The 99-year time bomb some Singaporeans are sitting on!

some flats in the older estate maybe selected for En Bloc! If they are lucky, the compensation amount will be enough to get them another flat!

By Jonathan Lim

17 out of every 20 Singaporeans you see on the streets are likely to live in HDB flats. These public housing flats have a 99-year lease.

So what is this 99-year time bomb that Singaporeans are sitting on?

Isn’t a 99-year lease simple to understand?

The land is leased and once the lease is up, it has to be returned. Quite simple, is it not?

In fact in January this year, NCMP Gerald Giam clarified HDB’s lease with National Development Minister Khaw Boon Wan. The gist of it as what Minister Khaw said:

“Like all leasehold properties, HDB flats will revert to HDB, the landowner, upon expiry of their leases. HDB will in turn surrender the land to the State.“

Your flat will be taken from you once the lease is up. Is that news to you?

Up until recently, it is fair to say that many Singaporeans may be unaware, or perhaps in denial that their flats would be taken back by the authorities once its lease is up.

A read-through of this Hardwarezone Forum thread reveals that many think that they will not be homeless if their flat’s lease is up.

This phenomenon may be due to the fact that no 99-year lease residential property has yet to be claimed back by the authorities in our collective consciousness; as well as the fact that many HDB estates that are three to four decades old have come under the Selective En bloc Redevelopment Scheme (SERS).

There seems to be an air of confidence that the Government would not leave people in the lurch when lease runs out. There are people who think that the party will go on and the HDB will roll along when the time is appropriate to relocate you and redevelop old estates. There is no guarantee of that.

The problem is that there are very optimistic people buying old flats at premium prices

With property prices rising much faster than the growth in wages in the last three decades, our housing loans have become larger and longer.

The 99-year time bomb hurts a select group of people the most – those that paid a hefty premium for old flats in Queenstown, Tiong Bahru and Bishan, or those who bought old condominiums like the Pearl Bank Apartments.

Their CPF Ordinary Account will be drained for the down-payment and  their monthly CPF contribution into the OA will go straight to their home loans for up to 35 years.

Using a hipster young Tiong Bahru couple as an example

For young couples who paid top dollar for old flats such as those in Tiong Bahru, which leases have only 57-years left, they will have to unload their flats sooner rather than later if they want to have sufficient money in their CPF accounts for retirement.

While some optimistic people are willing to pay $700,000 for a Tiong Bahru flat (there  is one on sale now on Propertyguru) today, will that optimism carry on 30 years down the road when they try to sell that same flat on the open market? Only this time, the flat has only 27 years left on its lease. Without even talking about property appreciation, would anyone pay $700,000 for that same flat in 2044?

Source: PropertyGuru

Let’s assume that property prices grow at 4% year-on-year, a $700,000 flat in 2044 with 27-year lease would cost $215,000 in today’s dollar-value. Would you buy a flat today at $215,000 with 27 years left? If you would, that money will be the seller’s retirement plan.

The young Tiong Bahru couple of today will be banking on another young couple in 30 years’ time to buy their flat for $700,000 so that they will have their retirement plan. If that couple can’t find any willing buyers, they would be $700,000 poorer in their CPF accounts having channeled their CPF for loan payments and will have to rely on their cash savings, if they had any.

They could sell their flat at a much, much lower price to entice someone to buy a flat with 27 years left on it.

If you got the drift, you will stay away from old flats, right? 

If you bought the argument that no one in their right minds should be paying for premium prices for flats which are 40-year-old, you’d go for BTOs right?

That’s all fine and well – until you have to retire yourself. Much of your CPF has been locked in paying the mortgage on your BTO flat. You will have to sell it if you want to ensure sufficient funds in your CPF.

So the question is – will you be able to sell your 40-year-old flat in the future to fund your retirement?

Are our retirement plans blown to bits by the 99-year time bomb?

Minister Khaw has said that HDB is studying the possibility of the Lease Buyback scheme being made available to people living in 4- and 5-room flats.

That is one way to deal with this problem where the Government bails out HDB flat owners when the market decides that buying an old flat at premium prices is not such a good idea after all.

Another possible solution is the lease can be extended by the Government to ensure that flats can be sold at acceptable prices to fund retirements. Will this happen? We will only find out when the first of the 99-year time bombs start to blow.

Morale of the story

But if you insist on relying on unlocking the cash value of your property as part of your retirement plan, here are some things you have to consider:

• There is no guarantee that the Government will extend your lease or put your estate up for SERS;
• There is no guarantee that the market will value your property in your favour when your retirement comes;
• Cash in hand will always be more liquid than a property;

Until then, perhaps relying solely on your CPF for your retirement is not such a smart thing to do. Start saving for your retirement today and stop living like you’re a rock star.

Ref:mothership.sg

Dear The Real Singapore,

I am really tired of people saying that Singaporeans don’t own their homes because you are technically leasing it from HDB for a 99-year lease.

This is an extremely horrible and silly argument. I am going to explain why this is do, systematically, in hopes that this argument NEVER surfaces again.

1. No such thing as ‘you own your land’

All land ultimately belongs to states. Individuals have no ‘sovereign rights’ over it- even for freehold properties. In case you are unaware, in EVERY country in the world, the government will ALWAYS have some sort of power to ‘take over’ you property.

2. How to free-hold a flat unit?

So I really wonder what some Singaporeans are hoping to ‘own’ when they say they want to ‘own’ their flat. Are they trying to claim the square box of cement (otherwise suspended in the air) that forms the walls and ceiling/ floor of your flat?

Or are you trying to make claim to lay claim to the plot of land on which the HDB was built on? After all this is what free-hold landed property actually means- you own the land and you can build what you want on it. If so, for HDB apartments, this means you would have to share ownership of that ~100 sqf (surface area of your floor) with everybody from the same floor!

3. What’s going to happen after 99-years?

FYI, buildings (mostly) have an expiry date. They are not built to last forever when they are not needed to. This is because it’s neither cost-effective nor is it wise for the evolution of a city. So our HDBs are built to last (properly) for at least 99-years. During this duration, it is also fully insured ect.

So if you ‘Freehold/ own’ your HDB flat, what is going to happen after 99-years? The buildings would be deemed ‘unsafe to live in’ or even a ‘hazard to the neighbouring environment’ and would probably have to be evacuated and demolished. Either way it would be illegal to live in there because the building would not pass ‘safety’ requirements ect. You can’t even get it insured anymore.

However, now, (strictly speaking), the government does not need to buy you out. The HDB gets demolished/ evicted and the thousand plus residents can stare at what’s left of their ex house. Yes, they ‘own the land’, but what are they going to do with it? Government does not need to buy it back or pay residents to buy a new house.. since freehold, it’s your problem lo. All you are left with is 1000 plus ppl and a pile of rubble..

Lets say you insist the government must let you stay in your HDB even after it is no longer safe. Then what happens when the building collapses or chunks of it start falling down? NOBODY WILL INSURE YOU. I reckon even medical insurance will be void because you were ‘putting yourself in harms way’.

I know some smart alex at this point will say, “then they must make HDB that last for at least 500 years”. But 1) How much more will that increase the building cost? 2) How much more is the insurance coverage going to cost 3) Is it worth ‘freezing’ our landscape for 500 years just because you want to ‘free-hold’ your HDB and 4) what’s wrong with the 99-year lease reality now?

These are the facts:

1) Always en-bloc before 99-year lease.

Most (If not all) of the time, HDBs are en-bloced before the 99-year lease expires. And when it does get en-bloced, you are paid (usually above) the market rate.

2) Market rate not tied to number of lease years!

To prove how ‘technical’ this 99-year lease is, the reality is that HDB values are not tied to the number of years left on the lease (unlike COE). If this ’99-year lease’ this was real, then buying a HDB which has been around 98-years would cost almost $0! Have you ever seen such a case? Do you even see such a trend as the lease is used?

Conclusion

Just stop using the silly argument that we ‘don’t own’ our HDBs, because we ‘own it’ as much (if not more) as anybody else owns their homes in any other country! (Esp. due to the very first point). In fact, we may be the only country where the government ‘buys your HDB out’ before you building becomes too old and collapses!

SG Bangla

TRS Contributor

WHAT HAPPEN AFTER HDB REACH AGE OF 99

Posted on Thursday, May 10, 2012 by xiaoBai

HDB: THE CRAZY PRICE FOR A RENTED SHELTER 

Singapore, a country with limited land space to develop. The government have to provide 99-years leasehold properties for the people here in order to conserve land.

I stumble upon this news when I was looking for an apartment in Singapore. The million dollar question that every HDB owners want to know "What will happen to their HDB after 99 years lease is up? ". Although there are some flats build before Singapore independence but none has reach close to end the lease.

HDB clears the air on lease expiry

Below was a HDB reply to Mr Wong Pang Yee's letter, 'Allay uncertainty over HDB leasehold' (April 13, ST).

==============================================

HDB flats are 99-year leasehold properties. Like all leasehold properties, the land will revert to the Government when the lease on the land expires. The overwhelming majority of HDB flats today are far from expiry of their leases.

However, some flats in older estates may be selected for redevelopment under the Selective En Bloc Redevelopment Scheme, if it is economically viable. To maintain the value of older flats, the Government has also introduced various upgrading programmes such as the Home Improvement Programme and Lift Upgrading Programme.

Chan-Wong Jee Choo Lily (Mrs)
Deputy Director, Policy and Property
Housing & Development Board

==============================================

Current resales HDB price

I did a search on current resale price of HDB website. A 4-room flat and average of 88sqm (about 947sqf) in ANG MO KIO with remaining lease of 50 odd years was sold for $460,000.

A search result of the current resale price of 4 room flat in Ang Mo Kio

Paying $162,370 interest over 30 years

A down payment of 20% ($92,000) of the total property price is required to secure the purchase. After the compound interest of 2.6% for a maximum loan period of 30 years on the remaining 80% ($368,000) of the flat.Every month of the 30 years lease will cost the buyer $1,473.25, this price does not include stamp fees, lawyer fee, property tax and miscellaneous fee for owning the flat. The final price for staying 50 years in this house is likely to exceed $700,000.

With the ever rocketing resales price of HDB, most couples had to work half their life to fully pay off the HDB /Bank loan.But at the end, they do not actually own the flat because the land does not belong to them in the first place.

In the reply, some flats in the older estate maybe selected for En Bloc, but most the tenants will be retires grandma and grandpa who have live half their life in that area. These selected flats are mostly in good location. Although a sum of money is given to them but they have to move away from the place where they are familiar in and move to another location with poorer amenities. If they are lucky, the compensation amount will be enough to get them another flat. But depending on the market, if the compensated amount is lower than the current market. They may have to service another 30 years loan for a new 99 years old flat. It will be a shock of life to let a retired couple service another loan.

INDEBTED WITH LOANS

Are the government and the HDB working in conjunction to keep the people indebted all the time? By buying a flat, we fall into the trap. Hopefully, we can get out of this debt prison, else we are just going to follow HONG KONG footsteps.

Ref:http://pennyandcent.blogspot.sg/2012/05/what-happen-after-hdb-reach-age-of-99.html