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The Troubling Implications of Owning a 40-Year old HDB Flat

A HDB property only has a lease of a maximum of 99 years. Now the question of what happens after that has never been really answered. (Actually, it has been answered by the Minister of National Development)
A leasehold implies that after 99 years, HDB can take back the flat at no cost.
Some might interject and say – the Selective En bloc Redevelopment Scheme (SERS) can take care of old HDB flats. But then again, please bear in mind that both the government & HDB does not guarantee this will happen.

Once your flat hits 40 years old, the remaining lease becomes 59 years.

HDB has certain rules that take into effect regarding a 40-year old HDB flat that you are probably not aware of.
For HDB flats/ private properties with leases of less than 60 years, the following rules apply:
(1) No CPF can be used if the remaining lease of a property is less than 30 years.
(2) A property owner is eligible to use his CPF for the property if his age plus the remaining lease of the property is at least 80 years.
(3) The maximum amount of CPF that can be used is capped at a percentage of the lower of the purchase price and the value of the property at the time of purchase. The percentage is computed based on the remaining lease of the property when the youngest eligible member using CPF reaches age 55, as shown below:
Once a HDB unit has hit 40 years and beyond, there are implication on the CPF and the amount of loan you can take up for the HDB.
This will also have a far reaching effect on your mortgage servicing in the future and the resale price should you decide to sell off the HDB flat. With regards to HDB vs bank loan, this will depend on your plans for this HDB.
If you purchase HDB with less than 60 years balance lease, it may have limited resale value as the CPF and loan for the unit’s next buyer would be more restricted.
You have to ask yourself what is your future plans.
  • Are you are looking to stay in this unit for at least 10 years and beyond?
  • Or are you are looking at a shorter timeline?
The other hidden question to ask: Would you or anyone buy a 40-year old HDB flat? Especially when there are other choices?
The value of old flats should diminish as they age. Yes, factors like location and size may continue to affect the selling price. But overall, as new flats continue to be built, older HDB flats might not seem so attractive.
The upcoming pipeline of new 17,000 HDB flats in 2017 might also affect the attractiveness of older HDB flats in the resale market.
You should also take note that for flats with a lease balance of less than 30 years, use of CPF is not allowed at all.
Resources:
CPF Calculator for HDB flat with 60 Years or Less Lease: https://www.cpf.gov.sg/eSvc/Web/Schemes/PropertyWithLessThanSixtyYearsLease/Input

99-year old Timebomb Some Singaporeans Are Sitting On:
Just like an annual medical checkup, it is highly necessary for you to review your property portfolio and review the numbers from time to time. 

In 5-10 years, many mature estates will be affected as there are 2 main reasons:
✖ Big drop of buyers
✖ Declining prices
Please check if you are affected especially if your flat is between 20 to 35 years old. Flats older than that will be highly unattractive and there will a large drop of potential buyers.

How To Check The Age of HDB Flat?

You can check the age of the property in HDB website.
For HDB flats with leases of less than 60 years, the following rules apply:
(1) No CPF can be used if the remaining lease of a property is less than 30 years.
(2) A property owner is eligible to use his CPF for the property if his age plus the remaining lease of the property is at least 80 years.
(3) The maximum amount of CPF that can be used is capped at a percentage of the lower of the purchase price and the value of the property at the time of purchase. The percentage is computed based on the remaining lease of the property when the youngest eligible member using CPF reaches age 55.
You can use the CPF Calculator to calculate the amount of CPF allowable to be used.
In conclusion, you cannot fully use the CPF if the purchasing property is less than 60 years lease.  But don’t get me wrong, I’m not here to tell you not to purchase property less than 60 years lease, but you deserve to have your own check before action. 

Last updated by Geoffery Ho Feb 14.

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