The value of HDB resale flats is likely to decrease over time near the end of their lease and buyers are less willing to pay for an aging flat, according to a report published today by Swiss bank Credit Suisse.
“We believe it will likely take some time for residents to understand the evolving narrative on the nature of HDB flats — from one where HDB flats are a good store of value and attractive investment class that will continue to appreciate, towards one where we are likely to see a steady diminution in value as we approach the end of the 99 year lease, following which the flats will revert to the government,” said Credit Suisse research analysts Louis Chua and Nicholas Teh, who penned the report.
File photo: HDB flats in Singapore
As a result of the shift in thinking, more Singaporeans who are able to afford private properties will turn to them as a better store of value which will leading to a widening price gap between HDB flats and private apartments over time.
According to a report published in the Straits Times in April 2017, a 43-year-old five-room resale flat in a mature estate with 56 years left on the lease and bought at a price of $860,000, may only be worth less than $100,000 at the 10-year mark before the lease expired.
“As the nature of the 99-year HDB lease is increasingly better understood, we believe potential resale flat buyers would likely demand a greater discount to prevailing market prices, given the heightened risk of the flats having zero residual value at the end of its lease life,” the report said.
In contrast, owners of private properties can sell their land en bloc to private developers while HDB flat lessees are not allowed to do so as they do not own the land on which their flats are built which ultimately belonged to HDB.
The report argued that this means leasehold private residential properties would retain greater value as their leases depreciate, as compared to HDB flats.
The analysts also commented that the proposed Voluntary Early Redevelopment Scheme (Vers) is “not a panacea” to the public housing lease decay issue:
“Rather than a panacea however, we believe the announcement… will bring about a paradigm shift in our understanding of the nature of HDB flats, where lease decay is a real and pertinent issue,” the report said.
It noted the absence of “critical details” of the proposed scheme, particularly relating to compensation.
More than 80 percent of Singaporeans live in HDB flats under a lease agreement signed with HDB which is the superior landlord and retains ownership over both the land and the flats.