Lower flat prices by shortening leases?

Idea for flats with shorter leases may not fly

Experts cite current financing plans as one main stumbling block

By Jermyn Chow, The Straits Times, 2 Mar 2012

A MEMBER of Parliament has proposed that the Government sell new flats with shorter leases, as that would mean cheaper flats which would be a boon for young couples.

But property experts The Straits Times spoke to said the proposal is unlikely to fly for now because it would mean overhauling the current housing policy as well as existing financing plans available to homebuyers.

The proposal was mooted by Mr Gan Thiam Poh, MP for Pasir Ris-Punggol GRC, in Parliament on Tuesday.

He urged the Government to consider building more affordable two- and three-room units with shorter leases, such as 30 or 60 years.

Rising property prices have caused many couples and upgrading families to worry about buying a home. With shorter leases, couples can better control their costs, he said.

Elaborating on this yesterday, he said: 'It is about giving them the option and leeway to spread the financial burden and defer the paying of higher prices until they earn more money.'

New HDB flats have 99-year leases. Older flats in the resale market, however, have between about 60 and 80 years left on their leases.

Mr Nicholas Mak, head of research and consultancy at SLP International, estimated that the price of a four-room Build-to-Order flat in Punggol with a 99-year lease will fall from $300,000 to $230,000 if its lease is shortened to 60 years - or down by about 20 per cent.

On a 30-year lease, the same flat will cost $140,000, about half the original price.

He said that while the proposal may look good on paper, implementing it will be an administrative nightmare.

'Shorter HDB leases will run up against the brickwall of current financing options offered by CPF and banks,' he added.

He noted too that 'most of us want to sell our property at a profit... with shorter leases, it will not be profitable, and may even be a loss'.

Ms Deon Tan, director of brokerage firm Providence Capital Advisors, said that banks may not be as willing to offer long-term loans for flats with shorter leases. Even if they do, some might place more restrictions like offering lower loan quantums and requiring borrowers to pay back the loan in a shorter time.

Mr Lee Sze Teck, senior manager of DWG Research and Consultancy, said Singaporeans may not yet be ready to accept homes with short leases, like those in Hong Kong and China.

While such flats may be cheaper, in the long run, it may make it harder for those who outlive the leases to buy new flats. 'The aim is ultimately to help everyone to own a roof over their head. Shorter leases cannot solve long-term housing needs,' he said.

National Development Minister Khaw Boon Wan had said in a reply to Parliament in January that cutting short the lease of new flats to bring prices down may not be suitable for the needs of young couples.

Young married couples, who form the vast majority of new HDB flat buyers, need their first flats to help them upgrade to larger homes or private properties when their families grow, he said.

If their flats have shorter leases, these couples may have limited prospects of using their flats to buy studio apartments when they retire, he added.

Young couples interviewed were generally lukewarm about the proposal too.

Marketing assistant Cynthia Chia, 23, who has two children, noted that longer flat leases fetch a higher premium.

She and her husband recently bought a Build-to-Order four-room flat in Sengkang for $320,000. She hopes to make at least a 10 per cent profit if they sell it.

'I may pay less for a flat with shorter lease, but I don't want to be stuck with the property which will not be worth much 10 or 20 years down the road,' she said.

Lower flat prices by shortening leases: MPs

By Daryl Chin, The Straits Times, 29 Feb 2012

HDB flats should be sold on shorter leases to make them more affordable for young people and those on lower incomes, MPs said at yesterday's Budget debate.

Rising property prices have struck panic in the hearts of many couples and upgrading families, said Mr Gan Thiam Poh (Pasir Ris-Punggol GRC).

He added that he has noticed a 'worrying' trend in which younger people tried to buy the largest flat they could afford.

Mr Gan urged the Government to consider building more affordable two- and three-room units with shorter leases, such as 30 or 60 years. Most HDB flats are sold on a 99-year lease.

'Such options will enable them to better manage and control costs for themselves,' he said.

Mr Zainudin Nordin (Bishan-Toa Payoh GRC) also called for changes to help low-income people find housing. For example, flats could be sold on shorter leases for those with limited financial resources.

'If we make enough effort, I am confident we can think of a scheme to reduce the start-up burden on low-income families and young families, and they can be assured of a roof over their heads at a reasonable price,' he said.

MPs also called for a more flexible approach to schemes which allow the elderly to unlock the value of their homes.

Taking the podium, Mrs Lina Chiam, a Non-Constituency MP, said the recently announced Silver Housing Bonus, in which eligible elderly people are given $20,000 to downgrade to a smaller flat, was 'both impractical and unsuitable from a financial perspective'.

She said this is because a large portion of the sales proceeds would go into Central Provident Fund accounts, which might mean those in urgent need would not have access to funds outright.

Mr Hri Kumar Nair (Bishan-Toa Payoh GRC) called for greater flexibility in the Lease Buyback Scheme.

This involves the HDB buying the tail-end of an elderly person's lease. In return, the owner is supposed to receive $15,000 upfront and monthly payments for life.

Mr Nair said the scheme was not popular as it applied only to those living in three-room flats or smaller, and the monthly payouts were too paltry. Only 446 people have signed up for it since its launch in 2009.

Another problem, said the MP, was that payments are based on the present day value of the flat as determined by the HDB. This means the owner does not benefit if property prices rise. 'He in fact suffers inflation,' added Mr Nair.

He urged the Government to come up with ways to be more flexible. For example, elderly homeowners could be allowed higher cash payouts to deal with immediate needs, such as the cost of an operation or daily expenses.

Mr Zaqy Mohamad (Chua Chu Kang GRC) called for older owners of larger HDB flats to be included in the scheme.