Monday, October 31, 2016

My Exit Strategy on Singapore Real Estates: 99 years leasehold & 99 years lease


There are different types of real estate in Singapore, namely, freehold, 999 years leasehold, 99 years leasehold and 99 years lease.

Freehold is clear. You own it forever.

999 years leasehold, as the figure had indicated, it is yours for 999 years, that’s like 10 generations?

All right, let’s talk about the exit strategy on 99 years leasehold private property and the 99 years lease HDB. It is made clear by the government that once your 99 years lease is expired, we have to return our unit to the state and our property value will be ZERO value. We have to be mindful about this. So, what should we do?

Personally, this is what I will teach my children to do.
 
In the event the property reaches 50 years old, it is time to market to sell off the properties.
 
Unlike Malaysia, we were informed that we might be paying a small sum to extend the lease once the lease is expired. In my hometown at Sibu, Sarawak, almost all the properties are 60 years lease and we will see how all these leases are extended when time dues. It is near impossible that all houses will be returned back to the state while the 60 years lease is expired. I do not think so.

 
Anyway, back to Singapore. Singapore history is young too. There are no projects reaching the expiry of 99 years lease just yet but it will come one day for sure.

I like to give the example of Lakepoint condominium (99 years leasehold) at Lakeside. Even though it is a 35 years old condo, but it is still fetching a rocket high price today. The 4 bedrooms units at 12th floor (highest floor) are still transacted at S$1,600,000 level at today market while the price of the units in year 2006 was a mere S$530,000. I was the tenant by then in year 2006.

The interesting question is, what would be the market price when Lakepoint condominium reaches 50 years old, 70 years old, etc. I am pretty sure the price would still hold or increase by the time it reaches 50 years. But I would be concerned when it reaches 70 years old as the property value shall start to drop by then, not to mention, when the 99 years leasehold is up, it will become S$0 value. But , this condo is in good position for en-bloc. It has huge compounds and less units, I am pretty sure the condo will be demolished for a good buck before it really goes all the way to 99 years! That is my bet. Hence, the location plays an important role too.

So, a fact check myself, my HDB is 16 years old and the private property is 5 years old.

I would strategize to sell off my HDB unit 35 years later, by then I would be age 71.

I also will plan to sell off the private property 45 years later, by then, I would be age 81.

Both properties would still have 50 years on lease by then. Both units located at strategic locations at Jurong East and Clementi. I would seriously think there is still an upside of 150% to 200% at least by the time both units reached the 50% of the lease. Why? It is because it would be a mature second CBD area in Singapore and the bullet train station at Jurong East shall be a busy hub too after 40 years!

That does not mean you definitely MUST buy freehold or 999 years leasehold. Location still counts after all. So, that is my exit strategy on 99 years leasehold and 99 years lease. What is yours?

Below are the information taken from parliamentary debates official report dated on 20 January 2014.

Value of HDB Flats on 99-Year Leases and Flats Undergoing Redevelopment under the SERS Programme

Mr Gerald Giam Yean Song asked the Minister for National Development (a) how many HDB blocks are more than 40 years into their 99-year lease; (b) what will be the value of an HDB flat once it reaches the end of its 99-year lease; (c) what is the average number of flats undergoing redevelopment under the Selective En Bloc Redevelopment Scheme (SERS) each year for the past 10 years; and (d) whether the pace of SERS is fast enough to redevelop all HDB blocks before they reach the end of their lease.
Mr Khaw Boon Wan : The Selective En bloc Redevelopment Scheme (SERS) is part of the Government’s estate renewal strategy for older estates. It allows intensification of land use and revitalises such estates through new developments. At the same time, it offers an opportunity for flat owners to buy a new replacement flat with a fresh 99 year lease.

In the last 10 years, SERS has benefited the owners of about 18,000 flats. As the name suggests, the identification of suitable precincts for SERS is selective. The selection of sites and pace of SERS will depend on factors such as their redevelopment potential, and the availability of replacement sites for rehousing and other resources.

Currently, there are about 300 HDB blocks with 31,000 flats which are more than 40 years into their 99-year flat leases.
Like all leasehold properties, HDB flats will revert to HDB, the landowner, upon expiry of their leases. HDB will in turn surrender the land to the State. 

2 comments:

  1. most banks will not give out loans for property with less than 60 years left on the lease. So your 50 year old properties will have to be sold off cheaply (relative to the prevailing market) in order for buyers to afford. For HDB, the buyer must be only 30 year old and not any older in order to buy a 50 year old flat. so you have very small pool of buyer

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    Replies
    1. It highly depend on which project and location.

      I only able to give example that I know , I am sure there are many good example out there .

      Take lakepoint condo at Lakeside as an example .

      The 12th floor penthouse unit was sold in year 2005 for S$530,000 and it was also sold recently at S$1.6 million . How old is the property ? It was completed in year 1983 . With the real age of the land calculated , the property is now at age 37 , I don't believe the price will come down significantly 13 years later when the property is at age 50 . But again , I have to emphasise the location is the utmost important criteria now . Most likely , the lake point condo will be en-bloc .

      Even if it does not , I am sure the price shall hold at age 50 , we will see .

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