HDB leases and what's in store for retirement as society ages

Ng Jun Sen
Apr 15, 2017

Experts weigh in on how HDB flat owners should prepare for the future as their home ages with them, and how other places have dealt with lease expiry.

National Development Minister Lawrence Wong's blog post of March 24, in which he cautioned buyers of older resale flats against paying high prices on the assumption that their flats would be "Sers-ed", has set some home owners thinking and counting down the remaining years on their HDB flat leases.

Mr Wong made clear that the Selective En bloc Redevelopment Scheme (Sers) - under which the HDB acquires ageing blocks for redevelopment, compensates residents at market rates for their old flats and lets them buy new units nearby at subsidised rates - was never intended for all flats.

Interviews with home owners in three mature estates of Toa Payoh, Queenstown and Geylang - where, from 2014 to last year, there were the most resale transactions of flats with less than 60 years left on their 99-year lease - found that many had indeed expected a windfall from Sers. Mr Wong's word of caution has left young home owners - like the one who gave his name only as Mr Lim, 30, who bought a Lorong 8 Toa Payoh flat two years ago - wondering whether he will still have a home when his lease expires in 57 years.

A Queenstown resident, who owns a three-room Mei Ling Street flat that has 51 years of lease remaining, remains hopeful that he will be among the lucky minority to be picked. "They Sers-ed the Tanglin Halt area nearby. Shouldn't the Government pick us too?"

Then there is IT engineer Andy Zhang, 40, who broke the record last year for spending the most on a standard, non-terraced flat that is more than 40 years old. He paid $950,000 because the flat's location in Bukit Timah shortens his commute to his job in the city and means his seven-year-old daughter can walk to her primary school nearby. Still, he could not hide his look of concern when told the million-dollar flat will turn to zero value in 57 years' time, and the Government will have the right to retake his flat with no compensation.
 
A chart by Drea, which provides market analysis, showed that in Geylang, Toa Payoh and Queenstown, the average price of a low-floor unit is about the same for a 30-year-old flat as for a 50-year-old one. That suggests home buyers are currently insensitive towards the lease issue.

On Wednesday, Mr Wong once again addressed the issue of HDB leases, but, this time, he assured home owners that HDB flats can still be seen as retirement nest eggs as they "provide a good store of asset value, so long as you plan ahead and make prudent housing decisions".


ASSET ENHANCEMENT

There are historical reasons for why HDB flat owners expect the value of their home to keep rising. In the 1990s, when asset enhancement was a key goal of the Government, then Prime Minister Goh Chok Tong said in a 1992 speech: "It is in your interest to ensure that the value of your flats continues to rise." That was his argument for why flat owners should support the Government's upgrading programme.

In 1994, then Senior Minister Lee Kuan Yew also spoke of HDB flats as investments: "I would start off with a five-room or an HDB executive... quickly, before my income ceiling takes me beyond that. You buy a flat in Bishan, it's going today for half a million. So I would get there first, stay five years, seven years, and then move out."

For years, HDB prices rose steadily. It was only when recessions hit Singapore around the turn of the century that resale prices went on a roller-coaster ride. By 2013, then National Development Minister Khaw Boon Wan signalled a need to relook the HDB flat's role as an asset. "Looking ahead, as we may no longer get the same kind of returns from reselling an HDB flat as in the past, how will its role as an asset be affected?"

So what does that mean for home owners who need to rely on their HDB flats as a source of retirement income? They should not assume that the price of their flat will go up, says OCBC Bank's vice-president and senior investment strategist Vasu Menon. "Hoping for an HDB flat to appreciate in price by the time you retire, so that you can unlock value by selling the flat, is not a sound strategy."

His advice to HDB dwellers is to have other sources of retirement income, such as investments in stocks, bonds and unit trusts. Then, if the value of their flat appreciates by the time they retire, it will be a "bonus".

Mr Vinod Nair, chief executive of MoneySmart.sg, warns against treating property as "a silver bullet" that will give home owners enough money for retirement. Even before the recent discussion on Sers, it was "fast becoming clear that buying Singapore property for investment was no longer going to be as lucrative as 10 years ago", he adds.

Monetisation schemes are available to HDB owners, and that was a point Minister Wong was at pains to put across in his latest post.

Three options are available.

The Lease Buyback Scheme, launched in 2009, allows owners of four-room flats or smaller to sell the remaining years of the lease back to the HDB. The proceeds go to the Central Provident Fund (CPF) Life national annuity scheme in the flat owner's name, which gives him a lifelong cash payout.

The elderly can also downgrade to smaller flats or HDB studio apartments and benefit from the Silver Housing Bonus scheme, under which the Government gives them a cash bonus of up to $20,000. The proceeds from the sale of their larger flat will go to topping up their CPF Retirement Account. There is also the option of subletting a room for rental income.

But these monetisation schemes depend on prevailing market conditions and come with eligibility criteria. To qualify for the Lease Buyback Scheme, a flat must have at least 20 years of lease left. Five-room and larger flats are excluded.

Home owners who plan to monetise their flats also need to take into account the age of their flats. Those who wish to downgrade and benefit from the Silver Housing Bonus need to be aware that would-be buyers are subject to CPF loan restrictions if a flat has less than 60 years remaining on its lease. The problem is compounded when one considers Singapore's rapidly ageing population. According to the Population White Paper of 2013, the number of those aged 65 and above will hit 900,000 by 2030, when for every one elderly person, there will be only two working adults. That means the older generation will be seeking to downsize their ageing flats, selling to a shrinking pool of younger buyers.

That is why R'ST director Ong Kah Seng believes that "beyond the next 10 years, this (current) set of flat-monetisation options for the elderly may be insufficient as we are entering an ageing society".

WHEN LEASES EXPIRE

Since no HDB flat has yet hit 99 years, no one really knows what will happen when a flat's lease expires. Of the total stock of about one million HDB flats, 70,000, or 7 per cent, are more than 40 years old. About 280,000 units are between 30 and 40 years old.

With about a third of all HDB flats today older than 30, that means that in about 60 years, some 350,000 flats will be seeing the end of their leases if nothing is done about them.

Mr Nair thinks that the Lease Buyback Scheme could be enhanced. Or the Government might come up with a new scheme to help owners of very old HDB flats who wish to live in their flats a while longer.

In Britain, the law states that leases are tenancies, and the leaseholder is essentially a tenant. Unless the tenant or the landlord decides to end the tenancy, it will continue on the same terms after the lease runs out.

This is essentially an automatic renewal of lease, and British law also allows eligible residential owners to extend the lease - by 90 years for a flat and by 50 for a landed house - at a cost pegged to market rates.

In China, Premier Li Keqiang said last month that lawmakers are drafting a real estate provision that would allow property under a 70-year lease to be renewed unconditionally, though details are still not clear. Hong Kong is an interesting case due to its varied history under different rules. Back in 1898, the Chinese government leased the islands surrounding Hong Kong, known as the New Territories, to Britain for 99 years under the Second Convention of Peking. The Special Administrative Region met its own leasehold cliff in 1997, the same year Hong Kong was returned to China. This was dealt with at the stroke of a pen to extend the leases for 50 years without payment of additional premium, but subject to an annual rent of 3 per cent of the property value.

Lease extension and renewal seem to be the textbook solution. But these options will be problematic in high-rise Singapore, where efficient use of land is also a priority. If only a handful of households in a block choose to extend their leases, it would leave them as the only residents in a mostly empty building.

It must also be noted that lease renewal and extensions are not permanent solutions. They merely delay the inevitable, that the lease will eventually come to an end again and create more uncertainties, now that the home is older than before, says Mr Ku Swee Yong, chief executive of International Property Advisor.

Could the solution be an alternative to Sers, such as an en bloc scheme to allow the Government to reacquire sites with less redevelopment potential before lease expiry, but at a lower cost? This "Sers-lite" scheme could work, says Mr Ku. The Government becomes the willing buyer and it can choose to redevelop the site at any time, with less urgency as with Sers. And since there is no need to tear the blocks down right away, the units can still be rented out to the previous home owners, who would be able to pay for it since they would have proceeds from the reacquisition.

The benefits to home owners will not be at the same level as those under Sers, but they would not leave elderly Singaporeans twisting in the wind when their flats reach the end of the road.

But with another 43 years to go before the oldest HDB flats - which are located in Stirling Road - turn 99, there is no need to rush a policy that will have a major impact on Singapore's successful public housing story.

Some may also question whether the Government of today has the mandate to decide the fate of something so far down the line.

By the time Mr Zhang's flat reaches the end of its lease in 2073, he will be 97 years old. His two daughters, now seven and four, will be 64 and 61 respectively. He says with a laugh that, by then, the world will be a very different place.

While the million-dollar flat may no longer be worth anything, the money would have paid for a comfortable and convenient nest for his young family, a place for his daughters to grow, he hopes, to independence.

95 HDB owners found subletting flats illegally

95 HDB owners found subletting flats illegally

my paper
Wed, Apr 13, 2011

STEPPED-UP enforcement efforts by the Housing Board have paid off, with a total of 95 flat owners taken to task last year for unauthorised subletting.

Of those caught, HDB took compulsory- acquisition action against 39 flat owners who had infringed subletting rules blatantly.

In one such instance, a flat at the Pinnacle@
Duxton was acquired by HDB after inspections conducted in May and June last year found that the owners had sublet the entire flat without approval. The owners' bedroom was locked and only the sub-tenants' shoes, clothing and belongings were found in the flat.

Investigations revealed that the owners had no intention of living in the flat and had bought it purely for monetary gain.

HDB carried out 7,000 flat inspections last year, up from 3,000 inspections in 2009.
Feedback from members of the public led to 1,800 of last year's inspections being conducted, almost double the number of feedback received in 2009.

In a statement yesterday, HDB said it takes a "very serious view" of any unauthorised subletting.

A spokesman said: "We will take stern action against owners, including compulsory acquisition, even if it is the owners' first infringement.

"This is especially for cases where flat owners had bought the flat purely for monetary gains, with no intention of occupying it."

In cases where flat owners try to circumvent the rules by locking up one room and subletting the rest of the flat without physically living in it, the spokesman said: "Such cases will be treated as unauthorised subletting of the entire flat."
HDB reminds all owners that their flats are meant primarily to be occupied by owners. Flat owners who wish to sublet their entire flats must meet the Minimum Occupation Period and obtain HDB's prior approval.

Members of the public can call HDB's dedicated hotline on 1800-555-6370 to report suspected cases of unathorised subletting. All feedback will be kept strictly confidential

33,000 is hell of a lot of unsold flats

Minister Mah's job to raise the red flag in a property market never short of thrills

By Esther Teo, Property Reporter

Straits Times on 23 Mar 2011

PROPERTY - the word alone sets the Singaporean heart racing. Those capital gains, the own-your-own-home dream all make for a potent elixir.

Every now and then, National Development Minister Mah Bow Tan has to raise a red flag when real estate gets over- heated and prices threaten to enter the realm of the ridiculous.

He can never please everybody: owners and developers love soaring prices - it means cash in their pockets; but buyers want affordable homes - until they buy one of course.

The hot-button issues don't stop there. What about the huge number of shoebox flats hitting the market, foreigners buying up property, stamp duty increases? Wherever you look, there is a mine waiting to go off.

So how to balance it all out? 'As the Government, we need to make sure that we look at the overall interest of the economy and everybody concerned, including the developers, real estate agents, buyers and then take it not just now but... down the road as well,' he said.

'What we can do is to keep a close eye... We are not trying to micro-manage the market by any means, we're just trying to make sure that the broad directions of the market are in line with how the economy is performing.'

The balancing act has become more difficult of late with a perfect storm of low interest rates, ample liquidity and record-breaking economic growth fuelling the property boom.

Trying to keep a lid on all this has preoccupied Mr Mah, 62, for much of the past 12 months.

A range of cooling measures has been adopted to take the heat out of the market, while large tracts of state land have been released to ensure developers can keep up the supply of homes.

But as the minister told The Straits Times last week, buyers should perhaps curb their enthusiasm as there are already plenty of homes around.

There are about 33,000 uncompleted units that remain unsold, and that is 'a hell of a lot of flats', said Mr Mah, enough to tide over the private market for three years and casting a shadow of a potential oversupply over the housing landscape.

'There is a risk, there's no doubt about it. That's why we have to be careful and the market must take this into account, as we will... We don't want to solve a problem but create another,' he said.

Buyers and developers must take into account this huge supply before making any big-ticket purchase decisions, he added.

Throw in the fact that interest rates will certainly rise at some point and the risk of external shocks to Singapore's economy, and the equation for a potential home-buyer becomes that much trickier.

'So when you buy and you hope to sell after your four-year period is over... don't forget that by that time there may be a lot more people trying to do the same. If your interest rates start to go up, then what do you do?' he said.

'Who would have predicted there would be an earthquake and tsunami and now possibly a nuclear meltdown (in Japan)? So many things are unknown, but at least what you do know you better open your eyes to.'

Huge global uncertainties such as the turmoil in the Arab world could also have a knock-on effect on Singapore, throwing a spanner in the works of rising prices.

But he acknowledges that the supply overhanging the market may not depress prices. If the global economy gets back on track and confidence returns, then demand will keep prices firm.

'Those are judgment calls the market has to make. So developers have to make those calls; if they get it right they will be rewarded, if they get it wrong they will get punished. We will have to watch this carefully,' he added.

The Government has a similar judgment call to make as well as it tries to cope with different scenarios.

If it misjudges and stops land sales due to an anticipated oversupply, then office and residential prices will jump sharply. But the confirmed and reserve lists of the Government's land sales programme help to mitigate these risks, he said.

Confirmed list sites go on sale regardless of interest and are often an indication of the Government's strategic development plans. Land on the reserve list is put up for tender only if developers make an acceptable initial offer.

Some home-buyers believe the authorities got it wrong last year when they failed to stem rising private home prices, which soared 17.6 per cent to reach record levels despite a series of cooling measures.

He concedes that the Government could have tapped on the brakes 'a little bit more earlier', but that finding the sweet spot remains the challenge.

'But if you ask me what I would have done in September 2009 in order to make sure that prices don't rise, I think that that would have been a pretty tough call,' he added.

He said the four rounds of cooling measures have managed to bring the market down to a reasonable level.

'Unfortunately, sometimes people don't realise it. They get caught up in the excitement of the market. They hear friends making a lot of money and they also want to jump in and I think that's the problem with the property market,' he said.

There are others who believe the Government should stay out of the private sector and let market forces reign, but he rejects the free-for-all approach.

'That argument that we should do nothing because it is a private market is quite a flawed one because there's no such thing as a totally free market.'

He cited examples of the United States and Ireland painfully picking up the pieces after their housing bubble burst, causing their economies to tank.

The challenge is in deciding where to draw the line.

One recent measure - levying stamp duty of up to 16 per cent on homes sold within certain periods - has been attacked as being too harsh.

But he pointed out that 1,101 buyers did not find it too onerous, choosing to purchase new private homes last month.

This represented a 'reasonably healthy level of activity in the market' from buyers who were mostly owner-occupiers or looking at the purchase as a long-term investment.

In a booming market with prices heading north, frustrated buyers can get angry and foreigners have been the target of some of this resentment.

But he says Singaporeans are 'over-blaming' them. Foreigners cannot buy public flats - which comprises about 80 per cent of the market - and are restricted in buying landed homes. This limits them to only a narrow sector of the non-landed private market.

The proportion of foreigners buying such homes has not increased over the years, hovering at around 20 to 30 per cent, he added.

Singapore is a small economy and people have argued that because land is limited, the Government should restrict foreign purchases.

'I would argue the opposite. Because we are a small country and a small economy, it's even more important that we keep ourselves open... (and) welcome foreigners to come here to contribute. And if we accept that, then we must allow them to invest and own homes here.'

To build a fence around the entire property market would send a very strong signal that foreigners are not welcome - which will result in even more serious implications for the economy.

Another hot issue centres on calls for more regulations over the sale of homes of less than 500 sq ft - so-called shoebox flats - but this is one the Government has decided to sit out.

'If people want to buy shoebox units and are prepared to pay those prices, why should we stop them? Some have called us to intervene, to prevent people from building and selling such units but how can we do that?... There are many other things to worry about.'

These tiny homes, which can have psf prices of up to 20 per cent more than standard flats, make up only about 5 to 6 per cent of all transactions, he said.

But if sales soar and begin to distort the Urban Redevelopment Authority's private property price index - which is based on the psf prices - the Government may consider a sub-index for shoebox homes.

'That was a valid concern that was raised to us... You don't want to distort the whole index (with) too many of these shoebox units. But I wouldn't be too concerned at this stage,' he said.

The minister is content to let market forces have their way in other areas as well, noting that builders have plenty of incentives to make the same judgment calls as the Government and buyers.

'Developers themselves of course have their own mechanisms. They can delay construction or take longer to put their properties to market or shorten it if the market is hot,' he added.

There have been some big bets made recently. CapitaLand's bid of $550 million - or $869 psf per plot ratio (ppr) - for a Bishan residential site last month is one. Analysts predict an eventual selling price of more than $1,500 psf, which would be a record for the area.

But he noted that high bid prices do not necessarily translate to high selling prices or successful projects.

'You may start launching it at a time when the market is down and if you don't lower your price then you can't sell and if you lower your price then your margins will be affected.

'You cannot assume that it is straightforward... (Developers) take a risk, if they overbid and they can't sell, they will be punished,' he said.

esthert@sph.com.sg

Out now: Mah's book on housing: Money

Q & A

Have we reached the point where we can no longer expect prices to fall below their previous peak?

I think the property market depends on many factors but the most important is confidence, as reflected in the economy - its current state but also what it is going to look like in the next three to five years.

If the economy remains strong, people are confident that Singapore will continue to grow, supply is limited and demand is strong, then prices will go up, but that's a very big if, isn't it?

Our economy also depends on what is happening in the world economy. In 2008 when the world collapsed, we went down with it, and the stock and property markets nosedived. If you had asked anyone in the market in early 2009 to predict prices at the end of the year, none of them, I dare say, would have predicted what happened.

I would be very reluctant to say that prices will keep going up and never go back to what they were before. I hope so, but we should never assume or base our decisions and judgments on that basis.

But long-term, if we continue to grow the economy and Singapore continues to do well with the region and the world growing, then yes of course. But short-term fluctuations, it happens.

What are the specific indicators the Government looks at to determine if another round of cooling measures are needed?

We don't have specific indicators, we don't have an algorithm that says that if this happens then we press a button. It's not on autopilot, it's basically a judgment.

We look at numbers from the Urban Redevelopment Authority, the Monetary Authority of Singapore and listen to market feedback and anecdotes. We also look at what analysts and developers are saying, what reporters are writing, newspaper ads, and take all these into account to have a sense of what is happening.

And then we make a judgment call: Are things getting out of hand? Is there irrational exuberance or not? There is no set of numbers somewhere that says if this happens we act, if this doesn't happen we don't act.

What are the factors that influence the property cycle?

The economy is the main one. But it does have a life of its own sometimes. Like now the property market is rising at a much sharper gradient than the economy. It is very sentiment-driven and it can get carried away. And when people and the market get carried away and the Government says that it's not going to intervene and let the market carry on, that's when trouble starts.

Are HDB flats affordable?

by Mah Bow Tan 05:55 AM Nov 12, 2010

Recently, the Housing and Development Board was conferred the UN-Habitat Scroll of Honour Award - the most prestigious human settlements award in the world. In recognising Singapore's achievement, the UN-Habitat Chief of Information Services said: "It's really quite impressive for a country to provide adequate shelter and home ownership for so many."

Ask most housing experts and observers, and they will say that HDB flats remain within reach of the majority of Singaporeans. After all, HDB builds and sells flats at heavily-subsidised prices to ensure affordability. This has made it possible for an average of 15,000 young couples every year to join the ranks of homeowners.

Most of these couples buying new flats use just 20 to 25 per cent of their monthly income to pay for their flats. With their CPF contributions, few have to pay any cash for their mortgage payments. In total, more than 80 per cent of Singaporeans live in 900,000 HDB flats today. Yet, people still worry that HDB flats are not affordable. Why are there such sentiments?

Indeed, housing affordability - whether a flat is within financial reach - is not a straightforward issue. Different people have different notions of what is "within reach". Some argue that a 30-year housing loan is too long for a flat to be considered affordable. Others say that flat prices are much higher compared to their parents' time. The debate is further complicated by rising aspirations - whether housing is "within reach" also depends on what we aspire towards.

For a meaningful discussion on affordability, we need objective and commonly accepted yardsticks. So, what are the measures of affordability? How does HDB ensure that flats remain within reach of Singaporeans?



MEASURES TO ENSURE AFFORDABILITY

Focus on first-timers. To ensure that first-time buyers have access to affordable housing, we do several things. First, HDB prices its new flats below market value, taking into account the income of homebuyers. Hence, first-timers enjoy a substantial subsidy when they buy new flats from HDB.

Next, for first-timers who cannot wait for a new flat or wish to buy a specific flat in a specific location, HDB provides a CPF Housing Grant of $30,000 (or $40,000 if they stay near their parents) to buy a resale flat. Beyond that, new and resale flat buyers can apply for a concessionary loan. For a $200,000 loan over 30 years, the interest subsidy amounts to about $30,000.



Help according to income. For households earning $5,000 or less a month, an Additional CPF Housing Grant of up to $40,000 is provided for their purchase of new or resale flats. In other words, a family earning $1,500 can get as much as $80,000 in housing grants. Families earning more, between $8,000 and $10,000, can now buy new flats under the Design, Build and Sell Scheme (DBSS), in addition to Executive Condominiums, and enjoy a CPF Housing Grant of $30,000.



MEASURES OF AFFORDABILITY

I have been discussing affordability in layman's terms. Let me now get into the technical stuff. In particular, how do experts determine housing affordability? There are a few generally accepted benchmarks.



Income affordability. One is the housing price-to-income ratio (or HPI), which compares median house price to annual household income.

In a Straits Times article in February 2010, two NUS professors, Tu Yong and Yu Shi Ming, noted that Singapore's HPI for resale flats in non-mature estates is 5.8, compared to Hong Kong's 19.8 and London's 7.1. That means Singaporeans generally need 5.8 times of their annual household income to buy a resale flat in non-mature estates, whereas a Hong Kong resident needs more than three times that amount.

If we take Department of Statistics 2009 data on the median income of younger households - those aged between 25 and 35 years old - who are likely to be first-timers, their HPI is even lower, at 4.5 for resale flats and 3.8 for new flats. This is because they have higher incomes than average households.



Financing affordability. While the HPI is relatively easy to understand, it does not consider factors like loan availability and financing costs, which are important for many deciding to buy a flat. Therefore, another widely-accepted measure is the debt-service-ratio (DSR), which looks at the proportion of the monthly income used to pay mortgages.

The DSR for new HDB flats in non-mature estates, based on an industry norm of a 30-year loan, averaged 23 per cent this year. This is well within the 30-35 per cent international benchmark for affordable expenditure on housing.

Depending on flat type, the DSR ranged from 11 per cent for standard flats to 29 per cent for premium projects like the Punggol Waterway Terraces, which cater to higher income households.

We must also remember that CPF savings can be used for the initial downpayment and monthly instalments. Hence, more than 80 per cent of new flat buyers pay for their housing loans entirely out of CPF, without having to touch their take-home pay.

Whichever objective measure we choose, it is clear that there are enough HDB flats within reach of today's homebuyers. They range from smaller, no-frills flats in non-mature estates to premium flats in mature estates, catering for different aspirations and budgets (see table above). I hope buyers choose carefully, taking into account their budgets and aspirations. Housing affordability is decided not just by the options offered by HDB but also the choices of homebuyers.



BALANCING HOMEBUYER AND TAXPAYER INTERESTS

I can understand the anxiety among young couples wanting to buy a flat of their choice, within their budget, and as soon as possible. HDB has ramped up supply significantly and recently introduced more measures to temper excessive exuberance in the market and to moderate prices.

HDB also regularly reviews its subsidies to ensure affordability. But I must caution that there are limits to how much we can increase subsidies, without compromising other interests.

In other words, we must also consider affordability from a national standpoint. If we increase housing subsidies, what would we have to give up? The quality of education for our children? Healthcare services for our parents? Or do we impose a higher tax burden on Singaporeans?

There are no easy answers. Ultimately, we need to balance the interests of affordability for homebuyers and the burden on taxpayers.


The writer is the
Minister for National Development.