SERS rehousing options: Shorter lease for replacement flats benefits elderly residents, say analysts

DOWNSIDES OF A SHORTER LEASE

There are, however, challenges that come with a 50-year lease should home owners decide to sell their replacement flat on the resale market. 

“There may be limited options for home owners who choose the 50-year lease, especially if they change their minds and wish to offload the unit later. There may not be many buyers who are willing to pay a high resale price for flats with shorter leases, although the flat condition is still new,” said Ms Sun. 

Echoing that view, Mr Lee said: “Residents who opt for a 50-year lease may find themselves in a bind when they want to cash out in the future. They may not be able to opt for lease buyback as there may not be extra years to sell to HDB. In the open market, the pool of buyers is limited as the usage of CPF monies is restricted and that affects the resale value.”

He also pointed out that the price of a 50-year lease flat is not half the value of a 99-year lease flat.

“It is not a straight line basis to value the remaining lease term. Generally we will start to see a steeper decline in HDB flat’s value when the lease remaining hits 35 years. The drop is greater once there is less than 30 years lease left,” he added.

However, PropNex’s head of research and content Wong Siew Ying said the flats could fetch a good price if they are sold after the five-year minimum occupation period.

“Should the owner decide to sell the replacement flat right after the five-year minimum occupation period is met, we think the replacement flat – which has a lease balance of 45 years at that time but is basically just five years old – could still be more attractive than some of the much older resale flats in the area,” she said. 

“Its newness will be appealing to some buyers who may not mind the shorter lease.”

The advice from analysts is for those with the financial means to consider replacement flats with a 99-year lease. 

“Younger and middle-aged home owners who are eligible to apply for a home loan to finance the home purchase may consider this option (99 years),” said Ms Sun.

“Since they bought the flats directly from HDB at generous, subsidised rates, they can make a profit in the future, as the resale values will likely be higher than the purchase price. These home owners can sell the unit and upgrade to another property later.”

Those who wish to pass on the flats to their children should also opt for the 99-year lease flats, said Mr Lee.

Home owners and their spouses need to be at least 45 years old at the point of the SERS announcement to be eligible for the option of a 50-year lease on their replacement flat.

This is because HDB requires the 50-year-lease flat to be able to last them until at least age 95.