When en bloc fever distorts 'lease decay' principle of leasehold property

[reporter2]

EDITORIAL

When en bloc fever distorts 'lease decay' principle of leasehold property

Fri, May 18, 2018


A RECOVERY in private home prices after four years of decline is not necessarily a bad thing. But the pace of this ascent could pose challenges to policymakers.

This is complicated by an unexpectedly strong collective sale fever, amid which private home owners - even those who own 99-year leasehold properties - are enjoying huge windfalls.

In theory, the older a leasehold property gets, the less valuable it becomes, particularly when the remaining lease falls below 50 years due to the effect of accelerated depreciation at the tail end.

The decay in value of a lease was highlighted by National Development Minister Lawrence Wong in March last year when he said that not all HDB flats will be chosen for Sers.

He was cautioning against people buying old HDB flats in the hope that they will be chosen for the Selective En bloc Redevelopment Scheme (Sers), under which the government buys back these flats at the market rate and offers residents new units at another location at discounted prices.

The market has since taken cognisant of this warning and demand for older resale flats has cooled. All things being equal, the value of older leasehold private properties should also face similar downward price pressure.

Except they haven't.

On the contrary, their value has increased. Unlike Sers, which happens at the discretion of the government, owners of private homes have the option of selling collectively the land on which their homes sit. Notwithstanding a shortened remaining lease, owners selling en bloc have been able to extract higher prices from their homes as developers are able to intensify the use of land by packing in more - but smaller - units when they redevelop the sites.

As a result, the concept of decaying lease value has been turned on its head for many private properties.

Although only a fraction of these properties will be successfully sold en bloc, the potential for such windfalls has lifted the prices across the board.

This is one reason for the divergence in prices for public and private housing, as reflected by the continual fall in the HDB resale price index even as the Urban Redevelopment Authority price index staged a turnaround from its decline. This is not an issue if this is merely a short-term phenomenon. But it could become problematic if it persists. Singaporeans have a tendency to treat their flats as not just a home but also an investment.

Not all leasehold private properties can be sold collectively for a fat premium for various reasons, for example, those that are in a less-than-desirable location, or where land utilisation has already been maximised. These properties will feel the force of leasehold decay and their owners will do well to factor this in.

As for public housing, the issue of ageing HDB flats can be a dilemma for policymakers even though it is clear, in principle, that leasehold is subject to expiry. Amid calls by MPs for automatic lease extensions for older public flats, Mr Wong said in Parliament yesterday that the issue involves serious trade-offs and ramifications. Currently, about 70,000 HDB flats out of a total stock of around one million are over 40 years old. The oldest is around 50 years.

As Singapore is a young nation, the concept of an HDB flat losing all its value at the end of its lease and leaving the homeowner in the lurch has not been tested.

https://www.businesstimes.com.sg/opi...ehold-property

[thomastansb]

This is not a joke. Do not touch HDB with less than 60 years of lease. By the time you can sell your flat, other people will not be able to get a full loan anymore. Never ever go buy these kind of flats unless you are willing to die with it or you have too much money to spare. Imagine you want to sell your flat 20 years down the road. Who can afford to buy your flat? That person can only use limited CPF and he can't get much loan either. Instead of $1000 installment, he probably has to pay like $4500.

[Arcachon]

This is not a joke. Do not touch HDB with less than 60 years of lease. By the time you can sell your flat, other people will not be able to get a full loan anymore. Never ever go buy these kind of flats unless you are willing to die with it or you have too much money to spare. Imagine you want to sell your flat 20 years down the road. Who can afford to buy your flat? That person can only use limited CPF and he can't get much loan either. Instead of $1000 installment, he probably has to pay like $4500.

When people are afraid you must be strong.

[Gustave44]

True, the numbers have been going up like crazy!

RISE OF THE "EN BLOCKERS"

The EdgeProp 360+ event, “En bloc vs En block”, on the evening of July 5 drew a packed audience. It coincided with the announcement of a new round of property cooling measures that would come into effect the following day.
The measures would have the biggest impact on collective sale deals. It was clear that some owners were getting cold feet as one of the questions raised during the panel discussion was whether one could rescind the collective sale agreement in the light of the latest cooling measures.
According to Adrian Tan, TSMP Law Corp’s partner of dispute resolution, there is generally a five-day cooling-off period after signing the agreement to give the go-ahead for the collective sale. However, beyond the five-day period, if there is “a fundamental change in circumstances”, one could also rescind the contract, he says.

Source: https://www.edgeprop.sg/property-new...-‘en-blockers’