Give buyers an additional choice of new 50-year leasehold homes 

TO SAVE costs amid rising cost of living and help protect the environment, one should buy only what one needs and reduce waste.

Think of not over-ordering food when dining out, and refraining from buying clothes which may hardly be worn. 

Maybe the above mantra should apply to buying homes, too. Today, many new homes are sold with 99-year land leases. Could the sweet spot for leasehold tenure of new homes be shorter, say 50 years?

Consider a couple who collects the keys to a new 50-year leasehold Housing and Development Board (HDB) four-room flat at age 35. 

A lease term of 50 years is insufficient if the couple lives in the same flat for the rest of their lives, and lives beyond 85 years old, which may happen given rising life expectancy.

Nonetheless, various scenarios suggest why a 50-year land tenure works. For example, as income rises, the couple may move to a private home in their 40s after fulfilling the minimum occupation period of their new HDB home.

Alternatively, the couple might occupy their HDB home for a few decades before moving to a more elder-friendly unit.

Eligible local couples who are 55 years or older can buy two-room flexi flats from the HDB with leases from 15 to 45 years. Subject to meeting eligibility criteria, couples aged 65 years and above can buy Community Care Apartments from the HDB with leases from 15 to 35 years. In the above cases, the chosen lease must be able to last all buyers and their spouses until at least age 95.

Community Care Apartments integrate senior-friendly housing with care services that can be scaled according to care needs and social activities, to support seniors to age independently within the community. As the population ages, seniors can expect the scaling up of housing options for them.

Several other reasons also support the sale of new 50-year leasehold homes.

Housing affordability

For one thing, selling homes on shorter land leases improves housing affordability by lowering prices as land cost is a major cost item in housing projects. 

Based on the Singapore Land Authority’s table showing leasehold values as a percentage of freehold value, 50-year leasehold land costs over 22 per cent less than 99-year leasehold land. 

Currently, eligible HDB flat owners aged 65 years and over can monetise their flat to receive a stream of income in their retirement years and possibly a cash lump sum, while continuing to live in it by selling part of the flat’s lease to HDB under the Lease Buyback Scheme. In the first six months, 892 households took up the scheme. Many who used the scheme chose to retain 30 years of their lease. 

Instead of selling back part of a home’s lease in future, some buyers could prefer paying less upfront for a new home. Any savings can be used to help fund entrepreneurial dreams, household needs or investments.

Recycling land

Many buildings might not age well beyond the 50-year mark. Think about it. Some owners of private apartments that are 20 to 30 years old are keen on en bloc sales not solely for monetary reasons, but because their developments are ageing and the strata owners cannot agree on spending on upgrading works.

In land-scarce Singapore, a leasehold system lets the government reallocate land to meet ever-changing socio-economic needs. The government can recover land upon lease expiry and release it back into the market to meet changing needs, and give others the opportunity to participate in the development of land. 

Given the rapidly changing needs of space users, Singapore’s economic competitiveness and urban planning is enhanced when housing land is sold on shorter lease terms, as the land can be recovered and reallocated for optimal use faster.

A third reason why shorter leases might go down well is that many homebuyers are singles and childless couples. The proportion of singles among the resident population was 21.1 per cent, 15.9 per cent and 13.8 per cent for those aged 35 to 39 years, 40 to 44 years and 45 to 49 years, respectively, in 2023. 

Bequeathing a home with a long remaining land-lease term when one dies may hardly matter to singles and childless couples. Even couples with children might adopt a mindset where each generation looks after itself. After all, each generation of Singaporeans can have the opportunity to buy affordable and high quality HDB homes. 

A 50-year leasehold home can be a sound investment. Listed real estate investment trusts, property funds and other investors invest in warehouses, industrial facilities and so forth with outstanding land leases of under 50 years. 

For example, CapitaLand Ascendas Reit announced last month the sale of 21 Jalan Buroh – a ramp-up warehouse with an ancillary office block – which sits on remaining land lease tenure of about 31 years for S$112.8 million, representing a premium to valuation. Recently, Keppel DC Reit announced the proposed purchase of two data centres in Genting Lane, which sit on much shorter land leases, for over S$1 billion.

Indeed, an investor may worry that a home over a certain age cannot compete in the rental market versus newer stock. Also, when discounting a residential unit’s future earnings to derive its value today, relatively little weight is placed on earnings that are generated far down the road.

In addition, a home with an initial 50-year land lease can still draw resale buyers when the lease tenure decreases to 40 years, 30 years or less as relatively short land leases may suit some homebuyers. Meanwhile, if needed, banks should adjust lending practices to better support purchases of homes with relatively shorter land-lease outstanding.

Singapore has a high level of homeownership among residents and high quality public housing. Selling state land for new private homes with lease terms of 50 years as well as 99 years enhances choice for developers and buyers. And applicants may value having a choice of flats with different lease terms in the HDB Build-To-Order market.

Among a new generation of homebuyers, many people, who prioritise affordability and are less interested in bequests, might choose new 50-year leasehold homes should such homes become widely available.