The Investment Asset That Wasn’t

Big questions remain as to what will happen to Singapore’s HDB leases that are expiring soon.
Relatively short leaseholds of 40, 60, 70, 75, 99 and 120 years are not uncommon for property titles in Asia and across Europe. The majority of owners would of course want to maintain a certain control and give the next generation the option to decide on how they would like to use the land.
In Singapore, any leases longer than 7 years are required to be registered under the Land Titles Act to be legally valid and enforceable – a common practice among many countries.
What is interesting and often the proverbial “elephant in the room” is the fact that the term of lease which many are comfortable with has a lot to do with the mindset of the general population which assumes that the lease will last as long as the average lifespan. Many people who buy leasehold properties think that as long as the lease can outlast them, that’s probably ok, forgetting that by the time they have lived out substantial years of the lease, there might not be enough balance years in the property to outlive the next buyer. Hence, leading to price depreciation.
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In the case of Singapore, a property that has 60 years left will start feeling the effects of its age and receive less attention, hence a reduction in price.
The issue of expiring leases has cropped up in the last few years because short leasehold titles are mostly applied to apartment towers. Construction of high rises has become prevalent around the world mostly after the Second World War (post 1945). That’s a good 72 year ago and given that the most common leaseholds are between 7599 years, their time is running short indeed.
The truth is that when it comes to short leaseholds, owners should never be under the illusion that it is straight out ‘ownership’. The Housing & Development Board (HDB) has always consistently in their documentation refers to the occupiers as tenants and all occupants have to be registered as such – much akin to a rental.
If you were to think about it, paying say $500,000 for an apartment for 99 years is equivalent to paying about $451 per month to rent. By all means, that is a very reasonable amount. Even with a $400,000 loan spanning 30 years at an interest rate of 2.5%, that will only balloon the price to $668,980 which works out to an affordable $562 per month.
So at that attractive rental rate, why would anyone be thinking that such an arrangement is a problem that needs a solution?
The key lies in the fact that the Singapore government might have inadvertently represented to the population that such an arrangement is more akin to an investment asset instead of what it really is – a depreciating rental lease.
The Singapore Prime Minister, Mr Lee Hsien Loong, in his address at the gala dinner of HDB’s 50th anniversary stated and I quote, “The HDB flat is not just a shelter but also a key investment asset.” Again in the 2013 National Day Rally speech, PM Lee was quoted saying that “The HDB programme is not just about the roof over our heads. It is also a valuable nest egg.”
While that might have been a statement that seeks to pacify many who are worried about their retirement security.

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