Why nobody may buy older HDB flats?

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Is HDB an “asset enhancement policy” or a “vanishing asset time bomb”?

I refer to the article “ST Forum: HDB flat as an investment for old age is no longer valid” (theonlinecitizen, Apr 9).

It states that “On Tuesday (3 Apr), the Straits Times published a letter sent in by writer Ronnie Lim, who reported that many seniors who wanted to downgrade to studio apartments were “in a fix as they are unable to sell their old flats”.

“The notion that owning a Housing Board flat is an investment for old age is no longer valid today,” said Mr Lim.

He added that most were hoping to downgrade and live on the profits from selling their flats, but have now become disillusioned.

He attributed the problem to the fact that HDB flats only have 99-year lease and it is made worse by the announcement by National Development Minister Lawrence Wong that not all old HDB flats will be eligible for the Selective En bloc Redevelopment Scheme (Sers). Hence, once the HDB flats reach 99 years, they will have zero value and owners will have to vacate.

“The Government needs to step in to manage this problem and not just leave things to market forces,” Mr Lim urged.

People’s Action Party (PAP)’s asset enhancement policy

When Goh Chok Tong became Prime Minister in 1990, he introduced the “Asset Enhancement” policy, which helps to enhance the prices of HDB flats.

In fact, just before 2011 General Election, then National Development Minister Mah Bow Tan even said, “We’re proud of the asset enhancement policy. (It) has given almost all Singaporeans a home of their own… that grows in value over time.””

After reading the above – I searched for the prices of older HDB flats and found (as an example for illustrative purposes) a 2-room HDB flat in Toa Payoh (mature estate) built in 1967, with an asking price of $200,000.

Since the flat is already 51 years old – let’s try to examine the likelihood of getting a buyer.

Whoever wants to buy the flat will have to wait another five years for the Minimum Occupation Period (MOP), before it can be resold.

So, another five years later will make the flat 56 years old. At that time any buyer would have to deal with the following:-

… anyone who buys it may find it very difficult to find a buyer after five years because by that time – at 61 years old – banks may be less willing to give a housing loan

…  CPF money cannot be used to service the monthly mortgage when the flat reaches 69 years old

… At 79 years – “”the property has to be paid for in cash.

“When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go”, International Property Advisor chief executive Ku Swee Yong noted”

In the final analysis – are the “70,000 or 7 per cent (HDB that) are more than 40 years into their leases” – literally sitting on a time bomb?

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.