Leasehold apartment tenures are very popular in Singapore but some people worry about their apartment losing value as the years go by. Properties that come with a 99-year leasehold tend to depreciate towards the end of the lease.
Authorities have come forward with a statement that aims to clarify the situation. According to Finance Minister Heng Swee Keat, HDB apartments will retain their value even when the owner becomes older.
HDB Flats Owned by Seniors Still Have Value
In a statement published on the official Singapore Government website, Minister Heng provided an example aimed at illustrating the manner in which the value of leasehold flats changes through the decades.
If a person buys a new 99-year leasehold HDB apartment when they’re 25, the flat will still have about 30 years on the lease by the time the owner turns 85. The age is chosen as it is the current life expectancy in Singapore.
There is still a lot of value in the flat that still has 30 years on the lease at that moment, Minister Heng concluded during an annual real estate conference.
In addition, Minister Heng responded to questions about HDB apartment dwellers being more of renters than owners. There is some speculation that leasehold arrangements do not give owners the same rights as in the case of a private property sale. Minister Heng negated these claims, saying it’s about time for the misguided beliefs to end their existence.
Previously, National Development Minister Lawrence Wong tried to shed some light on the same issue.
According to Wong, many private properties also come with a 99-year leasehold period. In the case of such apartments, however, nobody is making the claim that the owners are lacking the rights and responsibilities that come with flat ownership in Singapore.
HDB lessees have all the rights over the flat that private property owners have, Wong said. The property is great for a home, it can be transacted or left to one’s children. According to Minister Wong, HDB flat owners actually additional privileges stemming from the fact that various government programmes and funding options exist.
Ownership rights are intact over the entire lease period and the rights of the HDB flat lessees are protected by law.
How Do HDB Flats Depreciate?
The example mentioned above is based on the assumption that a person aged 25 is capable of buying a brand new apartment. If the HDB flat isn’t brand new when the leasehold arrangement comes into effect, the depreciation is going to occur more rapidly.
It has also become clear that flats coming to the end of their 99-year leasehold will be returned to the government without a compensation for the owner. This is one of the reasons why many people in Singapore worry about older leaseholds and how these are going to be handled in the future.
It’s up to the individual owner to determine what their strategy is going to be in terms of keeping an HDB flat, passing it on to kids or selling it with a certain number of years left on the lease.
In addition, the lease terms and conditions are not the only factor that will affect the price of the apartment and whether it’s going to appreciate or depreciate.
Location is one of the primary elements to consider. Attractive locations can retain the value of older properties for a much longer period of time than town and developments that are not deemed to be the most prominent at the time being.
The size of the apartment, the way in which it has been maintained and the upgrades carried out by the owner can also contribute to asset appreciation. Thus, anyone interested in selling a leasehold HDB flat will have to be strategic about living in the place and renovating it to accomplish a bit of modernisation.
Attempting to sell an HDB flat that has less than 30 years on the lease can be difficult, especially if you want to get a certain higher amount for it. The theory mentioned by government officials is easy to understand and it makes sense. Still, you need to have a good idea about how you’re going to handle real estate assets way before they reach the age that will change significantly the status of the property.
It’s also a good idea to keep track of market dynamics if you’re interested in selling leasehold HDB property and making a profit.
According to a Channel News Asia report, HDB flats that are 30 years or older depreciate less than private non-landed housing.
A study carried out by the National University of Singapore also suggests that a major difference in the price of freehold and leasehold properties appear only after 10 years. There are several other factors that contribute to depreciation rates. These factors include building age, property tenure and size.
To study depreciation, researchers used resale figures for both property types in the period from 1997 to 2017. Control measures for factors unrelated to the age of the property were also accounted for. The researchers reached a conclusion that depreciation rates for all studied property types were similar within the first 10 years. After that, HDB flats depreciated one per cent faster than private non-landed housing.
When the apartments reached an age of 21 years, the depreciation rate for HDB flats was set at three per cent. For private properties, the depreciation reached 10 per cent.
As you can see, the accounts and data reports can be confusing. Numerous factors are examined and all of these, including the condition of the Singaporean economy at the respective moment, can impact apartment prices and depreciation.
If you are interested in selling an older flat, you will need to do a thorough assessment of the factors you can control and modify to increase its value.
Consulting professionals will give you a better idea about the types of investment that make sense and that can give you a good return.
Home Guide has extensive residential real estate renovation and interior design experience. Contact us today to learn more about the HDB property renovation and maintenance guidelines, as well as about the additional strategies you can rely on to modernise your flat and sell it at a better price.