What happens to your HDB after the end of the 99-year lease?
As Home Leases in Singapore begin to expire, this prevailing issue has caused tension and anxiety among many residents who reside along Geylang Lorong 3. There is nothing they can do except look for another home.
This is the first time in Singapore that residential properties will be returned to the State. Some Singaporeans may even be lulled into thinking that HDB flats were not the same as these terrace houses in Geylang and that the Government would treat HDB flat owners with a softly-softly approach.
In March 2017, amid reports of old flats selling for $1million of more, National Development Minister Lawrence Wong warned flat buyers against assuming that all HDB flats will be picked for the Selective En Bloc Redevelopment Scheme, or Sers. Under Sers, the Government takes back old flats, give generous compensation and rebuilds new ones to a higher density. Old flat owners can buy new flats at discounted prices – with a fresh 99-year lease.
I believe many decades ago when our grandparents or parents bought their first HDB flat, it did not occur to them that leases of their homes will expire. Reported in The Straits Times, Singapore entered into an ageing population in 2018 and it is forecasted that by 2050, half of the Singaporean population will be aged 65 and older.
In recent years, there has been much chatter on social media regarding the 99-year lease public housing. In fact, policies are in place to protect the interest of public housing ownerships. For someone to buy a public housing from the Housing Development Board (“HDB”), the potential buyers need to be able to outlive the remaining lease of the flat. In other words, the remaining lease and the age of potential buyer need to at least total up to 95years or more.
This policy is in place to ensure that potential buyers who will eventually become owners will not outlive the flat unless the owner lives past the age of 105 years old (shown in Scenario 1 below). Policies also help home seekers to better understand the rational behind the policy. Usually this advice comes from a Real Estate Salesperson who is serving their needs.
SCENARIO ONE
Potential buyer is 50 years old
Remaining lease of the property is 55 years old
Total: 105 years
In another scenario (shown in scenario 2), after calculating the math, and base on the average life expectancy of a Singaporean that is 82 years, the potential buyer will likely outlive the flat. He/she will not have a roof over their head should it happen. And this is not a favourable scenario and we will want to avoid it as much as possible.
SCENARIO TWO
Potential buyer is 35 years old
Remaining lease of the property is 45 years old
Total: 80 years
You may have this question in mind, what if I fall in scenario 2? As a buyer, am I not able to buy that property? Or is it the seller who is not allow to sell his/her home?
So in the event of scenario 2, what the seller will face is a smaller pool of potential buyers who are eligible to buy his/her flat. Reason is because the age of the property is more than 40 years old hence the Loan to Value (LTV) adopted by any financial institution will be less than 75%. The potential buyer who is going to purchase the property will have to cough out more cash and CPF in order for the purchase to be materialise.
I hope our sharing is helpful and anyone reading this. Planning and strategising your property journey is important so you may avoid future predicaments. Its not only for you, its also for your family and love ones.
