Perils of owning ageing leasehold properties
The Edge Property
By Cecilia Chow
21 April 2017
A week ago, Singapore permanent resident Ms Lew was just calculating
the remaining lease on her 700 sq ft, three-room HDB flat in Marine
Parade and wondering how much it could fetch in the resale market. “I’m
just a couple of years from retirement,” she says. Lew’s flat, like the
more than 7,000 in Marine Parade, was completed in 1975. According to
HDB’s website, Marine Parade was the first housing estate to be built
on reclaimed land. This means that the flats in Marine Parade have 57
years remaining on their 99-year leases.
Singaporean Ms Aw, who bought her 1,128 sq ft, five-room HDB flat in
Marine Parade 17 years ago, says she now feels “a little unsettled”.
Even though her flat is already fully paid for, the 56-year-old says,
“My retirement is locked in this flat. If I want to make money from it,
I will have to sell it and downgrade to a smaller BTO [built-to-order]
flat so I won’t be saddled with a big home loan”.
The two HDB owners are representative of many others staying in ageing
leasehold properties who became worried, following National Development
Minister Lawrence Wong’s blog post on March 24. It was intended to
caution buyers against paying high prices for older HDB flats on the
assumption that their flats would automatically be eligible for the
Selective En-bloc Redevelopment Scheme (SERS).
Marine Parade is the first HDB estate to be built on reclaimed land;
more than 7,000 HDB flats were completed in 1975
Wong wrote, “In fact, for the vast majority of HDB flats, the leases
will eventually run out, and the flats will be returned to HDB, which
will in turn have to surrender the land to the State.” He added, “As
the leases run down, especially towards the tail-end, the flat prices
will come down correspondingly.”
Wong subsequently tempered his point with an April 12 Facebook post
that said, “Leasehold properties are still a good store of asset value,
so long as you plan ahead and make prudent housing decisions.”
Nevertheless, homeowners like Lew have started mulling over their
options — whether to keep or sell their flat before the lease runs
lower. “It’s unpleasant to have this uncertainty,” she says. “I’m not
holding on to the hope for SERS, but I thought I could keep my flat
until I’m 70. Now, I’ve to recalibrate and figure out the best time to
sell and have enough cash for the next 20 years of my life.”
The main solution for owners of ageing leasehold private properties is
a collective sale, but the success rate is not high.
According to Tan Hong Boon, JLL regional director of capital markets,
over the past three years, five out of 25 collective sale sites put up
for tender were successfully sold, which translates into a success rate
Tan says, however, that the outlook for the collective sale market is
decidedly brighter this year, with the success rate likely to be higher
than 20%. “Those who didn’t succeed the first time around will attempt
a second or a third time.”
While owners of units in privatised Housing and Urban Development Corp
(HUDC) estates and private condos can decide whether they want to
embark on a collective sale, HDB flat owners do not have that option.
“This is unlike SERS, where the decision lies entirely with HDB,” says
Tan. “As an HDB dweller, you have no say in initiating a SERS.”
Who owns your
There is a fundamental difference between public housing and private,
and that is in the ownership title. Nicholas Mak, SLP International
executive director and head of research and consultancy, says: “In
public housing, the relationship between HDB and the dweller is as
lessor-lessee. It’s not like a private condominium, where upon
completion — Temporary Occupation Permit and Certificate of Statutory
Completion — the developer will transfer the strata titles over to the
For public housing, the property title remains with HDB, says Mak. A
group of HDB dwellers in three housing blocks discovered that the hard
way when they banded together to attempt a collective sale on their own
during the collective sale fever some 20 years ago. “That was when they
woke up to the reality that they didn’t actually own the land,” he
recounts. “As HDB dwellers, they own just the right to use that box in
This is unlike HUDC estates, which have been privatised, explains Mak.
“Once an HUDC estate is privatised, it is similar to the 99-year
leasehold private condos, as the owners will get their strata title.”
There are 18 HUDC estates, with a total of 7,731 units. These HUDC
flats, which come with a 99-year lease, were built in the 1970s and
1980s for the sandwiched class of that era — people who did not qualify
for HDB flats but could not make that leap into private housing. HUDC
estates are the predeces- sors of executive condos. When ECs were
introduced in 1995, the government moved to privatise the HUDC estates.
Braddell Heights, the largest of all the HUDC estates, has 918 flats
and two shops. It was the last of the HUDCs to be privatised, and that
was in March this year.
“HUDC unit owners are among the first to feel what it’s like living in
a private estate where the lease is running low,” says Mak.
Many HUDC estates therefore opted for the collective sale route as soon
as the privatisation exercise was completed. From 2006 to end-2016,
there were seven successful collective sales: Amberville, Minton Rise,
Waterfront View, Gillman Heights, Farrer Court, Shunfu Ville and
The latest is Rio Casa, a privatised HUDC estate with 286 apartments
and maisonette units that was put up for collective sale through a
tender process on April 10, with Knight Frank as the marketing agent.
Rio Casa is located on Hougang Avenue 7 and has a site area of 396,231
sq ft, with a plot ratio of 2.8 and maximum permissible gross floor
area (GFA) of more than 1.1 million sq ft. Ian Loh, Knight Frank
executive director and head of investment and capital markets, says the
site can be redeveloped into a private condo of about 1,000 units.
According to Loh, the sales committee had secured the requisite 80%
consensus among the home owners for the collective sale to take place.
“It is quite a feat,” he says. The owners of Rio Casa are expecting
about $450.8 million, or $586 psf per plot ratio (ppr). The price tag
excludes a differential premium of $141.5 million for intensification
of the site based on the maximum permissible GFA and lease top-up
premium of $57.5 million for a fresh 99-year lease. Rio Casa has 73
years remaining on its 99-year lease.
HUDC estate Rio Casa has been put up for collective sale at an
indicative price of $450.8 million, excluding differential premiums
Source: Knight Frank
Eunosville, a 330-unit privatised HUDC, was put up for sale by tender
on April 12, with OrangeTee.com as the marketing agent. The asking
price for the site is between $643 million and $653 million, or $780 to
$790 psf ppr. Developed in the late 1980s, it has a balance lease of
about 70 years.
The site has a land area of 376,713 sq ft and a gross plot ratio of
2.8. It can be redeveloped into a 1,035-unit private condo, assuming an
average unit size of 969 sq ft. The tender closes on May 31.
This is Eunosville’s second collective sale attempt. The first time was
in 2013, with JLL as the marketing agent.
HUDC estate Eunosville has been put up for collective sale for the
JLL’s Tan advises owners of private residential projects on leasehold
sites to be aware that, as the lease gets shorter, the differential
premium that developers have to pay gets higher. “This will eat into
their sale price,” he says.
For Rio Casa, if the differential premiums were included, the total
land cost would amount to $649.8 million, according to SLP Research
(see chart). SLP’s Mak points out that the differential premiums
account for about 30% of the total land cost for some of these HUDC
Mak attributes this to the Differential Premium system adopted by the
Singapore Land Authority (SLA), which values a fresh 99-year leasehold
property at 96% of a freehold property. When the remaining lease is 60
years, the differential premium is pegged at 80% of the freehold value.
Even when the remaining lease is 30 years, the value is 60% of that of
freehold property. The differential premium for topping up the lease is
therefore steep, says Mak.
Besides the lease running low, another concern for owners of leasehold
condos that are now 30 to 40 years old is that capital costs increase
as the buildings age. “The building themselves don’t last 99 years,”
Mak says. “The lifts may need to be replaced, the waterproofing or
water tank may also need to be fixed, or the swimming pool regrouted.”
Mak believes there are two solutions for ageing leasehold properties.
One is that SLA could allow homeowners to top up the lease if there is
100% consensus among them. “They can do this on a case-by-case basis,”
In May 2011, it was reported that the owners of the 164-unit The
Arcadia had failed in their attempt to get their lease topped up to a
fresh 99 years without going through a collective sale. This was
despite securing full consent among the owners, who were willing to
foot the bill had permission been granted. SLA will allow a lease to be
topped up only if there is intensification of land use, says Mak.
The other solution is that developers could choose not to top up the
lease, and therefore not have to pay the differential premium. This
will then bring down the total land cost, says Mak.
Most buyers want a fresh 99-year lease, however, as the main concern of
buying leasehold properties is the financing restrictions that kick in
when the lease is low. “Therein lies the conundrum,” says Mak.
According to OCBC, when it comes to financing of leasehold properties,
the requirement is for the property to have a remaining lease of 30
years on the maturity of the loan. “The quantum of loan to be granted
is dependent on the bank’s credit assessment, which includes assessment
of debt servicing capacity,” says a spokesman in an email response.
Banks will generally provide financing for the purchase of a leasehold
property if home buyers are able to tap their Central Provident Fund
contribution. CPF has several ways to calculate this, says Eugene
Huang, co-founder and director of Redbrick Mortgage Advisory.
The first formula is based on the sum of the age of the applicant and
the remaining lease on the property. The total must be equal to or
exceed 80 years, says Huang. For instance, if the buyer is 40 and the
remaining lease on the property is also 40 years, the total is 80
years. This means that the buyer is eligible to use his CPF
contribution for the purchase of the leasehold property.
If the buyer is only 30, however, and the remaining lease on the
property is 40 years, the total equals 70 years. In this case, the
buyer will not be eligible to use his CPF contribution towards the
purchase of the leasehold property. “This implies that young people
cannot use their CPF to buy old leasehold properties,” says Huang.
CPF also requires that a property have a remaining lease of at least 60
years. If the lease on a property is below 60 years, but more than 30
years, a valuation limit is set on the amount of CPF contribution that
can go towards the payment of the property.
In this scenario, the numerator in the ratio will be the remaining
lease on the property when the purchaser turns 55. Assuming the buyer
is 40 today and the remaining lease on the property he wants to buy is
also 40 years, when he turns 55, the remaining lease will be 25 years.
The denominator will be the remaining lease today, which is 40 years.
The ratio of 25 years/40 years is equivalent to 62.5%.
This means if the property purchase price is $1 million, the buyer can
withdraw from his CPF up to a limit of 62.5% of the value, that is,
$625,000, explains Huang. “And that percentage is the valuation limit.”
audience in resale’
As mortgage advisers, Huang and his colleagues naturally received a lot
of calls over the past two weeks. “Some of the calls came from those
sitting on old HDB flats, and others on old leasehold private condos,”
Huang is not spooked by the National Development Minister’s blog post.
He and his wife, Landy Lan, also a co-founder of Redbrick, purchased a
710 sq ft, two-bedroom unit at Chuan Park in Lorong Chuan.
The couple paid $850,000 for the condo unit in 2013, which Huang says,
on hindsight, was at the peak of the market.
Chuan Park is a 452-unit, 99-year leasehold property completed in 1985,
with a lease from 1980. Even though the property is already 32 years
old, Huang is not too worried.
The main reason for the purchase was that he and his wife wanted to
live near his parents, who reside in Yio Chu Kang. They also like the
location because it is within driving distance of the CBD, and the MRT
station is at their doorstep, he says.
“For private condos, the collective sale market is much bigger. So, the
possibility that a developer will come in to buy the project en bloc
for redevelopment is quite high,” says Huang. “The fact that the
property is leasehold and old obviously means the target audience in
the resale market is already limited, as they will face financing
‘A ticking time
According to the Department of Statistics, the home ownership rate
among Singapore resident households is 90.9%. Today, 80% of Singapore
residents live in HDB flats. Another 14.4% live in condos and
apartments, with 5.2% in houses or landed property.
Assuming just half the people in private housing are holding on to
99-year leasehold properties, that implies that 90% of the resident
population will be affected by a shortening lease at some point, says
SLP’s Mak. “What is going to happen in the future when more of these
99-year leasehold developments age?” he asks. “It’s a bit of a ticking
time bomb if the current situation continues.”
Owners of ageing 99-year leasehold condos and privatised HUDCs can
still exit via a collective sale, though. “They can generally expect a
premium of 30% to 60% over the existing value in a collective sale,”
says JLL’s Tan.
Owners of ageing HDB flats need not worry too much, though, says
mortgage adviser Huang. “You may not make money, but you will not be
sitting on a property with zero value,” he says. “After all, 80% of
Singaporeans’ wealth is tied up in their HDB flats.”
chapter previous next