Daily Archives: 2017-03-26

Lack of fair treatment of HDB lease expiry

By Chris Kuan

Back to Lawrence Wong’s mumble about not to assume all HDB flats are eligible for SERS. The trouble with HDB leases is not that they are 99 year leases – after all lots of property around the world especially in urban areas are leasehold. The real trouble is fair treatment of lease expiry.

In the UK, leases are renewed at 3-5% of assessed value, hence property hold their values close to expiry. In China, they are renewed without charge.

In Singapore, the legal assumption which the government did nothing to dispel and in roundabout ways encourage, is that HDB leases expire worthless.

Okay, nobody would really want to renew a lease on 99 year old HDB flat but there should be compensation in lieu of renewal. 99 year private leasehold can have their leases extended or renewed by a topping up fee but the fee charged by the Singapore Land Authority is so prohibitive that it can only make sense in enbloc sales in a rising market.

Needless to say the assumption that HDB leases expire at zero is a significant factor in resale value of older HDB flats and by extension, has huge implications on funds available for retirement and healthcare since given the depletion of one’s Central Provident Fund to pay for his or her HDB flat, the government encourages the monetization of HDB for these purposes.

It is worthwhile to reiterate if leases can be renewed for a 3-5% fee like in the UK, by implication there should be a compensation if the government takes back the flat at end of lease. Then resale values of older HDB flat will adjust upwards which then generate larger funds from the monetization of HDB flats, e.g. through Lease Buyback Scheme.

Anyway Mr Wong’s mumble is a reminder that Asset Enhancement is a windfall for just one generation. Unless, of course, we get a ten million population from which we get $1m for a 4-room-HDB flat for the next generation. and then what?

Obviously, this does not apply to the rich who own freehold property.

Editor’s note: One would want to look at Hong Kong’s stance on lease for a direct comparison on how lease could be managed.

Hong Kong Legislative Councillor Tanya Chan had filed a question about the Hong Kong government’s stance on the leases in which will expire in 2047 in November 2016.

In response to her queries, Secretary for Development, Mr Paul Chan replied that that according to the policy statement promulgated by the HKSAR Government in July 1997, leases not containing a right of renewal (excluding short term tenancies and special purpose leases) may, upon expiry and at the sole discretion of the HKSAR Government, be extended for a term of 50 years without payment of an additional premium.

He noted that the extended leases are subject to a payment of an annual rent at 3 per cent ratable value of the property, the annual rent will be adjusted in step with any changes in the ratable value thereafter.

Under the Government Leases Ordinance (Cap. 40) enacted in 1973, all renewable land leases in Hong Kong are required to pay a re-assessed annual rent equivalent to 3% of rateable value of the land concerned upon renewal.

This policy has implications for the land lease extension and renewal in the coming years. It meant that property were not valued at zero value at the end of their term of lease as compared to the current HDB policy on expiring leases.