Homes for life, or at least until 95

/ EdgeProp Singapore |

May 9, 2019 12:24 AM SGT

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New rules regarding the use of Central Provident Fund (CPF) and HDB housing loans for buying older leasehold properties will kick in from May 10. They are designed to shift the focus of homebuyers from the remaining years left on a lease to “whether the remaining lease of a home can cover the youngest buyer until at least the age of 95”, according to a joint press release by the Ministry of National Development (MND) and Ministry of Manpower (MOM) on May 9.

Two years ago, National Development Minister Lawrence Wong cautioned buyers in a blog post: "As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly," he said. "So buyers need to do their due diligence and be realistic when buying flats with short leases. This is especially important for young couples, who have to plan for a much longer future." Back then, Wong had also advised first-time homebuyers to choose HDB resale flats with leases that will cover them until the age of 95, as the average life expectancy for Singaporeans is 85 years.

Discourage the young from buying old, leasehold properties

The new rules that will come into effect on May 10 are designed to do just that - "discourage younger people from buying older leasehold properties as these will not be their ‘home for life’,” says Colin Lim, associate director of Redbrick Mortgage Advisory. “The new benchmark age is 95. So a 25-year-old buying a property with a 50-year lease will be homeless at the age of 75.” (See “Rules prior to and with effect from May 10” below).

Younger buyers should buy newer flats to ensure they have homes for life (Credit: Samuel Isaac Chua/EdgeProp Singapore)

Middle-aged buyers, on the other hand, face fewer restrictions on their use of CPF funds when buying ageing leasehold properties. Previously, CPF funds could not be used to purchase a residential property if the remaining lease at the point of purchase is less than 30 years, notes Nicholas Mak, executive director of ZACD Group.

Under the new rules, CPF funds can be used if the remaining lease of the residential property is 20 years. “This is a balanced approach as some existing rules are relaxed, while others are tightened to safeguard CPF retirement funds,” Mak adds.

‘10-year extension on saleability’

The new rules provide “a 10-year extension on the saleability of properties with 30 to 40 years left on their leases”, says Desmond Sim, CBRE head of research for South East Asia. Apart from “unlocking additional value” of these older properties, the relaxation on the use of CPF funds and HDB housing loans “will also allay the fears of people owning ageing leasehold assets”.

The updated rules would not affect the majority of the HDB and private housing markets as many units have remaining leases of more than 60 years. According to MND, about 98% of owners of HDB flats and 99% of private property owners have homes that will last them until they are 95 years or older.

However, the tweak in rules could increase the pool of buyers and inject more liquidity into the resale market for older HDB flats and private leasehold homes. “This could help owners of these properties to sell their properties,” says ZACD’s Mak. “Previously, homeowners of older flats with shortening leases could have found it challenging to sell their flats at prices mutually acceptable to both buyers and sellers.”

Middle-aged buyers, on the other hand, face fewer restrictions on their use of CPF funds when buying ageing leasehold properties (Credit: Samuel Isaac Chua/EdgeProp Singapore)

Middle-aged buyers for older flats in resale market

However, the pool of buyers of such leasehold properties will still be limited to older buyers who either wish to right-size or to live closer to their ageing parents, says Eugene Lim, key executive officer of ERA Realty Network. Now, these buyers will be able to use CPF funds to cover up to the Valuation Limit of the HDB flat as well as enjoy the use of the Proximity Housing Grant for properties within a 4km radius.

“Such buyers could previously have faced difficulties in securing financing due to restrictions in the use of their CPF funds,” says ERA’s Lim. Together with the Voluntary Early Redevelopment Scheme and expanded home improvement programme (HIP ll), older HDB flats will attract buyers, especially given their spaciousness and convenient locations within mature estates, he adds.

While commercial banks are likely to follow suit in extending their home loans for such leasehold properties, they are still subject to the respective firms' terms and conditions. In the private housing market, the loan-to-value (LTV) limits that were imposed as of July 6 last year will still apply, says Redbrick’s Lim.

The new rules could lead to price stability for older, leasehold properties and ease collective sales of such properties (Credit: The Edge Singapore)

Prices to stabilise

The increased demand for these older resale flats could reduce the price gap between older and newer flats, and hence stabilise prices, says Christine Sun, head of research at OrangeTee & Tie. It could also lead to more HDB dwellers to upgrade to private property, she adds.

Another group of beneficiaries are likely to be owners of ageing 99-year leasehold properties, especially those who had attempted and failed in their recent collective sale bids. These include owners at Bedok Court, Horizon Towers and Mandarin Gardens. "The rules should see an easing of such collective sales as these properties will be able to hold their values for longer, and allay owners' fear of shortening leases and prices dropping off as financing was not available for properties with remaining leases of 30 years or less before," says Redbrick's Lim.

Lee Liat Yeang, senior partner of Corporate Real Estate at Dentons Rodyk & Davidson concurs. “Some of these owners had reacted out of fear of accelerated depreciation of older leasehold properties,” he says. “The new rules will allow buyers of very old leasehold estates to finance their purchases. This will help support valuation and have a stabilising effect on prices.”

Rules prior to May 10:

At point of purchase:

If a property has 60 years remaining lease = can use CPF.

If a property has < 60years remaining lease, youngest buyer’s age + remaining lease = 80-years = can use CPF.

If a property has < 60years remaining lease, youngest buyer’s age + remaining lease < 80-years = no CPF use.

Examples:

25-year-old purchasing a property with 60 years remaining lease = can use 100% CPF.

25-year-old purchasing a property with 50 years remaining lease = 25yrs + 50yrs = 75yrs = cannot use CPF since <80 yrs.

30-year-old purchasing a property with 50 years remaining lease = 30yrs + 50yrs = 80yrs = can use 100% CPF.

Rules with effect from May 10:

At point of purchase:

If a property has 20 years remaining lease = can use CPF.

If a property has < 20 years remaining lease = no CPF use.

Examples:

25-year-old purchasing a property with 60 years remaining lease = CPF use capped at 91%.

25-year-old purchasing a property with 50 years remaining lease = 25yrs + 50 yrs = 75 yrs = < 95 yrs = CPF use capped at 61%.

30-year-old purchasing a property with 50 years remaining lease = 30yrs + 50yrs = 80 yrs = < 95 yrs = CPF use capped at 67%.

45-year-old purchasing a property with 50 years remaining lease = 45 yrs + 50 yrs = 95 yrs = can use 100% CPF.

45-year-old purchasing a property with 90 years remaining lease = 45 yrs + 90 yrs = 135 yrs = can use 100% CPF.

Credit: Redbrick Mortgage Advisory

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