SINGAPORE – Like many parents, retired factory worker Lim Kim Geok, 63, would like to bequeath her Housing Board flat to her son.
Now that her Ang Mo Kio three-room flat has been picked for the Selective En bloc Redevelopment Scheme (Sers), she can get a replacement flat if she can top up the difference in cost. It will have a new 99-year lease, but she does not have the cash.
It is her adult son, who lives with her, who will make the final call on whether to buy a three-room unit or upgrade to a four-room replacement unit as he will be the one bearing the top-up costs.
“My son said he wants to take this opportunity to give me a good life and a bigger home but I told him I don’t want him to be burdened, especially when he has to pay for my medicines and other household expenses,” she said.
“If we can’t afford it or he doesn’t have the money for it right now because the announcement was so sudden, I told him we can just take a smaller unit and live simply.”
Madam Lim is among the majority of Ang Mo Kio Sers residents interviewed by The Straits Times who plan to buy a 99-year replacement flat despite top-up costs of up to $100,000, so they can leave their children a flat with a longer lease.
Few are going for the two new rehousing options that would not require them to fork out any money.
The first is a shorter 50-year lease, which makes the replacement flats more affordable, and is available to owners who were at least 45 years old at the point of the Sers announcement.
The second option for seniors is to take up a lease buyback on their existing flats. The scheme lets them retain a lease length that covers them till they are at least 95 years old and allows them to sell the tail-end lease to HDB. The market compensation for the lease retained under the scheme can then be used to buy an equivalent replacement flat of the same lease length.
Of the 30 Ang Mo Kio residents interviewed, 23 said they would choose a fresh 99-year lease, two would opt for the 50-year lease, while five were still undecided.
Through Sers, HDB identifies and acquires precincts in older estates as part of its strategy to renew estates. Owners affected are offered new flats with a new 99-year lease, built at a designated replacement site nearby, as well as given monetary compensation.
Blocks 562 to 565 Ang Mo Kio Avenue 3, comprising 606 households, were picked for Sers in April.
Madam Lim said she might have taken a 50-year lease but her son is not yet 45 years old and would not be able to co-own the flat with her.
“I don’t feel safe if my son is not a co-owner of the flat. Who knows what will happen after I, as the sole owner, die?” said Madam Lim.
Another resident, a 56-year-old operations executive who wanted to be known only as Mr Wee, said he would consider pushing back his retirement plans and working a few more years to pay for a 99-year lease flat that he can leave to his 17-year-old daughter.
“If I opt for a 50-year lease, it’s more than enough for my wife and me. But nowadays, young people may not get married or may move out very late, so I want to plan ahead for my daughter and give her options. I cannot be selfish and just take care of myself,” he said.
Property analysts and observers said it is not a surprise that a majority of the residents, even seniors, are more inclined towards taking up a 99-year lease as there is much uncertainty ahead for those who opt for a 50-year lease.
Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS), said it is hard to predict the market value of the 50-year lease flats, which will hit the resale market only in a decade’s time. Prices for units with a 50-year lease may not depreciate in the same manner as those with the typical 99-year lease, he said. Only time will tell how the market will take to them.
Associate Professor Walter Theseira of the Singapore University of Social Sciences noted that while the 50-year lease flats will be in better physical condition as they will be in new HDB blocks, they may prove less attractive to potential buyers when there are comparable 99-year lease units in the same block.
“The obvious challenge in the value of a 50-year flat in one to two decades means that anyone wanting to avoid uncertainty will try to take a 99-year lease,” he said.
“If they have the money to make it work, that’s fine. But we shouldn’t have cases of people who end up struggling in order to leave something to their children, or where the children expect the Government to provide for their parents and then get the full value of the flat. Yet, we see this is the problem all the time with owners who are asset-rich but cash-poor.”
He added: “Owners who are very certain this will be their last flat and who do not have a firm bequest motive in mind should not fear taking up the 50-year lease.”
Retired deliveryman Ho Teck Huat, 72, for instance, is set on taking a 50-year lease as he intends to live out the rest of his life in the replacement flat.
“We have no intention of topping up a single cent. I’m okay with downsizing from a four-room to a three-room flat if it means we get more cash proceeds because it’s just my wife and me. Our children are all grown up and have moved out,” said Mr Ho, who was stressed about having to fork out additional money before the 50-year option was announced.
A potential issue when these 50-year lease flats arrive on the resale market may be some mispricing in the beginning, said ERA Realty’s head of research and consultancy Nicholas Mak.
“We’ve never had a situation before where a flat has 45 years remaining on the lease but sits in a new five-year-old HDB block. In the short term, people may pay too much or too little. But over time, the market will recalibrate.”
Institute of Policy Studies (IPS) senior research fellow Christopher Gee said that while there should not be any significant impact on the overall property market from this small pool of flats, buyers may face issues securing mortgage financing once the remaining lease drops below 30 years.
In that event, HDB might need to step in and become the buyer of last resort, he said. “HDB might then be able to resell that flat on lease terms that match the rest of the estate.”
The Ministry of National Development has previously said it will “carefully study” if a lease extension can be provided in the future.
But Mr Mak noted that the 50-year lease option has some upsides, such as the possibility of rental profit.
“The remaining lease may be low but the building is new so there are bound to be some people who see the potential for rental yield and may buy the unit,” he said.
“Alternatively, as some seniors get on in age, they may want to move in with their adult children and rent the unit out.”
While the shorter-lease options will be provided to residents in future Sers exercises, they may not be relevant or necessary in all situations, said Prof Sing.
Those who would be more inclined to consider the shorter-lease options would mainly be owners of older flats with lower resale prices who are given replacement units in more expensive mature estates and need to top up, he said.
What’s going on in Ang Mo Kio
Analysts said the uproar over the top-ups for a replacement flat in Ang Mo Kio could be one of the factors that prompted the HDB to come up with the two new rehousing options two months after the initial Sers announcement.
NUS sociologist Tan Ern Ser said that Sers is usually viewed as desirable because it allows flat owners to “reset” their decaying lease to a fresh 99-year lease at a cost that is less than the benefits of owning a brand-new flat.
“The current episode probably involves older residents who do not have enough in their CPF (Central Provident Fund) accounts or adequate liquid assets to afford the top-up required,” he said. “In short, essentially nothing about Sers has changed, except that this time the residents involved are not younger folks who are eager to upgrade to a new flat in a good location.”
ERA’s Mr Mak said that while the two new rehousing options could have come earlier to save residents the frustration over top-ups, their introduction is still good news for Sers flat owners.
“The alternative is for HDB to say a hard no, so you top up and move, or downsize, or sell on the open market. So now that there are new options, it’s up to the residents to make an informed choice that is right for themselves,” he said.
Mr Venkatasubramanian Ramakrishnan, 50, a manager in the semiconductor industry, said he had already been thinking about upgrading his current three-room unit to a four-room flat but put it off because of the pandemic.
He says he is willing to bite the bullet and sees this Sers exercise as a chance to buy a bigger unit with a fresh 99-year lease. He plans to save up over the next five years for the top-up needed, which he estimates will be around $140,000, to minimise the amount he has to borrow.
“It might be painful now but it’ll be useful in the future. If my son wants to upgrade to a bigger flat, he can always sell the unit and use the proceeds from the sale,” he said.
But not all Ang Mo Kio residents take such a positive view.
At least three petitions have been started. One is to review the flat valuations, which some home owners feel are too low and created the wide disparity between the compensation amounts and the price of the replacement flats.
Another is to include an upcoming Ang Mo Kio Build-To-Order site next month as an additional replacement site to the current site next to the Institute of Technical Education College Central.
However, analysts said that professional flat valuation is based on fair market values and it is not tenable for HDB to adjust the compensation amount without long-term implications.
Dr Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies at NUS, said: “If the Government overcompensates, it not only draws down on our reserves and increases the need to raise more revenue through taxes, but it will also create a perception that one can get significant windfall gains through Sers.”
Overcompensating also leads to prospective buyers speculating in older flats, which forms unrealistic expectations of resale home prices, said Dr Lee.
In time to come, this will make it hard for younger buyers to purchase HDB homes in the resale market, he added.
IPS’ Mr Gee said it is also not desirable for HDB to offer fresh 99-year replacement flats at a “more affordable rate, which would presumably be below market value” as it would provide an implicit subsidy to owners.
“This would give these ‘lucky’ owners of flats identified for Sers additional subsidies which would have to be financed by taxpayers and potentially create the expectation of private gains paid for by the public purse for future Sers exercises,” he said.
In response to queries, HDB told Insight that internationally recognised valuation principles used by private valuers have been consistently applied in all Sers exercises and there has been no change to the compensation parameters in the Ang Mo Kio Sers exercise.
Ang Mo Kio residents will be told of their actual compensation in the fourth quarter of this year.
But the situation in Ang Mo Kio has spurred more serious thinking among HDB home owners about the ramifications of having one’s net worth tied up in a flat.
Prof Theseira said: “What we see now is that net worth in a flat essentially means nothing unless you can monetise it. It provides a roof over your head, but it does not provide you with money for your living expenses or to take holidays or enjoy your retirement.”
To monetise a flat, its owners have to “unlock” its value, which means either selling it or renting part of it out, he said.
“Whether you are in a 50- or 99-year lease, you have to confront the reality that unlocking housing value means doing things you probably would prefer not to, given that most people want to age in place and want to avoid sharing their home with strangers,” he said.
As Singapore’s population ages and more HDB flats reach the halfway point in their 99-year leases, concerns about lease decay will become more widespread.
Mr Gee said the need for estate renewal and redevelopment may mean that Sers, and the future Voluntary Early Redevelopment Scheme, or Vers, could be triggered more frequently.
Many older HDB owners, who paid a much lower mortgage on their now-ageing flats, given the lower price of entry in the past, may find themselves having to secure fresh loans for new replacement flats despite being closer to retirement age, he said.
“It’s a combination of population ageing at the same time as the lease clock on their flats is ticking down,” said Mr Gee.
“This is a bridge that Singapore has to cross,” he noted, suggesting it was an issue that should be considered under Forward Singapore, a national exercise to forge a new social compact for Singapore for the next decade and beyond.
“Source:[New Sers 50-year lease option: A solution now, but a tangle down the road?] © Singapore Press Holdings Limited. Permission required for reproduction”