Every now and then, we read about a mega HDB unit that is being transacted for over a million dollars. That normally becomes the talk of town for a while and before we realised, another similar article pops up in the headline.
A lot of these units transacted are in established, mature old towns, such as Bishan, Queenstown etc. Some of these units might have a least hold of just 70-80 years left. Or maybe even less.
One of the most annoying thing about living and purchasing properties in Singapore is this – more often than not, the properties that we purchase are leaseholds! And we have one of the most ridiculous prices for properties in the world. Imagine paying so much money, and yet all you get is a leasehold!
Which I had assumed is a key point that most Singaporeans are aware of (or I had thought so). I mean we keep talking about 99 years, freehold etc., surely that must means something right? HDBs in general, have a 99 years leasehold.- At the end of their 99 year lease, HDB flats will revert back to the landowner (HDB). The land will then be turned over to the state. This means the value of a HDB flat at the end of the lease is zero.
However, to date, no HDB development has reached the end of its 99 year lease (considering our very first estates only popped up in the 1960s.) Hence, no one really knows what happens after that. In recent years, the government introduced Selective En-Bloc Redevelopment Scheme (SERS), which means that some of the older estates would have their “leases renewed” when the estates undergo redevelopment.
When it comes to a flat purchase, we rely on the valuation report, which takes into account certain factors, including location, the remaining lease of the unit, condition of the flat etc. Similarly, for many Singaporeans, when it comes to the purchase of a flat, location, condition, surroundings, seems to be the top key concerns when it comes to formulate our purchase decision. What about the leasehold?
In a recent blogpost, Lawrence Wong, Minister of National Development highlighted this trend as a key concern.
Quoting a statement from his post:
“ But SERS, as the name implies, is on a selective basis.
It is only offered to HDB blocks located in sites with high redevelopment potential. These are typically sites where the land has not been well utilised. It is also subject to the availability of suitable replacement sites for residents and the Government’s financial resources.
This is why only 4% of HDB flats have been identified for SERS since it was launched in 1995.
We will continue to maintain this strict selection criteria.
So please do not assume that all old HDB flats will be automatically eligible for SERS.
In fact for the vast majority of HDB flats, the leases will eventually run out, and the flats will be returned to HDB, who will in turn have to surrender the land to the State.
As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly.
So buyers need to do their due diligence and be realistic when buying flats with short leases. This is especially important for young couples, who have to plan for a much longer future.”
This definitely generated quite a bit of discussion. To be honest, is this a newly known fact?
Not really.
So what’s the fuss all about?