SINGAPORE — Pool together all your resources, buy a home, and become an overnight millionaire by selling it off years later—that is, in a nutshell, the Singaporean dream.
The promise of your flat funding your retirement is no doubt a key motivator to those who empty their CPF accounts and sign up for massive loans to buy a home.
That all sounds reasonable enough, until you realise that most residential property in Singapore is on a 99-year lease.
Being a very young nation, it’s only recently that we’ve started to come to terms with the fact that these leases will someday expire—and, as the government has been repeating ad nauseum, that homeowners can’t expect their HDB flats to be snapped up in the SERS en bloc exercise.
In June this year, the owners of 191 private terraces at Lorong 3 Geylang were told that the land on which their houses rest will be taken back by the SLA at the end of 2020 when their 60-year leases expire.
But before Singaporeans lose their heads and panicking about how their flats are going to fail them as retirement assets, here are some things to know about HDB flats on 99-year leases.
The Geylang lease expiration incident doesn’t necessarily mean the same will happen to HDB flats
The announcement about the Geylang lease expiry sent some owners of older flats into a panic, which is pretty understandable, since the prospect of having to return to the government the home you’ve spent almost your entire life paying for, leaving you homeless and bereft of retirement funds in old age, isn’t exactly very pleasant.
But we don’t know for sure that that will happen to HDB flats. The Geylang lease expiry incident is quite a different beast as it involves the expiration of a land lease.
By contrast, 99-year HDB flat owners are issued a lease of a unit on land that belongs to the state. We’re taking a stab in the dark here, but the option is still open to the government to issue fresh leases to homeowners at a price if there are no redevelopment plans in the works.
We can only cross our fingers and hope.
The choice is yours to avoid buying an older flat or to sell your flat before it gets too old
HDB flats remain a reliable investment… so long as you get a new one with a fresh 99-year lease.
And luckily for Singaporeans, these new HDB flats are cheaper than older ones in mature estates when bought as BTO flats.
We’ve already talked about the dangers of buying old HDB resale flats. Given the fact that newer flats tend to be more affordable in the first place, buying an older flat is a lifestyle choice that we can choose to avoid.
What’s more, you’re not obliged to keep your flat forever. Given that HDB flats tend to perform well as investment vehicles in the short to medium term, but then depreciate over the long term, it’s probably a good idea to sell your new flat in a decade or two, and hopefully make some cash while doing so.
The ability to own a flat might still have some value
Let’s be clear about this—despite the fact that our high home ownership rate is often thought of as something to be proud of, there are disadvantages just as there are advantages.
For instance, if you buy a flat in Joo Koon and get a job in Changi Business Park, you don’t have the option of moving closer to work. There is a trade-off between ownership and flexibility.
It’s now being argued that if flats are no longer guaranteed retirement assets, more Singaporeans might be better off renting.
Be that as it may, for many Singaporeans buying a home still makes sense. Owning a home means you’re free to do as you please, including selling it in order to turn a profit, or renting it out for income.
But of course, if Singaporeans want their flats to be good investments, they’ll need to make wise buying decisions, which means avoiding older flats.
It’s still important to plan ahead to get the most out of your flat
As flats’ leases run their course, their usefulness as a retirement asset diminishes. The schemes the government has put in place to help people harness their flats’ value for retirement may no longer be applicable as the flat ages.
For instance, there’s the Lease Buyback Scheme, which allows elderly Singaporeans to sell part of their flat’s lease to the HDB to fund their retirement. The catch is that this doesn’t work if you’ve got less than 20 years left on your lease.
The Silver Housing Bonus offers a cash bonus to elderly folk who sell their larger flats, downgrade to a smaller one and channel some of their sale proceeds into their CPF Retirement Account. Obviously, in order to turn a decent profit on the sale of your flat, you need to sell it before its value gets eroded by the dwindling number of years left on its lease.
Once again, the importance of viewing your home purchase as a strategic move cannot be stressed enough. Think long-term, and plan how you intend to get the maximum value out of your home.
There’s really no way to know what will happen
Singapore is a very young country, and the Lorong 3 Geylang land has been the first example of what could happen when a lease runs out.
Other than that, we’ve had no precedents we can refer to. So essentially, we have no idea what is going to happen to HDB flats when they reach the end of their 99-year leases, if they haven’t already been snapped up in the SERS en bloc scheme.
It’s possible the government will offer owners the chance to renew their leases. It’s also possible that, as value diminishes at the tail end of a lease, the flats’ main value to owners will be as a source of rental income.
So, should you sell your flat early on in the game, or should you hold on to it for most of your life? Only time will tell.