HDB flats retained value even as the lease runs down, insisted Finance Minister Heng Swee Keat. Does this assertion hold water?
At the annual PropNex conference on March 19, Finance Minister Heng Swee Keat asserted that there is still value in HDB flats with less than 40 years left on the lease.
In responding to a question by PropNex Realty CEO Ismail Gafoor who asked him if HDB flats retained value even as the lease runs down, Heng insisted that they “absolutely” did, even when there is less than 40 years left on the 99-year lease.
Heng used a fictitious example of a 25-year-old Singaporean to drive home his point that HDB flats retained value.
He said, supposed the 25-year-old bought a brand new HDB flat that is on a 99-year lease, there will be more than 30 years left on the lease when the Singaporean hits the average life expectancy of age 85.
Heng said: “Is there still value in the flat? Absolutely.”
He added: “At the age of 85, you decide whether you want to pass on the property to your children. You decide what you want to do with it. There is still value in the property. It is not going to go to zero when you are 85.”
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In using this same fictitious 25-year-old character and using certain references as guides, this may be how HDB flats retained value over the period of their leasehold:
| Age of HDB flat dweller | Remaining tenure of BTO flat | Percentage drop of BTO flat | Estimated Value of Flat |
| 25 | 99 years | NA | $253,000** |
| 70 | 54 years | 90% | $227,700 |
| 75 | 59 years | 85% | $215,050 |
| 80 | 64 years | 80% | $202,400 |
| 85*** | 69 years | 59% | $149,270 |
| 79 years | 21% | $53,130 | |
| 89 years | 10% | $25,300 | |
| 94 years | 8% | $20,240 | |
| 99 years | < 5% | < $12,650 |
References:
* ST article ‘Will you still love your HDB flat when it’s over 64?’, dated Apr 12, 2017
** Average of Yishun Aug 2018 4-room BTO prices
*** Age at which hypothetical buyer dies
Assuming the fictitious 25-year-old character is a woman who was married before she got her BTO flat, and assuming she had 2 children, and that her husband passed away before she did at age 85, her 2 children will inherit this HDB flat.
The flat she bought at age 25 for $253,000 will be worth about $149,000 when she passes away at age 85.
Both children will receive 100% equally distributed according to intestate Succession Act. Under such circumstances, this estate may be sold in the open market (or back to HDB), only with the consent of both children. Also, if any of the children own another property, they will have difficulty keeping the flat.
- If they own private property, they have to sell away the private property within 6 months of inheritance.
- If they own a HDB flat, they will have to decide to sell away either one of them within 6 months of inheritance.
In this situation, the children can sell to open market, HDB or to any of the children who is eligible to keep it. In this case, the single child who still stay in the flat can buy over their shares according to valued value.
From a financial standpoint, this flat may seem unattractive for one child to buy over the shares from the other to live in it because the price of that particular HDB flat will dramatically drop in line with flats which have 40 years (or less) of lease left.
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There are several government policy restrictions which suppresses the attractiveness of older HDB flats for buyers.
These are some restrictions:
- From 1 July 2013, CPF (Central Provident Fund) usage and HDB loan was restricted for purchase of flats with remaining lease less than 60 years.
- For flats that are 64 years old, banks are unwilling to extend loans to finance the purchase of these flats.
- For flats which are 69 years old (or less than 30 years of lease remaining), CPF money cannot be used for down payment or to service the monthly mortgage.
- From the 79th year onwards, the property has to be paid for in cash.
With the flat being unattractive, both for the children to keep it or to sell it in the open market (even with an extension of grace period by HDB), it would most likely be surrendered back to HDB. But what price would HDB pay for such flats which are surrendered back to them? Most property agents say that HDB pays prices below valuation for such flats.
The HDB flats, which were touted as “asset enhancements” in the early years, are now being promoted as great “store of value”. But both descriptions of HDB flats may turn out to be untrue for those not born at the right time, because the value of the flats may not to be sustainable over time.
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