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HDB flat buyers should be aware that they are “lessees, not owners”, says renowned real estate agent

Licensed real estate agent with International Property Advisor Pte Ltd and co-founder of HugProperty.com, Mr Ku Swee Yong, has recently advised Singaporeans to shed archaic notions and preconceptions regarding ownership of residential property in Singapore, particularly that of Housing and Development Board (HDB) flats.

He argued that it would be more beneficial for Singaporeans to "acknowledge that HDB flat buyers are lessees, not owners", and that it would be more apt and accurate to change the usual terms to describe HDB flats - that is, from “buy”, “sell” and “owner”, to “lease”, “transfer lease” and “tenant”.

To illustrate his point, he said that many Singaporeans tend to base their residential property investment on the perception that their HDB flat is "an asset whose value must appreciate”.

He argued that such a move is "not necessarily the wisest decision with a rapidly ageing population, where an increasing number of deaths of baby boomers will add significant supply of old resale flats to the market”.

He suggested that the perception is further bolstered by the government’s act of perpetuating "this narrative of home ownership, when in fact those who pay for a new HDB flat are lessees for its 99-year term” through “websites and official publications”.

Elaborating on the government’s move, Mr Ku said: 

When the issue arose for public discussion some months back, HDB explained that flat buyers are owners, not just tenants. This is why they are allowed major renovations to suit their own tastes. 

The other explanation is that rental rates don’t go up over 99 years, so the buyer is actually a owner, not just a lessee.

But in fact, a tenant can be allowed to renovate the premises extensively. I rented my office space and I renovated it to suit my tastes and my operational requirements.

As for the rental argument, if a tenant paid the full 99 years of rent upfront, in a lump sum, why should the monthly rents move up?

He added that anyone who has signed legal documents upon purchasing an HDB flat would be acquainted with the fact "that the contract is a Lessor (HDB) and Lessee (“buyer”) contract".

Mr Ku said that "this contract grants the tenant a right-of-use and peaceful enjoyment of the premises for 99 years from when the HDB flats are completed", in line with most leases, and that "the right-of-use and enjoyment is transferred, with its remaining lease tenure, to the next tenant" in the case of an HDB flat that has been placed under "resale".

What differentiates this lease from regular leases, he argues, is that "the HDB lessee is responsible for paying maintenance fees and property taxes".

Mr Ku added that it is not mandatory for landlords to "always foot the property tax and common area maintenance bills".

Touching on buyers' ability to obtain and commit to a mortgage for their HDB flats, he highlighted that "long-term leases may be pledged as security to banks, such as the 30-year leases of factories in Singapore."

He also cited another example using the case of former toy manufacturing and retail giant Toys 'R' Us in the United States, which "collapsed in a mountain of debt secured against their long-term rentals of retail malls", thus debunking the notion that a mortgage is solid proof of ownership.

Mr Ku added: "We should also question the concept of using HDB flats as a hedge against inflation if they are merely depreciating leases."

Citing the argument that Singapore is in dire shortage of land, he said that "this is a planning assumption that was valid during the days of rapid growth during nation building, but is becoming more irrelevant today."

He explained that "Singapore has expanded by more than 2 square kilometers per year for the last 59 years", and that "improvements in urban planning, and increasing plot ratios of HDB estates, and the release of massive new sites in future, will free up more land".

Citing the HDB Annual Report 2016/17, Mr Ku noted that existing HDB towns have the capacity to accommodate around 490,000 more residential units, with areas such as Bidadari, Tampines North and Tengah Forest Town undergoing development for the past three years.

He also predicted that after the year 2030, "Paya Lebar Airbase and the Greater Southern Waterfront at Pasir Panjang may add over 200,000 housing units". This prediction, he argues, can already be seen through "changes to the master plan made to the Aljunied neighbourhood" and the removal of "the flight path of Paya Lebar Airbase" which will increase the size of plots in Aljunied and Hougang.

While Mr Ku did not claim to advocate for increased numbers in Singapore's population, he posited that "increased land use density and the opening of new towns can significantly add to our housing stock". Referring to an article he wrote in 2016, he suggested that "the current stock of 1.3 million units can be added to, to house a bigger population of up to 10 million". 

He reiterated that "HDB flats will be returned to the government with zero residual value after being leased out for 99 years" before recycling the land for "more appropriate and higher density use in future", and thus Singaporeans should not hold on to any illusions about being HDB home owners.

"Only by discarding the deadweight of outdated ideas about home ownership and land shortage will we find progress," Mr Ku concluded.

Netizen's reactions to Mr Ku's opinions are mixed, with several of them expressing shock at the fact that HDB "owners" are in reality "lessees", while some stating their lack of surprise as it is a well-known fact that all land, not just leasehold land, is under the purview and ownership of the state: