Beware when your HDB is 34 years old?

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What happens when your HDB flat becomes 34 years old?

A few years ago – the Government announced a new property cooling measure for HDB flats.

But arguably, most people did not pay much attention to it, or realised the implications.

The link to the joint press release by the three Ministries – “Additional Measures to Ensure a Stable and Sustainable Property Market” is HERE.

HDB less than 60 years lease

The terms for granting HDB loans and the use of CPF funds for the purchase of HDB flats with remaining leases of less than 60 years – will be tightened  (details of this measure are in Annex IV).

Asset enhancement

As more HDB flats age from the time that they were built, those who have subscribed to the “asset enhancement” policy which arguably lead to the increase in HDB prices, may find it harder now to monetise their flats to retire – with this new cooling measure.

Implications for lower-income 

This may especially affect lower-income Singaporeans who purchased 2 and 3-room flats and may lack the financial ability and savvy to change to a second new Build-to-order (BTO) flat or  resale flat with a new or longer lease balance, in order to avoid the problems that may arise from this new cooling measure.

Now, with this new cooling measure, if your flat is not selected for the Selective En-bloc Re-development Scheme (SERS), it may become harder to sell – as flats age beyond 34 years.

With the Minimum Occupation Period (MOP) of five years, very few people may want to buy flats with a lease balance of 65 years (more than 34 years old).

Less CPF can be used

To illustrate this problem, for example, if a 30 year-old couple buys a flat with a lease balance of 59 years, their prorated Valuation Limit (for the use of CPF), will be only 58 instead of 100 per cent of the valuation at the time of purchase.

The 58 per cent is calculated (34 divided by 59 years) “based on the ratio of the remaining lease when the youngest buyer who can use CPF turns 55 years old, to the lease at point of purchase”

This means that they will no longer be able to use their CPF to pay once the use of CPF hits 58 per cent of the valuation. From this point onwards, only cash can be used to pay for the mortgage.

Can’t use CPF

For flats with a lease balance of less than 30 years, use of CPF is not allowed at all.

HDB loan restrictions

There are also restrictions on getting a HDB loan – “Lease balance  of 30 – 59 years – “Allowed, if remaining lease can cover the buyer* to the age of at least 80. Loan tenure will be the shortest of: 30 years; 65 years minus average age of buyers; and balance lease at the point of purchase minus 20 years.”

Lease balance of 20 – 29 years – “Allowed, if remaining lease can cover the buyer* up to the age of at least 80. Loan tenure will be the shortest of: 30 years; 65 minus average age of buyers; and balance lease at the point of purchase minus 20 years.”

Lease balance of less than 20 years – “No HDB housing loan.”

Over 40 years’ old flats

So, in view of the economic implications of this cooling measure, this policy change in my view may be reviewed in the future – when the HDB market has stabilised – as it may make less sense to cool the property market for this segment of very old HDB flats, which as I understand it may form a small proportion of the total number of HDB flats now.

How many such transactions?

By the way, how many ‘over 40 years old’ flats’ transactions are there in a year?

Higher MSR for HDB loans?

If there is a need to cool the public housing market further in the future, we could also reduce the Mortgage Servicing Ratio (MSR) for HDB loans from 35 to 30 per cent, to be the same as private property and HDB bank loans.

Leong Sze Hian

About the Author

Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.