Huttons’ comments on HDB’s new SERS package

It should be noted that HDB is ring fencing the policy to only the SERS replacement flats. If residents opt for another BTO, the new policy does not apply. All other HDB policies such as 5-year MOP apply.

Residents may notice that the price of a 50-year lease flat is not half the value of a 99-year lease flat. It is not a straight line basis to value the remaining lease term. Generally we will start to see a steeper decline in HDB flat’s value when the lease remaining hits 35 years. The drop is greater once there is less than 30 years lease left.

Residents who opt for a 50-year lease may find themselves in a bind when they want to cash out in the future. They may not be able to opt for lease buyback as there may not be extra years to sell to HDB. In the open market, the pool of buyers is limited as the usage of CPF monies is restricted and that affects the resale value. If residents wish to bequeath to their children, they should opt for the 99-year lease flats.

The 50-year lease flats also pose a challenge to the 99-year lease flats in the same neighbourhood. The resale price of the 50-year lease flats will be lower and may be used inadvertently by some DIY buyers as a benchmark for the value of the 99-year lease flats.

As the nation’s stock of flats gets older and lease decay starts to set in, the situation faced by the Ang Mo Kio residents will become common. The new policy for SERS can be seen as an initial trial to gauge acceptance level before being used for VERS. VERS residents will find themselves in the same situation and it is important to get the policy for VERS right to get it off to a flying start.

HDB can be bolder in the next review of this policy be it for SERS or VERS. They can consider extending the 2-room flexi-lease model to 3-room and larger flats. Buyers can opt for a lease in 5-year block as long as it covers the youngest buyer to the age of 95. HDB can also consider lease top up option for VERS as well.