeful that he will be among the lucky minority to be picked. "They SERS-ed the Tanglin Halt area nearby. Shouldn't the Government pick us too?"
Then there is IT engineer Andy Zhang, 40, who broke the record last year for spending the most on a standard, non-terraced flat that is more than 40 years old. He paid $950,000 because the flat's location in Bukit Timah shortens his commute to his job in the city and means his seven-year-old daughter can walk to her primary school nearby. Still, he could not hide his look of concern when told the million-dollar flat will turn to zero value in 57 years' time, and the Government will have the right to retake his flat with no compensation.
On Wednesday, Mr Wong once again addressed the issue of HDB leases, but, this time, he assured home owners that HDB flats can still be seen as retirement nest eggs as they "provide a good store of asset value, so long as you plan ahead and make prudent housing decisions".
ASSET ENHANCEMENT
There are historical reasons for why HDB flat owners expect the value of their home to keep rising. In the 1990s, when asset enhancement was a key goal of the Government, then Prime Minister Goh Chok Tong said in a 1992 speech: "It is in your interest to ensure that the value of your flats continues to rise." That was his argument for why flat owners should support the Government's upgrading programme.
In 1994, then Senior Minister Lee Kuan Yew also spoke of HDB flats as investments: "I would start off with a five-room or an HDB executive... quickly, before my income ceiling takes me beyond that. You buy a flat in Bishan, it's going today for half a million. So I would get there first, stay five years, seven years, and then move out."
For years, HDB prices rose steadily. It was only when recessions hit Singapore around the turn of the century that resale prices went on a roller-coaster ride. By 2013, then National Development Minister Khaw Boon Wan signalled a need to relook the HDB flat's role as an asset. "Looking ahead, as we may no longer get the same kind of returns from reselling an HDB flat as in the past, how will its role as an asset be affected?"
So what does that mean for home owners who need to rely on their HDB flats as a source of retirement income? They should not assume that the price of their flat will go up, says OCBC Bank's vice-president and senior investment strategist Vasu Menon. "Hoping for an HDB flat to appreciate in price by the time you retire, so that you can unlock value by selling the flat, is not a sound strategy."
His advice to HDB dwellers is to have other sources of retirement income, such as investments in stocks, bonds and unit trusts. Then, if the value of their flat appreciates by the time they retire, it will be a "bonus".
Mr Vinod Nair, chief executive of MoneySmart.sg, warns against treating property as "a silver bullet" that will give home owners enough money for retirement. Even before the recent discussion on SERS, it was "fast becoming clear that buying Singapore property for investment was no longer going to be as lucrative as 10 years ago", he adds.
Monetisation schemes are available to HDB owners, and that was a point Minister Wong was at pains to put across in his latest post.
Three options are available.
The Lease Buyback Scheme, launched in 2009, allows owners of four-room flats or smaller to sell the remaining years of the lease back to the HDB. The proceeds go to the Central Provident Fund (CPF) Life national annuity scheme in the flat owner's name, which gives him a lifelong cash payout.
The elderly can also downgrade to smaller flats or HDB studio apartments and benefit from the Silver Housing Bonus scheme, under which the Government gives them a cash bonus of up to $20,000. The proceeds from the sale of their larger flat will go to topping up their CPF Retirement Account. There is also the option of subletting a room for rental income.
But these monetisation schemes depend on prevailing market conditions and come with eligibility criteria. To qualify for the Lease Buyback Scheme, a flat must have at least 20 years of lease left. Five-room and larger flats are excluded.
Home owners who plan to monetise their flats also need to take into account the age of their flats. Those who wish to downgrade and benefit from the Silver Housing Bonus need to be aware that would-be buyers are subject to CPF loan restrictions if a flat has less than 60 years remaining on its lease. The problem is compounded when one considers Singapore's rapidly ageing population. According to the Population White Paper of 2013, the number of those aged 65 and above will hit 900,000 by 2030, when for every one elderly person, there will be only two working adults. That means the older generation will be seeking to downsize their ageing flats, selling to a shrinking pool of younger buyers.
That is why R'ST director Ong Kah Seng believes that "beyond the next 10 years, this (current) set of flat-monetisation options for the elderly may be insufficient as we are entering an ageing society".
WHEN LEASES EXPIRE
Since no HDB flat has yet hit 99 years, no one really knows what will happen when a flat's lease expires. Of the total stock of about one million HDB flats, 70,000, or 7 per cent, are more than 40 years old. About 280,000 units are between 30 and 40 years old.
With about a third of all HDB flats today older than 30, that means that in about 60 years, some 350,000 flats will be seeing the end of their leases if nothing is done about them.
Mr Nair thinks that the Lease Buyback Scheme could be enhanced. Or the Government might come up with a new scheme to help owners of very old HDB flats who wish to live in their flats a while longer.
In Britain, the law states that leases are tenancies, and the leaseholder is essentially a tenant. Unless the tenant or the landlord decides to end the tenancy, it will continue on the same terms after the lease runs out.
Mr Nair thinks that the Lease Buyback Scheme could be enhanced. Or the Government might come up with a new scheme to help owners of very old HDB flats who wish to live in their flats a while longer.
In Britain, the law states that leases are tenancies, and the leaseholder is essentially a tenant. Unless the tenant or the landlord decides to end the tenancy, it will continue on the same terms after the lease runs out.
This is essentially an automatic renewal of lease, and British law also allows eligible residential owners to extend the lease - by 90 years for a flat and by 50 for a landed house - at a cost pegged to market rates.
In China, Premier Li Keqiang said last month that lawmakers are drafting a real estate provision that would allow property under a 70-year lease to be renewed unconditionally, though details are still not clear. Hong Kong is an interesting case due to its varied history under different rules. Back in 1898, the Chinese government leased the islands surrounding Hong Kong, known as the New Territories, to Britain for 99 years under the Second Convention of Peking. The Special Administrative Region met its own leasehold cliff in 1997, the same year Hong Kong was returned to China. This was dealt with at the stroke of a pen to extend the leases for 50 years without payment of additional premium, but subject to an annual rent of 3 per cent of the property value.
Lease extension and renewal seem to be the textbook solution. But these options will be problematic in high-rise Singapore, where efficient use of land is also a priority. If only a handful of households in a block choose to extend their leases, it would leave them as the only residents in a mostly empty building.
It must also be noted that lease renewal and extensions are not permanent solutions. They merely delay the inevitable, that the lease will eventually come to an end again and create more uncertainties, now that the home is older than before, says Mr Ku Swee Yong, chief executive of International Property Advisor.
Could the solution be an alternative to SERS, such as an en bloc scheme to allow the Government to reacquire sites with less redevelopment potential before lease expiry, but at a lower cost? This "SERS-lite" scheme could work, says Mr Ku. The Government becomes the willing buyer and it can choose to redevelop the site at any time, with less urgency as with SERS. And since there is no need to tear the blocks down right away, the units can still be rented out to the previous home owners, who would be able to pay for it since they would have proceeds from the reacquisition.
The benefits to home owners will not be at the same level as those under SERS, but they would not leave elderly Singaporeans twisting in the wind when their flats reach the end of the road.
The benefits to home owners will not be at the same level as those under SERS, but they would not leave elderly Singaporeans twisting in the wind when their flats reach the end of the road.
But with another 43 years to go before the oldest HDB flats - which are located in Stirling Road - turn 99, there is no need to rush a policy that will have a major impact on Singapore's successful public housing story.
Some may also question whether the Government of today has the mandate to decide the fate of something so far down the line.
By the time Mr Zhang's flat reaches the end of its lease in 2073, he will be 97 years old. His two daughters, now seven and four, will be 64 and 61 respectively. He says with a laugh that, by then, the world will be a very different place.
While the million-dollar flat may no longer be worth anything, the money would have paid for a comfortable and convenient nest for his young family, a place for his daughters to grow, he hopes, to independence.
While the million-dollar flat may no longer be worth anything, the money would have paid for a comfortable and convenient nest for his young family, a place for his daughters to grow, he hopes, to independence.
Don't assume all old HDB flats will be picked for SERS, cautions Lawrence Wong