HDB offers SERS flat owners option of replacement homes with 50-year lease

By EdgeProp Singapore

/ EdgeProp Singapore |

July 3, 2022 10:10 PM SGT

Owners of Blocks 212 to 218 Marsiling Crescent/Lane, which has been earmarked for SERS, for the redevelopment and extension of Woodlands Checkpoint, are also eligible for the new housing options (Photo Albert Chua/EdgeProp Singapore)

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On July 2, HDB announced more rehousing options for flat owners involved in the Selective En bloc Redevelopment Scheme (SERS). These additional options are: 1) the Lease Buyback Scheme to seniors at the SERS site, who can buy a short-lease replacement flat subsequently; and 2) offer 3-room or larger flats on a 50-year lease, instead of 99 years, on the designated replacement sites that can cover the owners till at least age 95.

“This could be the first time that HDB is offering flats on a 50-year lease,” says Nicholas Mak, ERA head of research & consultancy department.

These two additional options will be offered to those who are eligible starting from owners of Blocks 562 to 565 Ang Mo Kio Ave 3, and also those of Blocks 212 to 218 Marsiling Crescent/Lane (for the redevelopment and extension of Woodlands Checkpoint), whose flats were announced for acquisition on April 7 and May 26, respectively.

Both options will help to bring down the price of the replacement flats, making them more affordable, thereby allaying concerns of some seniors about the need to top up funds in order to purchase a new flat of a similar size at the replacement site,” says Wong Siew Ying, PropNex head of research and content.

Elderly owners do not need to worry about mortgage issues since they probably do not need to top up money for the new unit, says Christine Sun, OrangeTee & Tie senior vice president of research & analytics. Some may face problems applying for a home loan given their age and employment status (some are likely to be retired or working part-time) should they take up the option of exchanging for a new flat with a fresh 99-year lease, she adds.

“The shorter 50-year lease may also be viable for elderly singles who may not have the intention of passing their units as an inheritance to anyone,” continues Sun. “Therefore, it may make more financial sense to incur less or no upfront cost now.”

Younger and middle-aged homeowners aged at least 45 years who are eligible to apply for a home loan to finance the home purchase, may also consider this option, reckons Sun. “Since they bought the flats directly from HDB at generous, subsidised rates, they can make a profit in the future, as the resale values will likely be higher than the purchase price,” she says. “These homeowners can sell the unit and upgrade to another property later.”

The benefit of the flats with a shorter lease is that they could provide some immediate financial gains for the owners, especially if the 50-year lease flats are priced substantially lower than their neighbouring 99-year leasehold flats, says ERA’s Mak.

Since there is no known precedence of such flats, when the owners of these 50-year lease flats eventually sell them on the resale market after the Minimum Occupation Period (MOP), “they will go through a price discovery process where some flats could potentially be mispriced in the short term,” adds Mak.

The price of a 50-year lease flat is not half the value of a 99-year lease flat, points out Lee Sze Teck, Huttons senior director of research. “It is not a straight line basis to value the remaining lease term,” he says. The decline in the flat’s resale value will be a lot steeper when the remaining lease hits 35 years, he adds. The drop is more significant when the lease has less than 30 years left on the lease.

These flats are likely to depreciate faster than their neighbouring flats which have longer leases, adds Lee. These buyers of 50-year lease flats could be in a bind in the future, especially if they opt for a lease buyback thereafter: “There may not be enough years left to sell back to HDB,” says Huttons’ Lee.

Should the owner decide to sell the replacement flat right after the 5-year minimum occupation period (MOP) is met, "the replacement flat – which has a lease balance of 45 years at that time, but is basically just 5 years old - could still be more attractive than some of the much older resale flats in the area," says PropNex's Wong. "Its newness will be appealing to some buyers who may not mind the shorter lease."

Capital appreciation could diminish substantially if the owner of the 50-year lease flat opts to sell it after living in it for more than 20 years, cautions Wong. With a much shorter lease balance, the pool of potential buyers will likely shrink and it may also be more difficult for the next buyer to obtain financing to purchase the flat, she says.

The pool of buyers in the open market is also limited especially if the usage of CPF (Central Provident Fund) monies is restricted substantially due to the short lease, says Huttons’ Lee. And that affects the resale value, he adds. “If residents wish to bequeath to their children, they should opt for the 99-year lease flats.”

PropNex’s Wong therefore expects many of the SERS residents to go for the full 99-year lease option. “It will present a better upside in capital appreciation, given the longer remaining lease at the time of resale in the future, compared to flats on a shorter lease,” she says.

The 50-year lease flats also pose a challenge to the 99-year lease flats in the same neighbourhood, says Huttons’ Lee. “The resale price of the 50-year lease flats will be lower and may inadvertently be used by some buyers as a benchmark for the value of the 99-year lease flats,” he adds.

On the other hand, those who buy their flats on a 50-year lease at substantially lower prices are likely to enjoy a substantially higher rental yield, “possibly exceeding 10%”, relative to their 99-year leasehold neighbours, estimates ERA’s Mak. “Such flats with shorter leases could attract investors,” he says. “If a growing number of such flats are rented to foreign tenants, it could affect the demographics and social cohesion of the neighbourhood.”

As the nation's stock of flats gets older and lease decay sets in, the situation faced by the Ang Mo Kio residents will become more common, observes Huttons’ Lee. “The new policy for SERS can be seen as an initial trial to gauge acceptance level before being used for VERS [Voluntary Early Redevelopment Scheme],” he continues. “VERS residents may find themselves in the same situation and it is important to get the policy for VERS right to get it off to a flying start.”

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