Three years ago in March 2017, National Development Minister Lawrence Wong dropped a bombshell by warning Singaporeans not to assume that all old HDB flats will automatically be eligible for the Selective En bloc Redevelopment Scheme (Sers).
He said only about 4 per cent of HDB flats have been identified for Sers since it was launched in 1995. The En Bloc programme is offered only to HDB blocks located in sites with high redevelopment potential, he added.
He further warned that for the rest of the HDB flats, their leases will eventually run out and the flats returned to back to the government. “As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly,” he said. In other words, when the lease runs out, the value of a HDB flat will go to zero.
This was completely unexpected as for many years, the PAP government had promised Singaporeans that by voting for PAP, the value of their HDB flat can continue to increase and be protected. Take for example, one of Wong’s predecessor Mah Bow Tan, then the National Development Minister, told everyone just before GE 2011, “We’re proud of the asset enhancement policy. (It) has given almost all Singaporeans a home of their own… that grows in value over time.”
Falling resale prices of old HDB flats
When the announcement came out from Wong, many HDB owners were naturally unhappy. Resale prices began to fall especially for the older HDB flats. Many were forced to sell at a much lower price.
For example in 2018, it was reported that a Mdm Chai was one of those affected (‘Owner sells 3-room HDB for 15% less after Wong’s comment about zero-value of expired flats‘). She received several offers when she first listed her 3-room HDB flat at Bukit Merah in January 2017, after her mum passed away. She was asking for $340,000, comparable to the market price of 3-room flats in that area at the time. Her flat had only 54 years left on its lease.
After Wong let “the cat out of the bag” in March 2017, offers started to dry up for Mdm Chai. Buyers told her that they were having second thoughts about buying her old flat with only 54 years of lease left. She then lowered the asking price to $320,000 but there were still no takers. Finally, she managed to get rid of her old flat in February 2018 about a year later, at a much reduced price of $288,000 – some $52,000 less than her initial asking price of $340,000. The value of Mdm Chai’s flat dropped 15% in slightly more than a year, thanks to Wong’s announcement.
Wong tries to talk up the market
In May 2018, Wong tried to talk up the market in Parliament by saying the older HDB flats still have value in them (‘There is still value in older HDB flats: Lawrence Wong‘).
He said that owners of older HDB flats have become “overly anxious” about how much their flats can fetch in the resale market. He assured that the older flats still have value that can be unlocked for retirement.
At the time, he presented some data in Parliament saying that an older 4-room flat with a lease of less than 60 years would sell for around $300,000, and a 5-room, for around $400,000 in non-mature estates.
The owners can consider downgrading after selling their flats. He said the sales proceeds would be more than enough to buy a smaller flat, say, a two-room flexi flat with a 40-year lease that costs around $100,000, while a three-room resale flat is around $250,000 depending on location. There is also the Lease Buyback Scheme and HDB owners can rent out one of their bedrooms too.
However, even if one wants to sell his old HDB flat, there are restrictions for buyers on the use of CPF to buy flats with remaining lease less than 60 years.
Resale prices of old HDB flats drop further since Wong’s “market talk”
Slightly more than 2 years have passed since Wong trying to talk up the market for the older HDB flats in Parliament in May 2018.
A check on 4 and 5-room HDB flats with lease of less than 60 years in non-mature estates has shown that their resale prices have dropped further since that time. Following are current data taken from HDB resale website:
Choa Chu Kang (4-room):
Average transacted price over last 12 months: $291,000 (3% below $300K).
Choa Chu Kang (5-room):
Average transacted price over last 12 months: $379,000 (5.3% below $400K).
Average transacted price over last 12 months: $250,000 (16.7% below $300K).
Average transacted price over last 12 months: $318,000 (20.5% below $400K).
Average transacted price over last 12 months: $277,000 (7.7% below $300K).
Former PAP National Development Minister Mah Bow Tan must be glad that he doesn’t need to run for GE 2020 anymore, since he would be accused of spreading “falsehood” with regard to his remarks of HDB flat “grows in value over time”.