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The depreciation of old HDB flats and the issue of 99-year leases have always been subjects of much discussion.
Many HDB owners are worried that their flats, being the most important asset in their lives, will depreciate in value as the lease decays.
“What will actually happen when the 99-year lease expires?”
“Does it mean my HDB flat be worth $0 by then?”
“Will the Government enbloc the estate and give me a new replacement flat?”
In this article, I will address the doubts, the probability of being selected for the buy-back scheme, and probable solutions.
Will The Government Compensate Us？
Recently, my mom saw the news and brought it up to me.
“Heard from neighbors, the news reported that the government will build new flats on the two plots of land behind us, with 40 stories high!”
“Is it possible that our old HDB flat will be reclaimed and then we’ll be compensated with a new one?”
In 2007, there was indeed a successful SERS near our home, but we did not get selected.
The government replaced old flats, which were originally around 30 years old, with new ones with a 99-year lease. The residents who were selected were naturally very delighted!
Since then, many older residents in the area have harbored the same hope.
Despite living there for many years, they are unwilling to move or sell, hoping that someday such an opportunity will come their way.
My parents’ flat is in Teban Garden, which is one of the future development the government is focusing on. (Jurong Lake District).
A new MRT station is just two minutes away, and construction has already begun, with completion expected in 2029!
So, I went to the URA website to check the information.
Guess what? The chance of SERS seems quite high!
Although analysts also believe the probability is high, the decision on SERS is ultimately made internally by the government.
Until the information is confirmed, no one can say for sure.
The Official Stance
Back to the topic, what will happen to my HDB flats when the 99-year lease expires?
The direct answer is that the value of your flat plummets to zero, and along with the land, it is returned to the government for replanning for the next generation.
You can read more here.
Will It Actually Happen？
There have indeed been no cases where the lease of a HDB flat has expired yet in Singapore.
However, there was a batch of 60-year lease private properties in Geylang that were entirely reclaimed by the government upon lease expiry, without any extension or compensation offered.
Therefore, the stance that the government has made clear should be quite obvious.
Is This Even Fair To The HDB Flat Owners？
For many residents, their flat is their home, their sanctuary, and their only asset.
They work hard to pay off their mortgage before retirement and look forward to enjoying their golden years in peace.
But when the time comes, the flats and land will be reverted back to the government? Many people would feel it’s unfair.
Below was the response from PM Lee：
Is it fair? I think it is fair. The fundamental point which we have to understand, because if we made it forever – or if we said at the end of 99 years, you give me back the house, I give you back your dollars – well, then what about the years when you have been living in the house? You must pay rent right? Which I don’t think is the deal.
– Prime Minister Lee Hsien Long
When we first made the purchase, we were already aware of the 99-year lease.
Strictly speaking, we are “tenants,” and the government is the “landlord,” so it’s rightful to return the property to the owner when the time comes.
Solutions From The Government
After all, since the majority of residents live in HDB flat, if people are really evicted once the lease expires, wouldn’t many become homeless?
In light of these considerations, the government has initiated two methods to buy back old public housing.
Selective En-bloc Redevelopment Scheme (SERS)
The first solution is what is commonly referred to as “en-bloc,” which is the most ideal solution for public housing homeowners.
The Selective En bloc Redevelopment Scheme (SERS) initiated in August 1995. It is one of the government’s plans to rejuvenate old public housing estates.
Under this scheme, public housing homeowners have the opportunity to monetize their flats by exchanging old units for new ones.
“Only about 5 per cent of all HDB flats are suitable for redevelopment under SERS, and most of these projects with high redevelopment potential have already been selected for the scheme,” said HDB.
– Deputy Prime Minister Lawrence Wong
It sounds great, but the chances are very low, so don’t place all your hopes on SERS.
Voluntary En-bloc Redevelopment Scheme (VERS)
To alleviate the growing concerns of homeowners over lease depreciation, the government announced the Voluntary Early Redevelopment Scheme (VERS).
A voluntary opt-in program for specific areas where the flats are 70 years old or older.
For areas selected for VERS, homeowners will vote to decide if they wish for the government to reclaim the flats before the lease ends.
That said, VERS isn’t perfect either.
Firstly VERS is less generous than SERS and secondly the residents would have to vote for VERS to happen.
“If the residents vote yes, we will proceed,” he explained. “The Government will buy back the whole precinct, all the flats and redevelop it, and residents can use their proceeds to help pay for another flat.”
“If the residents vote no, then they can continue to live in their flats until their leases run out.”
– Prime Minister Lee Hsien Long
Most owners of old public housing are long-term residents, and if there are elderly individuals involved, obtaining consent can be very challenging.
Moving at the age of 60 to 70 is not easy for them, as their retirement funds may already be limited. With the compensation from VERS being less generous than SERS, how could they possibly have enough money to buy a new flat?
Apart From Relying On Government Schemes, What Else Can We (The Residents) Do?
Avoid buying older flats
One important factor to consider is the age of the HDB flat.
Unless there is no other choice, I recommend opting for newer properties over the older flats.
Why?
The reason is simple: most homebuyers, particularly those who plan to live in the property themselves, have long-term residency as their primary need, expecting to live there for the next 10 to 15 years.。
Assuming the flat you just purchased is already 30 years old, and then you live in it for another 15 years. Your flat would be 45 years old, with 50 years remaining on the lease.
After those 15 years, you might want to move to a different town for various reasons, and at that time, selling the flat could become somewhat difficult.
According to HDB regulations, the remaining lease must allow the youngest buyer to live until the age of 95; otherwise, the use of CPF funds for purchase will be prorated.
Simply put, the pool of potential buyers eligible to purchase your old flat will become very limited.
From another perspective, would you be willing to spend a significant amount of money on such an old property?
Buy a brand new BTO flat
Some HDB owners ask whether they can purchase new Built-To-Order (BTO) flats.
In this case, the new flat would have a 99-year lease, ensuring they won’t encounter the lease expiry within their lifetime.
In theory, you can purchase a new Built-To-Order (BTO) flat from HDB while owning an existing flat.
You just need to sell the old flat within six months of collecting the keys to the new flat, after waiting for three years.
This seems feasible, but many might overlook the quota for Built-To-Order (BTO) flats and the resale levy payable.
85% of the new Build-To-Order (BTO) flats are reserved for first-timers, leaving only 15% for second-timers.
Even if you’re lucky to secure within that slim 15% margin, don’t forget that as a second-timer, resale levy is payable.
Since you’re buying a new flat, you’ll inevitably incur renovation costs, which can be substantial!
Owners who are considering this option, besides relying on luck, remember to prepare for additional expenses.
Progressively upgrading your home
However, some homeowners have never heard of, nor have they ever worried about the lease running out.
The main reason is that these homeowners have always been on the path of upgrading their properties.
Their approach is via asset progression, using property upgrading to increase their net worth, executing the plan when the time comes, repeat until they retire.
A typical example is as follows:
- At the age of 30, get married and buy their first Build-To-Order (BTO) flat.
- Upon 40 years old, sell the MOP flat to upgrade to a private condominium.
- Approach 50, sell the private condo and upgrade to a higher value home.
- Finally at 65, upon retirement, sell the high-value property and fully pay in cash for a smaller house to enjoy their golden years.
Spending a million dollars to buy a well-located, spacious old flat, these individuals are still more than willing to do that.
Even if the lease eventually expires and the value becomes zero, they are still happy with it.
Some homeowners also use the money they’ve earned over the years to purchase retirement properties in countries with a slower pace of life, such as Taiwan, Bali in Indonesia, or Malaysia, where they can enjoy their golden years.
So, the lease decay, worth zero value, or even the government reclaiming the flat doesn’t affect this group of homeowners.
Conclusion
The lease decay and the potential zero value of HDB flats are indeed concerning issues.
However, they have not yet occurred because currently, the oldest public housing flats in Singapore are around 50 years old, still some time away from VERS.
SERS is indeed a good option, allowing homeowners to exchange their old flats for new ones, but the chances are very low, with no guarantees.
In VERS, there is no “exchange of old for new.” Instead, based on the owners’ preferences and the remaining lease, a compensation amount is provided to assist homeowners in purchasing their next property.
Prime Minister Lee expressed in an interview that this is very reasonable.
The government sells the flats to homeowners at subsidized prices, granting them absolute usage rights during the 99-year lease period.
When the time is up, it’s only fair that the property returns to its original owner.
After all, the government has done what it should, ensuring that 90% of Singaporeans have homeownership rights.
“The bird perching on a branch is not afraid of falling, for it trusts not the branch but its wings.”
Rather than trying to dodge the inevitable, homeowners should confront the issue head-on, as mentioned above, by avoiding buying excessively old flat and actively planning for their future and retirement.
Everyone has the opportunity to do asset progression. Feel free to reach out to me for a chat!
