Our first HDB home is a near and dearest issue in the heart of almost every Singaporean.

That is why the hottest topic in 2018 for the majority of Singaporeans was regarding our HDB flat.

The 2018 National Day Rally gave us a confirmation of certain news.

Your 99-year leasehold on your HDB flat will depreciate to zero at the end.

To be fair, it was confirmed in Parliament back in 2014:

Parliamentary Report: Value of 99-year old HDB Flats answered by Minister of National Development

PM Lee explained the reason why HDB only has a 99-year leasehold – this is to ensure that the land is recycled back for the future generations.

During the 2018 National Day Rally, he revealed 2 new HDB housing schemes:

Announcement #1: HIP II scheme

HIP II scheme will be offered to old HDB flats aged around 70 years. This is the second chance for these old flats to be upgraded again so the flat can last for the next 29 years.

As a property gets older, it is important the building gets the necessary maintenance. The cement, walls, exteriors and interiors will need to be rejuvenated to ensure it remains in a liveable condition.

The building structure itself will need to be monitored to ensure that it is safe and last until the end of the 99-years lease.

Announcement #2: VERS scheme

VERS scheme was the second scheme announced. Again, it seems that the scheme will only be offered to HDB flats that are around 70 years of age.

This ensures that the first few older flats that was built in the 1970s will be eligible first.

It also allows HDB to do the process batch by batch as they rebuild and rejuvenate the whole estate.

From his speech, it seems that most of the SERS project has been done – “There will be a few more SERS projects to come, but many projects with high redevelopment potential have already been done. Because HDB chose the promising ones and did them first.”

PM Lee explained that VERS will not be as generous as SERS program.

What It Means For You – The HDB Owner

It is absolutely necessary that you understand the implications and really look deeply into your own current situation.

The government has put made it very clear that they are going to collect back the land after 99 years and the reasons why.

Holding on to an old property only means that its value will continue to depreciate as its age begin to catch up.

Will you want to be holding on to a depreciating asset for longer than necessary?

The existence of HIP 2 also clearly tells residents that steps will be taken to ensure that these old HDB flats will last 99 years.

This is a form of assurance that your HDB flat will remain liveable and last as long as needed.

What does VERS mean for the HDB owner?

Ask yourself this question:
Will you pay good money for a piece of land that will go back to you eventually – in the next 29 years?

The next question to ask yourself:
How much will you have to pay for a brand new 99 years HDB lease if you receive good money for a flat that only has 29 years lease left?

Will these 2 valuations be in similar proportions?

Do you believe the payout can help you for your retirement?

The scheme is also stated very clearly that it will be on a voluntary basis.

This means it will be based on the needs of the residents rather than the needs of the government.

So… who will have more bargaining power?

This sends a very clear message.

What should you do today if you are still a HDB owner?

So why are they making these announcements 20 years in advance?

The debate began more than a year ago when Lawrence Wong mentioned that only 4% of HDB flats will qualify for SERS.

These 2 announcements has provided some clarity at least.

But you can also look at it another way – Isn’t this giving you a chance to start preparing for your future – especially your retirement plans?

Right now, you should look at your current remaining lease of your HDB flat and be prepared on what to expect.

Have you hit the Minimum Occupation Period (MOP) of your HDB flat?

If you have just crossed the 5-year MOP  – it might actually be the best time to sell.

This is especially because your HDB will be the newest in your area.

I will also consider this period is when your property is at its “peak performance”.

This is because people are willing to pay higher prices for your new and young flat.

But if your flat is older – would buyers go for your old flat when there is much more newer choices?

Some older flats with better amenities might command higher prices.

But I believe newer HDB flats will fetch higher prices more easily compared to older flats.

As I walk the ground daily meeting my clients – I can clearly see that the age of the property is a sensitive topic in today’s HDB market. Buyers are asking about the age of the property even before viewing.

Age of HDB flat: 6 – 10 years old

When your property is between 6-10 years old, your renovation still looks good. You might be able to attract people who cannot afford the newest property.

Take note that newer HDB flats that just hit MOP will also be entering the resale market – and compete with your older HDB flat.

The longer you stay on – you are also paying higher and higher accrued interest and getting lower cash proceeds for your next property.

Age of HDB flat: 20 – 30 years old

As your HDB flat ages, there is realization that SERS might not happen for you. Buyers who are initially hoping for an en-bloc like SERS – are also no longer willing to pay generously.

The interior of your flat will start to look dated as your previous renovations start to get older and fall apart.

If you were to revamp and renovate the whole living environment, you might need to spend another $50K-$60K.

The problem is also that owners will become older but stuck with depreciating assets.

It becomes more difficult to retire.

Your accrued interest starts to grow rapidly as you have owned the property for quite awhile – you basically owe your CPF account a lot of money.

Example 1:

Assuming you only used $100K from your CPF OA so far since you only been paying for 5 years.

The accrued interest for those 5 years will only be about $10K – which translates to about $2.5K per year.

*Do you think a 5 year old HDB flat can easily appreciate by $2.5K per year?*

Example 2:

Now assuming you have used $400K from your CPF OA so far as you have been staying in the flat for about 10-20 years.

The accrued interest will be a lot more – and translates to about $10K per year.

For this relatively older flat – is it possible for it to appreciate about $10K per year? (so you can “break-even”)

I think it might be a bit difficult…

Your accrued interest is usually funded from the sales proceeds (and appreciation) of your HDB flat.

(Which honestly most people won’t feel this impact – until they decide to check on the valuation of their flat)

What happens if the amount of appreciation cannot cover the accrued interest?

Essentially – your retirement will be affected if you decide to sell and downgrade.

You might not get as much cash as you hoped.

Conclusion

If you are a HDB owner – you will need to know the financial health of your property portfolio.

Are you at a stage where selling might put you in a better financial position?

Or are you at a stage where if you don’t sell – your accrued interest might just continue building up – till you might hit negative cash sales?

Of course, if you considered your existing property as playing a zero part in your retirement portfolio, then no action is necessary. You are one of the few who have planned by using other assets for your retirement plans.

However, if you are willing to find out and explore what options are available for you – I invite you to contact me for a detailed financial assessment.

This will help you to start preparing much earlier. Time needs to be your friend if you are planning for a retirement in 20-30 years time.

Do NOT wait and procrastinate… until you have no more choices available.

I have seen owners receiving zero cash after selling their HDB flats – even when it is only between 12-15 years. They bought these BTO flats directly from HDB.

I believe there will be more and more of such cases.

Without much cash proceeds from the current property – it becomes very difficult if you were to do a property upgrade.

You will feel less confident and less assured.

It becomes likely that your property cannot be depended upon for your future retirement plans.

Our discussion is best done when both you and your spouse are present to prevent any dangers of miscommunication.

If you are ready to get started, just click on the button below:

Resources:
How to calculate your CPF Accrued Interest? :
https://www.areyouready.sg/YourInfoHub/Pages/News-Calculating-the-Accrued-Interest-on-Your-CPF-Savings-Used-for-Housing.aspx