Lionel from Stacked Homes addresses the common concern among Singaporeans about the fate of their HDB flats as their 99-year lease approaches expiration. He begins by stating the official government position: when the lease expires, the flat reverts to the state and its value effectively becomes zero. This has been demonstrated with private properties in Geylang that were taken back without compensation.
However, Lionel points out that not all flats will necessarily run the full 99-year course. Two potential scenarios can intervene: Selective En Bloc Redevelopment Scheme (SERS) and Voluntary En Bloc Redevelopment Scheme (VERS). SERS is the more favorable outcome, offering a replacement flat with a fresh 99-year lease, along with potential compensation for the move. Unfortunately, only a small percentage (4-5%) of HDB estates are expected to undergo SERS, making it an unreliable strategy.
VERS, on the other hand, is a scheme to be offered when a flat reaches around 70 years of age. If a sufficient number of flat owners consent, HDB will buy back the flats, with payouts based on factors such as market value and remaining lease. As VERS has yet to be implemented, specific details remain unclear. The government has indicated that VERS compensation will be less generous than SERS, potentially aligned with Balas curve pricing, where leasehold values are pegged as a percentage of freehold values.
Lionel expresses concern about securing consensus for VERS, drawing parallels to condo en bloc processes. He suggests that HDB owners, being primarily homeowners rather than investors, may be less motivated by financial gains and more attached to their homes. Furthermore, the diverse demographics within HDB estates could complicate reaching a shared agreement. Older residents, in particular, might be reluctant to move, especially for modest compensation.
The option of selling the flat before the lease decay becomes too severe is often raised. While this may address the issue on an individual level, it does not solve the broader problem as someone will eventually be left with the aging flat. Selling older flats can be challenging due to financing limitations. CPF usage is restricted for flats with fewer than 20 years remaining, and banks typically avoid financing flats with fewer than 30 years left.
While anecdotal evidence exists of older flats selling for high prices, these tend to be in highly desirable, mature locations. Appreciation and ease of sale are likely to be less significant factors for flats in less prime areas. Though depreciation may have been slightly exaggerated, it’s critical to avoid assuming all HDB towns will appreciate like those in prime locations such as Toa Payoh or Queenstown.
Lionel then suggests potential solutions to the 99-year lease issue. Firstly, he points to the ongoing trend of building denser housing. Older, smaller HDB blocks are often demolished and replaced with taller buildings containing more units.
Secondly, he proposes involving private developers. Property developers are typically land-scarce and could be interested in acquiring and redeveloping older HDB sites. Currently, private developers are able to offer en bloc purchases on private homes but not HDB, which exacerbates the wealth gap. The expectation that leasehold condos can sell at good prices (even with fewer than 40 years remaining) because of potential redevelopment is absent in the HDB market.
A third possible solution is to change the lease renewal methods. In other countries with leasehold properties, owners have the option to renew their leases at a certain cost. HDB could implement a similar one-time charge or renewal mechanism, although this could be politically sensitive and lead to accusations of unfairness.
Lionel also anticipates a more prominent role for the “sandwich generation,” who may need to provide housing support for elderly parents whose HDB leases are expiring. Financial planning might need to be more robust for those unable to sell and move to a newer flat. He suggests that the government may need to create schemes and subsidies to assist those Singaporeans who have to house their parents with expired leases.
Finally, Lionel considers the impact of Singapore's aging population on the housing market. As the older generation passes away, their flats will be inherited by their children. Given Singapore's high homeownership rate, many children will already own their own properties, leading to a potential influx of vacant resale flats unless the rules are changed by then. However, some might argue that a surplus of vacant flats and lower prices could benefit future generations.