Why not 66-year HDB leases?

Introducing some flats with shorter lease periods would make them more affordable

The Ministry of National Development’s decision earlier in the year to raise the supply of HDB flats is a step in the right direction.

The move to raise the income ceiling for buyers from S$8,000 to S$10,000 for Build-To-Order flats and from S$10,000 to S$12,000 for executive condominiums is another welcome response from the Government.

The Housing Board is expected to put on offer 25,000 new flats this year and another 25,000 next year to meet pent-up demand for public housing. While the promise of higher supply is said to have slowed down the pace of price rises in the residential property market, prices are still on the high side and public housing needs to be made still more affordable.

At present new flats are sold on a 99-year lease, good for more than three generations. What the Government does after that is anybody’s guess, although in the case of HUDC property, the Government has topped up the leases of flats in estates that have gone private for a fee. Perhaps they will do the same with HDB flats.

But do all leases have to be that long? Perhaps the Government should look at providing flats with shorter leases to make them more affordable.

After all in China, leases on residential property are for 70 years.

In Hong Kong, nobody really knows what is going to happen when the Chinese government’s commitment to let the former British colony remain autonomous ends. While new leases are normally for 50 years and may be renewed, what the Chinese government will do after 2047 is anybody’s guess – yet the buying goes on despite the deadline being just 36 years away.

Although most financial institutions here rarely provide loans on properties with less than 70 years left on their leases, there is nothing in the books to prevent them from giving loans for properties with shorter shelf lives.

In fact according to a financier some financial institutions here do give loans for properties with as short as a 40-year lease.

“We look more at the ability of the borrower to repay the loan rather than the life of the flat,” the financier said.

Just look at the resale market where HDB flats are being sold with more than 30 years of their lease gone.

I, in fact, bought a property at Dover Close East with less than 70 years of its lease left, and flats are still being bought and sold in my estate.

In theory if HDB apartments are sold on a 66-year lease basis, one third less than the present 99 years, they should go for a third less.

But of course the HDB might want to recover its building and other costs much faster and so the actual selling price of these flats might be higher, but it should not be very much more.

Whatever the actual cost recovery basis is, shorter leases should provide substantial savings for buyers, especially the younger crowd who have been in the job market for a shorter period and thus probably would have less savings in both their CPF and bank accounts.

This is not to say that all HDB flats should be sold on a shorter lease plan. Perhaps there should be a mix to allow people preferring the longer 99-year lease period a choice.

In any case, why not have leases for just 33 years (or whatever period the HDB is comfortable with) for those who do not want to pass on their property to the next generation, but want a more affordable flat?

After all the current 99-year period just follows convention elsewhere and is not cast in stone.

According to Wikipedia, the 99-year lease was, under historic common law, the longest possible term of a lease of real property.

Although no longer the law in most common law jurisdictions today, 99-year leases continue to be common as a matter of business practice and conventional wisdom.

Mortgage News Daily and other online sources further note that under traditional American common law, the 99-year term was not literal, but merely an arbitrary time span beyond the life expectancy of any possible lessee or lessor.

So, can we look forward to more affordable public housing in the near future?

By Conrad Raj – Today’s editor-at-large.

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