For the past 1 year, the debate on the ageing leases of HDB flats has been raging on.
During the National Day Rally, some clarity has come into the debate as PM Lee confirmed that HDB flats will depreciate to zero at the end of the 99-year lease.
Doesn’t this apply to 99-year private properties as well?
Yes. For all 99-year leasehold properties, their value will eventually depreciate to zero.
But remember, there is the option of doing an en-bloc sale to a developer – perhaps at the 30-year to 40-year mark – for private properties.
This means there is at least some semblance of value being retained when private property owners sell their units off.
Negotiation of prices are possible with the developers. Collective sales have occurred enough times – it is a known event and people are aware of the process.
Let’s compare that to VERS (Voluntary Enbloc Redevelopment Scheme) which was announced during the 2018 National Day Rally.
VERS can be seen as the “en-bloc for HDB” – a potential exit solution for property owners who are holding on the 70-year old properties.
As the potential for SERS is very limited – less than 5% of HDB flats are selected – VERS becomes a potential option to cash out for owners of these 70 year old HDB flats.
It is similar to the private property enbloc sales process – VERS requires a vote as well.
But the similarities end there.
As it will only be implemented in 20 years’ time – we are not quite sure of the process.
If residents vote yes:
- There will be a cash payout. But how much?
- Will it be enough for retirement?
- Will it be enough for getting a new flat (perhaps a shorter lease one) ?
There are still a lot of unknowns for the VERS process.
There is also another matter to take note of – VERS will only be offered to 70-year old flats.
(While for a private en-bloc – residents have the choice of doing it much earlier if they want to.)
70 Year Old Flat = 29 Years Remaining Lease
There is a CPF ruling that states:
No CPF can be used if the remaining lease of a property is less than 30 years.
This means if someone wanted to purchase a 70-year old flat – he or she has to use cash.
This means that the likelihood of finding buyers for a 70-year old flat will be very limited – and thus VERS becomes the only exit solution available for HDB owners.
Your CPF Monies Are Parked In Your Property
Holding on to a depreciating HDB flat will directly impact your retirement. This is because a portion of your CPF monies are already parked in your first home – your HDB flat.
How will you plan for retirement then if your HDB flat is no longer in the picture?
This is a question you must think about thoroughly – especially when retirement planning should be done DECADES ahead of time.
Majority of Singaporeans will pay for their property using CPF.
Our CPF monies are already parked within our own home.
So the next question to ask yourself:
Is there a better place to park your CPF monies?
- You can choose to leave it within your CPF OA and earn 2.5% interest
- Or you can choose to park it in a property which has a “better store of value”
In the next decade, the fate of old HDB flats will be on the spotlight.
It becomes crucial that HDB owners start considering to upgrade to better assets that has a “better” store of value.
I invite you to contact me for a free no-obligation consultation.