In January 2016, a home buyer paid nearly $1 million for a 44-year-old HDB flat in Bukit Timah.
He was not the only one. Buoyed by speculative demand for Housing Board flats with selective en bloc redevelopment potential, transactions for a number of old units reached or exceeded the million-dollar mark.
Nearly two years on, buyers have become more wary. A similar five-room unit in the same block in Bukit Timah sold last December for nearly $100,000 less.
Across the board, the prices of older HDB flats have generally declined even as private home prices gained 3.9 per cent in the first quarter from the previous quarter, the steepest hike since 2010.
It is a trend that underscores how buyers have become more sensitive to the issue of older HDB flats with ever shorter leases.
The issue first surfaced in March last year when National Development Minister Lawrence Wong, concerned by the high prices some were paying for old flats, warned that not all will be eligible for the Selective En bloc Redevelopment Scheme or Sers. In fact, just 4 per cent of the housing stock has been selected for Sers since it began in 1995. Most of the other flats will return to the HDB when the leases run out, Mr Wong reminded Singaporeans.
It triggered a debate – which has at times turned emotional – as people grappled with the implications. Parliamentarians, property experts and the public waded in with their views.
Beyond market movements, the question of what happens to flats when they reach the end of their 99-year leases clearly has financial, social and political implications.
The issue came back into the spotlight last month, when Mr Wong said in Parliament that the Government is looking into what to do about diminishing flat leases.
To some, the matter is simple. Based on legal definitions, leasehold properties including HDB flats will hold zero value at the end of the lease and the land reverts to the state.
But to others, it is less cut and dried. They view their flats as assets despite the limited lease, and hope to hold on to their homes.
The crux of the issue then lies in the political difficulties that arise when they are still living in these flats – and have nowhere to go when the lease is up, or are looking to sell or bequeath them to their children.
By and large, most people want the best of both worlds, say urban planning experts, property watchers and MPs interviewed.
The People’s Action Party’s (PAP) Fengshan MP Cheryl Chan says: “To some, it is a home for life. To others, it is an asset. For another group, it’s their life savings, and some hope to bequeath it to the next generation. It is understandable some home owners are anxious as they consider the reducing leases. Yet, there are also buyers who purchase the flat despite its ageing lease because they like the place.”
Figuring out solutions to the complex lease issue is thus no easy feat. Mr Wong himself noted that there are “serious trade-offs and ramifications to consider”.
In a statement to The Straits Times, his ministry says the leasehold nature of HDB flats “is not a new issue”.
“It has been made clear from the start of the HDB programme, and previous ministers for National Development have reminded the public of this fact before.”
It added: “The Government has to study the trade-offs, and do the responsible thing for both current and future generations.
“At the end of the day, we want to ensure that every generation will be able to have an affordable and quality home in Singapore.”
There is still time, said Mr Wong in his Parliament speech. The oldest HDB flat today is about 50 years old, and the majority have more than 60 years remaining.
A check shows that the first batch of HDB flats to hit the lease wall will be those in Jurong, Queenstown, Geylang and MacPherson. Their leases will be up in under 50 years.
KEEPING OPTIONS OPEN
The timeframe means it is hardly feasible for a one-size-fits-all solution to emerge now, says Associate Professor Fung John Chye of the National University of Singapore’s (NUS) School of Design and Environment. He notes that many cities tend to prepare for such future scenarios only about one to two decades ahead of time.
“There are just too many uncertainties and countless factors that may affect the eventual outcome to consider an even longer timeframe,” he says. “Given fast-changing global trends like population ageing, disruptive technologies and active citizenry, our policymakers could be keeping their options open.”
For instance, newer building technologies could emerge, making redevelopment more appealing and cost-effective than upgrading old estates, says NUS urban planning expert Steven Choo.
Another unknown factor is the evolving demands that Singapore will be contending with. Half a century from now, how much will healthcare for an ageing population cost? What will regional geopolitics look like? What infrastructure investments might Singapore have to make? If the Government decides on a certain course of action regarding flat leases today, it will be making a commitment without knowing what other needs it will have to deal with, note some interviewed.
But the anxiety Ms Chan alludes to is also a very real one that stems from fears that the longer Singaporeans wait for a clear answer as to what the Government will do, the less value their flats will hold over time, they add.
The question also feeds into the broader issue of retirement security, especially with many tapping their Central Provident Fund (CPF) savings to buy HDB homes.
A Forum letter writer, Ms Cindy Tan, said that without clarity, “residents are unable to make informed decisions which have serious repercussions”.
Says Institute for Policy Studies senior research fellow Christopher Gee: “There is still some dissonance between the idea of leasehold flats as assets that appreciate in value in the long term, and the concept of lease decay. Resolving this dissonance is in large part political.”
Some attribute the anxieties to how political leaders in the past had overset people’s expectations about their hard-earned assets.
Asset enhancement has been a key tenet of the PAP Government, especially in the 1990s and into the 2000s. But in 2013, then-National Development Minister Khaw Boon Wan called for a rethink of old assumptions. “Should Housing Board flats continue to be an appreciating asset or return to being treated simply as a social need?” he asked, saying HDB home owners may no longer get the same returns from reselling flats as in the past.
It appeared, though, to have gone unheeded by the public – until Mr Wong’s note of caution last year.
STILL VALUE IN OLD FLATS
Uncertainty has grown today, to the extent that, as Mr Wong noted, people are now “overly anxious” about how much their older flats are worth. He has come out to reassure people that there is still value in these homes that can be unlocked for retirement.
For instance, they can be sold and the proceeds used to buy smaller flats. There is also the Lease Buyback Scheme, in which home owners can sell part of the remaining lease to the HDB. The Government, he promised, will continue to improve the schemes.
Another possibility is to review the CPF withdrawal limits for flats with less than 60 years of lease left, say analysts. Perhaps it should take effect only when the flat has less than 30 years of lease left. This could ease difficulties some sellers now face selling flats that are 40 to 70 years old.
Mr Wong also said he welcomes views on the leasehold issue from all quarters, adding: “I recognise it’s a matter that all Singaporeans care about, and we want to listen to your views and feedback.”
In that spirit, various suggestions have surfaced in interviews with over 20 people.
The status quo is that the state takes back the flats on lease expiry. Political considerations aside, it is the best option, say experts.
It is the most rational option since it takes into account the interest of future generations. The Government can take back the land for redevelopment, ensuring more homes.
But if handled poorly, this will exact a political cost, notes ERA Realty’s key executive officer Eugene Lim. And NUS sociologist Chua Beng Huat adds: “The political fallout from taking a tough stance on repossession of land without compensation would be very significant, if not catastrophic, for whichever political party in power.”
Such is the political reality, even though the state has no obligation to compensate the residents of the leasehold properties, he says.
One way to moderate the impact of such a scenario is to liberalise the schemes that help people monetise their homes, say the experts. There are three options now: sublet; sell and downsize to a cheaper flat or one with a shorter lease; or turn to the Lease Buyback Scheme.
The last allows owners to sell the remaining years of the lease to the HDB, and gives the resident a lifelong retirement payout, but is available only to certain flat types and to those aged above 65.
Mr Lim says this scheme could be extended to all flat types and curbs on the qualifying age eased to let more people monetise their flats.
On the other end of the spectrum of suggestions is that the Government automatically extends the leases for all flats for an indefinite period.
Says Mr Gee: “Flat owners could be given an option to renew a fresh 99-year lease for a fresh term, paying a market rate. The pricing would be decided by the chief valuer, based on fair value of the land for public housing purposes.”
This comes with two downsides though, note others. First, not everyone can or would want to pay. Problems would arise if some unit owners in a block opted for extensions but not others.
Second, there are today 1.13 million HDB flats excluding Design, Build and Sell Scheme units. Extending all their leases will severely constrain land use in an already land-scarce country.
Other possibilities broached range from a universal Sers “lite” version, to allowing residents to stay on after lease expiry and pay rent to the HDB.
During the debate on the President’s Address last month, Marsiling-Yew Tee GRC MP Alex Yam suggested allowing all flats to undergo a “modified” version of Sers after they reach 60 years. He did not say how much this would cost.
But for it to be sustainable for state coffers, compensation has to be far lower than the current market rates for Sers, says Mr Gee.
Under the renting scenario, owners become renters rather than face eviction at lease-end. Calling it a sensible suggestion, Professor Chua says such a rental scheme also legally recognises the expired lease and that the tenant has no financial claim on the property.
One last suggestion is to open up selected Housing Board precincts in mature towns for lease top-ups by private developers, which was mooted in Parliament by Ms Chan. Akin to a collective sale programme, flat owners vote and a minimum threshold of support must be attained.
But experts say there may be issues. For example, it would result in a significant reduction in available land for affordable public housing, especially if the option was extended to many HDB estates. Calculating the upgrading premium for topping up leases for HDB blocks may also be a problem, adds National University of Singapore real estate professor Sing Tien Foo.
There could also be the unintended effect of spurring speculation in the HDB market.
A PATCHWORK OF SOLUTIONS?
In any case, there would likely have to be a patchwork of solutions that is calibrated over time as existing flats age and new ones are built. Figuring out solutions will require looking at how various policies and trends interplay with one another.
Lease buyback schemes, for example, can work only if there is still value left in the leases of older flats for the HDB to purchase at market rates, says Ang Mo Kio GRC MP Gan Thiam Poh, a member of the Government Parliamentary Committee for National Development.
A look overseas indicates that Singapore is not the only country grappling with the issue of residential leasehold tenures, which is a Commonwealth concept.
Even within Britain, there is no consensus among policymakers.
England allows lease holders to continue living at the property past the lease expiry, though the situation is ambiguous as the landlord can decide to end the tenancy at any time, while tenants can seek recourse at a tribunal.
Meanwhile, Northern Ireland legislated to allow lease holders to purchase the land from land owners at low prices, while Scotland scrapped the leasehold concept entirely in 2004 by automatically converting long remaining leases to outright ownership, also known as fee simple.
In Asia, China has a 70-year leasehold system but is drafting laws allowing automatic extensions. Hong Kong, too, has automatically extended leases on some old properties, subject to an annual rent.
What then for Singapore? With still years to go, Mr Gan says it depends on the aspirations and attitudes of future Singaporeans towards an HDB home, stressing that the HDB’s first priority is to put a roof over people’s head.
But there are questions that the fourth-generation leaders will need to ask younger Singaporeans, says Mr Gan. When they buy a home, how long do they see themselves living in it? Do they invest their savings primarily in their homes, or will they prefer other instruments?
A hard and fast answer to this distant and complex problem will require much more deliberation. But for now, HDB home buyers should keep in mind that what they are getting is a leasehold home instead of something they are entitled to own in perpetuity.
Adapted from: The Straits Times, 5 June 2018