99 Year Lease of HDB Flats: Asset Or Liability?
In his recent national day rally, our Prime Minister took on the politically sensitive question of the 99-year lease of HDB flats. His main message to Singaporeans is that HDB flat owners should not expect top up of their HDB flat 99-year leases once they expired. However, to soften the impact that a declining lease life could have on ageing HDB flats values and liquidity, our government has also further enhanced the HDB flats lease buyback scheme and introduce the Voluntary Enbloc Redevelopment Scheme (VERS).
While most Singaporeans would not welcome this clarification or message, this is the harsh truth Singaporeans would have to accept given our limited land space. Personally, I would commend the Prime Minister for having the courage and moral authority to clarify on this issue instead of kicking the can down the road, which the government could have easily done so by letting future governments decide on this issue given that it would be at least another 20-30 years before the first batch of HDB flats leases expire.
How Will 99 Year Lease Of HDB Flats Affect Private Property Prices?
However, while the 99-year lease nature of HDB flats has now been clarified, what is the implications for private residential property in Singapore though? I see two potential implications here for private residential property. Firstly, this clarification could enhance the relative value of leasehold private residential properties versus HDB flats.
Currently, 99-year leasehold private residential property owners have been able to enbloc their leasehold properties (as long as the properties are at least 10 years old) to private developers, whom are then able to apply to the government to top up the lease back to 99 years by paying a development charge. This effectively gives leasehold private residential property owners an option to indirectly top up their properties’ leases and to capture the value of this lease top up (through an enbloc sales), instead of holding on to an ageing property with a declining lease life. This is an option which HDB owners would not have (unless you are lucky enough to be selected for the Selective Enbloc Redevelopment Scheme [SERS]).
While the new VERS scheme does give ageing HDB flat owners an exit clause too, VERS is expected to only apply for HDB flats that are at least 70 years old. Thus, by clarifying that HDB flats would not get a lease top up, this could enhance the relative value of private residential properties (which have the option to capture the value of an indirect lease top up through the enbloc process) versus HDB flats.
Freehold Private Residential Set To Benefit Even More
The second implication is that by clarifying the 99-year lease nature of HDB flats, this would definitely make freehold private residential properties in Singapore an even more desirable asset class and also further enhance the relative value of freehold private residential properties. With this clarification, many HDB flat owners may now aspire to own a freehold private residential property in Singapore, which they are able to pass on to their future generations (unlike HDB flats).
As it is, Singapore government have stopped selling freehold land parcels for many years. So, personally I expect the long term relative value of freehold private residential properties in Singapore to receive a boost from this HDB flats lease clarification.