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HDB resale flats to receive much-needed boost

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The introduction of Vers provides clarity for the future of ageing HDB flats as now, there is an alternative for HDB flat owners to monetise their flats before their value reaches zero at the end of 99 years.

HOUSING and Development Board (HDB) flats were in the limelight again earlier this year, when the matter of lease decay became a hot-button issue.

Many flat owners were concerned over the value of their own flats, as it was mentioned that they would eventually become zero at the end of 99 years and that not all flats will be eligible for the Selective En Bloc Redevelopment Scheme (Sers).

In fact, only an estimated 5 per cent of HDB flats are expected to be "Sers-ed". Such a reaction was to be expected, given that an estimated 82 per cent of Singapore's resident population live in an HDB flat. Moreover, terms such as "nest egg" and "retirement asset" have been used to describe HDB flats, implying that the owners will have something of good value in their golden years.

The HDB resale price index was on a downward trend, as concerns grew over the future of HDB flats. It was only in Q2 2018 that the index reversed its decline with 0.1 per cent price growth.

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However, a new set of cooling measures took effect on July 6, 2018, affecting even first-time home buyers purchasing an HDB flat; HDB buyers who take bank loans will be affected by the lower loan-to-value (LTV) limits as well.

Recent developments

Since then, there have been several significant announcements made. First, Prime Minister Lee Hsien Loong announced during the National Day Rally that there would be a new scheme, the Voluntary Early Redevelopment Scheme (VERS), where flat owners can vote for the government's offer to buy back flats that are 70 years and older.

Compensation, however, is expected to be less generous than Sers; quite possibly due to the short remaining lease of these flats. The Home Improvement Programme (HIP) will also be extended to flats built up to 1997. This is expected to benefit 230,000 more flats. There will also be a second upgrading exercise, called HIP ll, affecting flats reaching 60 to 70 years of age so as to keep these structures safe and liveable.

The following day, National Development Minister Lawrence Wong wrote a blogpost announcing that the Lease Buyback Scheme would be extended to all flats, where it was previously only applicable to four-room and smaller flats, and that HDB was exploring with the Central Provident Fund (CPF) Board to provide more flexibility for the purchase of HDB flats with shorter leases.

What's next for the HDB market?

While the details of Vers have not been fleshed out, it is a welcome announcement to the many HDB flat owners who have become uncertain about the future of their HDB flats.

The introduction of Vers provides clarity for the future of ageing HDB flats, especially after concerns over the lease decay issue, which resurfaced earlier this year, started to grow.

There is now an alternative for HDB flat owners to monetise their flats before their value reaches zero at the end of 99 years.

Pending the working details on how the Vers programme will be carried out, the government's announcement that they are looking at Vers could provide a much-needed boost to HDB resale transaction volumes and prices; and especially so for ageing flats. However, several questions remain. For example, what will be the level of consent required? How is the compensation amount going to be determined? What happens to the dissenting minority; will there be avenues to address their concerns?

These are valid questions and could potentially be polarising and would need to be carefully worked out. It is apt that the government is not rushing into the detailed mechanics but is seeking public feedback as it mulls over the many issues that have to be considered.

The expansion of the Lease Buyback Scheme to cover all flat types will help more ageing owners monetise their flats, thereby freeing up liquidity that would otherwise have been locked in the un-needed lease portion of their flats.

As public housing is for all, the choices available to monetise one's flat should and rightfully have now been made available to all.

For seniors who own larger flats, they now have the choice to monetise their flats through the Lease Buyback Scheme. Whether flat owners make use of it remains their choice, but for cash-strapped owners of larger flats, they now have this option of obtaining much needed funds - which they previously did not.

This scheme allows them to raise the funds required for urgent needs without having to sell off their flats, thus allowing them to age in place, in a home and neighbourhood where they have lived most of their lives.

The idea of allowing more flexibility in using CPF funds for the purchase of shorter-lease flats would help buyers who wish to purchase flats in more mature HDB estates.

This allows them to have more funds available for the flat purchase. It will also benefit sellers of older flats, as there would be more prospective buyers.

This is a very welcome move that is targeted at addressing the growing concern among HDB flat owners about their depleting leases and the difficulty of selling these flats due to the limitations placed by the CPF Board on prospective buyers for the usage of their CPF funds.

Already, newer flats with exceptional locational attributes command a premium; with some able to fetch a resale price above S$1 million. For example, a five-room flat in Holland Drive was sold for S$1.1 million in June this year.

For the same location, a comparable private property could cost about double the price, which could be the reason that some buyers are willing to fork out good money for these HDB flats.

With the many new policies and schemes announced, buyers will begin to look at older HDB flats with a different perspective.

The government has provided clarity of direction and a wide range of choices that cater to different needs.

This is likely to provide a much-needed positive nudge to the otherwise lukewarm HDB resale market which seemed to be heading nowhere in recent months due to uncertainties that had not been addressed.

A positive and practical move indeed!

Eugene Lim is key executive officer and Seah Yao Hui is manager, research, at ERA Realty Network

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