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Govt changes rules to make it easier for buyers to buy old flats with short depreciating lease

The government announced yesterday (9 May) changes to CPF (Central Provident Fund) and Housing Development Board (HDB) rules, which will enable buyers to use more of their CPF to buy the older flats with shorter lease. The changes, which apply to the purchase of HDB flats, private properties and executive condominiums, take effect today (10 May).

Under the current rules, the amount of CPF allowed to be used is dependent on the remaining lease of the property. For example, if there is a minimum of 60 years left in the lease, a buyer can use the maximum CPF allowed to buy the property. But if the property has less than 60 years left, he is eligible to use CPF if his age plus the remaining lease is at least 80 years.

With the changes, the total amount of CPF that can be used will depend on whether the remaining lease can cover the youngest buyer until age 95. If this criteria is met, a buyer can use CPF to pay for a property up to its valuation limit. If not, the use of CPF will be pro-rated.

The minimum number of years left in a property for which the CPF can be used has also being lowered from the current 30 years to 20, making the older flats more attractive to buyers.

For those looking to take an HDB housing loan, buyers will be eligible to take the full 90 per cent Loan-to-Value limit, if the remaining lease can cover the youngest buyer to the age of 95. This is even if the flat has less than 60 years left on its lease.

If the remaining lease cannot cover the buyer until age 95, they will be offered a loan on a pro-rated basis.

The government said that these changes will give buyers more flexibility when buying a home for life while safeguarding their retirement adequacy.

Good news for sellers?

After National Development Lawrence Wong let the cat out of the bag in a 2017 Facebook post that not all HDB flats will be eligible for the Selective En Bloc Redevelopment Scheme (SERS), the prices of older HDB flats sank. Essentially, Wong told everyone that when their HDB 99-year lease is up, the value of their flat will be zero and the flat will be returned back to HDB.

Many would-be sellers were stuck and had a hard time selling their old HDB flat. Many elderly who needed cash for their retirement could not also sell their old flat in order to downgrade to a smaller and cheaper one.

HDB owner Roger Seah wrote about his frustration on a property website last Oct, “I bought a 720 square feet 3-room resale HDB flat at Block XXX Lorong 2 Toa Payoh in 2011 at $250,000 to stay near my parents. The flat was built in 1972. As they have passed on and I married last year, I want to sell the flat to buy a bigger one.”

“I started marketing it this year January (2018) and I did not receive a single offer! I am only asking $300,000 at bank valuation. Can you help me market my flat on your website?” he asked.

Property consultant Timothy Quek replied, “I am sorry to hear about your predicament. I am only a guest contributor on this website and I am not allowed to solicit for clients or sell any properties here.”

“I can only advise you that based on my experience, your asking price of $300,000 is too high. The resale market has been spooked by recent publicity on the ‘lease decay’ issues and many buyers are avoiding buying old flats,” Mr Quek explained, echoing the general public sentiment after Wong let the cat out of the bag.

“I think you need to adjust your expectations and lower the asking price further in order to close the deal. You may like to consider adjusting the asking price to $250,000 first and then to $230,000 if there are still no offers. In today’s market, buyers are unlikely to pay market rates for HDB flats which are more than 40 years old.”

In any case, with regard to yesterday’s announcement from the government, industry watchers said the new rules could help make old properties attractive to buy.

Said CBRE head of research for Singapore and Southeast Asia Desmond Sim, “Existing owners of developments with 30 to 40 years left have effectively received a 10-year extension to their properties’ saleability.”

“Apart from unlocking additional value to older properties, this will also allay the fears of people owning ageing assets,” he added.

A person from ERA Realty also said, “As the remaining lease is now not the only metric used for determining the usage of CPF funds, older homes may now be a little more appealing than they used to be.”

The government’s announcement could boost demand for older homes, he said.

Meanwhile, many elderly who wanted to sell their old depreciating HDB flat in order to get cash are stuck, unless they are willing to sell it at a “fire sale” price.