What do you do with a shorter-lease HDB flat?

For the rest of this year, resale HDB flat prices are likely to remain flat. This comes especially at the back of the authorities making mentions about the depreciating value of older flats.

99-year leasehold for HDB flats. Not all up for SERs.

HDB flats have a tenure of 99 years and many built in the 1970s and 1980s are now reaching their 40th year and beyond. This means they have less than 60 years left on their lease.

Bukit Batok East Ave 3. Picture: iProperty

Currently, out of the 1 million HDB flats in the country about 70,000 flats are more than 40 years old. The leases of almost 10 percent of these flats will expire in 50 years. And their value at the end of their lease? Possibly zero.

This means the longer owners stay in their flats, the less they will be able to get out of it. It will essentially be a long-term direct rental from the government. And should the lease of these flats expire, the owners will have to vacate their homes.

Owners holding on to older flats in hope of making profits may be disappointed

The median prices of HDB flats have already been falling for the past few quarters. In the first quarter of 2018, resale flat prices have fallen 0.8%. The period where cash-over-valuation prices were skyrocketing, mostly in the half a decade is clearly over.

With the government ramping up the building of new build-to-order (BTO) flats, older resale flats may lose a significant part of their customer pool.

Many are also upgrading to the private property market, leaving a gap in the public housing open market. While the Selective En Bloc scheme (SERs) provides some lucky owners with new units following the en bloc redevelopment of their old flats, the authorities have said that “only 4% have been identified for SERS since it was launched in 1995”, and that “it is only offered to HDB blocks located in sites with high redevelopment potential”.

But the more acute issue here may be the impact on some senior citizens. For those who have held on to the hope that downgrading will provide them with some retirement cash, their hopes may be dashed. But there are perhaps other ways to monetize a HDB flat purchase. By renting out rooms or even the entire flat, some buyers are able to make up for the amount they have paid for the flat itself.

Recently, there has also been talking about how the price of a flat should be in commensuration with the lease. There is also a lease-buyback scheme which allows flat owners to sell part of their remaining lease back to the government for a compensation while continuing to live in their flat.