For many Singaporeans who wish to acquire a home without burning holes in their pockets, buying an HDB flat is the most practical answer. Known for low-cost housing units that are livable yet affordable, the HDB is indeed God’s gift to the land-scarce country Singapore. However, not everything about HDB is wonderfully great. One particular loophole on HDB’s housing is the ever dreaded 99-year time bomb.
About 82% of Singaporeans live in HDB flats. Compare to private properties, HDB flats are more reasonably priced and financially flexible. Although they are not as grandiose as private condos nor enormously huge like landed properties, an HDB flat is enough to cater the housing needs of many Singaporeans. Though, one major drawback is that all HDB flats are offered in a leasehold status. They are bounded with the dreaded 99-year lease. So, what happens after 99 year lease ends? This is where the ultimate problem really begins.
The Housing and Development Board or HDB was created in 1960. Replacing the Singapore Improvement Trust, the main responsibility of this new regulatory board is to clear out thousands of Singaporeans, that on that time living in slums. HDB first started out the Home Ownership for the People Scheme to help people buy their flats instead of renting them out.
From then on, HDB grew its options from offering studio flats, bedroom apartments, Build-to-Order (BTO) units and Design, Build and Sell Scheme (DBSS) homes that are comparable to private condominiums.
Different Lease Periods in Singapore
Unlike most Asian countries where majority of land is owned for an indefinite period of time, land ownership in Singapore is a bit different. Most housing estates on this country are either sold on a freehold or leasehold status, with the later making up the huge bulk.
Freehold – means you own the land indefinitely and you can pass it on to future generations without restrictions. Most landed properties are often sold on a freehold status. Though, better be warned that NOT all private housings are sold on this status.
Leasehold – majority of government subsidized housing in Singapore are sold on a leasehold status. This means you only own the land for a certain period of time. You can pass it on to your family as long as there is a remaining lease on the property.
Most Common Lease Periods
- 30-year lease – HDB studio apartments
- 60-year lease – private housings
- 99-year lease – ECs, private housings, and all HDB flats
- 103-year lease – private housings
- 999-year lease – private housings
- Freehold – private housings
Buying a property with 999-year lease is almost synonymous to acquiring a land with freehold status. On the other hand, newer housing estates with 60-year lease are now entering market but they are not widely available yet.
When it comes to HDB flats, only studio apartments come with a 30-year lease period since they are meant for elderly residents. All flats, regardless of its type are sold in a 99 year lease HDB. So the big question is, what happens after 99 year lease ends? Will the government compensate you? What will happen to your HDB flat?
The 99-year Lease Time Bomb
Upon expiry of the 99-year lease, the HDB flat will be returned to the landowner, which is HDB. Then HDB will in turn surrender the land to the State. There is a common notion that the government is obliged to pay compensation when the 99 year lease HDB ends, but this isn’t true. To further hit up the mark, the value of your HDB flat at the end of the lease is theoretically zero.
Technically speaking, no HDB development as of the moment have reached the end of its 99-year lease. Why? Because HDB was only created during the 1960s. Additionally, the government always intervened before the end of the lease happens via SERS or Selective En-Bloc Redevelopment Scheme.
What is SERS?
The Selective En-Bloc Redevelopment Scheme or SERS is an urban redevelopment strategy employed by HDB. Launched in 1995, the main goal of SERS is to maintain and upgrade public housing flats in older estates. The old housing project undergoes demolition and redevelopment to optimize land use.
Affected residents displaced by the redevelopment works are compensated based on the value of the flat. Equally, they receive rehousing benefits such as:
- Guaranteed availability of flat at the planned replacement site.
- Subsidized price for the replacement flat with discounts up to 40%.
- Privilege to select their units prior to public release.
- Financial compensation based from the flat’s market valuation.
Is SERS the answer for 99 year lease HDBs?
As of time of writing, 79 SERS sites have been announced with 72 projects being completed. SERS is often rolled out when the flat reaches its 40th year into its 99-year lease. So if your flat has 60 years HDB remaining lease, it can be subjected to SERS redevelopment. But this isn’t always the case. In order to prevent speculations, the locations targeted for SERS are not disclosed until final notice. Meaning SERS may or may NOT happen.
This is the main reason why it is very tricky to buy an old HDB flat with 59 years or less remaining lease. Additionally, you can’t buy a flat with 59 years HDB remaining lease thinking that SERS will absolutely push through. SERS often happen but it is NOT a guarantee, and the government doesn’t have any obligation to use SERS.
Another aspect that makes SERS seems to be the ultimate answer to the 99-year lease time bomb is the financial compensation. When your flat has been chosen for SERS, a professional private valuer will visit your home to assess its market value. HDB will then pay you the appropriate compensation based from the current value of your flat. You could then use the money to purchase a new property or replacement flat.
However, there is no guarantee that the compensation you will receive is adequate enough to pay for a new property given the very volatile situation of the real estate market. Especially for HDB flat owners with low property valuation, settling for the subsidized home is the only option to go.
Important Things to Consider
- There is NO guarantee that the government will put your HDB flat on SERS.
- There is NO guarantee that the money you will receive is enough to buy a new home.
- Buying an HDB flat with 59-year lease remaining is a like double edged sword.
- Location is definitely important; it holds more value than the lease period.
- Lease extension is indeed possible, but it is not definitive.
So what happens after 99 year lease? We don’t exactly know so far, but it is quite simple to understand. The land is rented and once your HDB lease is up, it has to be returned to the rightful owner which is the government.
Clearly, the issue of “what happens after 99 year lease ends” is pretty vague because there hasn’t been any HDB property seized up by the government as of time of writing. We’ll have to wait until the first 99-year time bomb explodes, until then the question of many HDB owners will still remain enigmatic.
For now, what we can do is to avoid buying old HDB flats especially those with less than 60-year lease remaining. Last but not the least, saving up for the future is our biggest defense against retirement and financial challenges.