A Personal Finance and Investment Arm of The Business Times


What happens when your HDB flat becomes 34 years old?

Earlier this year, the Government announced a new property cooling measure for HDB flats.

The link to the joint press release by the three Ministries – “Additional Measures to Ensure a Stable and Sustainable Property Market” is HERE.

HDB less than 60 years lease

The terms for granting HDB loans and the use of CPF funds for the purchase of HDB flats with remaining leases of less than 60 years - will be tightened  (details of this measure are in Annex IV).

Asset enhancement

As more HDB flats age from the time that they were built, those who have subscribed to the “asset enhancement” policy which arguably lead to the increase in HDB prices, may find it harder now to monetise their flats to retire - with this new cooling measure.

Implications for lower-income 

This may especially affect lower-income Singaporeans who purchased 2 and 3-room flats and may lack the financial ability and savvy to change to a second new Build-to-order (BTO) flat or  resale flat with a new or longer lease balance, in order to avoid the problems that may arise from this new cooling measure.

Now, with this new cooling measure, if your flat is not selected for the Selective En-bloc Re-development Scheme (SERS), it may become harder to sell - as flats age beyond 34 years.

With the Minimum Occupation Period (MOP) of five years, very few people may want to buy flats with a lease balance of 65 years (more than 34 years old).

Less CPF can be used

To illustrate this problem, for example, if a 30 year-old couple buys a flat with a lease balance of 59 years, their prorated Valuation Limit (for the use of CPF), will be only 58 instead of 100 per cent of the valuation at the time of purchase.

The 58 per cent is calculated (34 divided by 59 years) “based on the ratio of the remaining lease when the youngest buyer who can use CPF turns 55 years old, to the lease at point of purchase”

This means that they will no longer be able to use their CPF to pay once the use of CPF hits 58 per cent of the valuation. From this point onwards, only cash can be used to pay for the mortgage.

Can’t use CPF

For flats with a lease balance of less than 30 years, use of CPF is not allowed at all.

HDB loan restrictions

There are also restrictions on getting a HDB loan – “Lease balance  of 30 – 59 years – “Allowed, if remaining lease can cover the buyer* to the age of at least 80. Loan tenure will be the shortest of: 30 years; 65 years minus average age of buyers; and balance lease at the point of purchase minus 20 years.”

Lease balance of 20 – 29 years – “Allowed, if remaining lease can cover the buyer* up to the age of at least 80. Loan tenure will be the shortest of: 30 years; 65 minus average age of buyers; and balance lease at the point of purchase minus 20 years.”

Lease balance of less than 20 years – “No HDB housing loan.”

Over 40 years’ old flats

S0, in view of the economic implications of this cooling measure, this policy change in my view may be reviewed in the future - when the HDB market has stabilised - as it may make less sense to cool the property market for this segment of very old HDB flats, which as I understand it may form a small proportion of the total number of HDB flats now.

How many such transactions?

By the way, how many ‘over 40 years old’ flats’ transactions are there in a year?

Higher MSR for HDB loans?

If there is a need to cool the public housing market further in the future, we could also reduce the Mortgage Servicing Ratio (MSR) for HDB loans from 35 to 30 per cent, to be the same as private property and HDB bank loans.

Robin Han
Leong Sze Hian

Dr Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, has authored 4 books, quoted over 1500 times in the media , has been host of a money radio show, a daily newspaper column, Wharton Fellow, SEACeM Fellow, acting managing editor and columnist for theonlinecitizen, columnist for Malaysiakini, a Member on the CIFA International Advisory Board, executive  producer of the movie Ilo Ilo (8 international awards), treasurer of Maruah, and invited to speak more than 100 times in more than 25 countries on 5 continents. He has served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.