Over the past few decades, property prices in Singapore, including those of HDB flats, have risen significantly. This has prompted the government to introduce a series of property cooling measures—by our count, at least 15 since 2009, averaging about one per year. While these measures help to manage demand, the reality is that in a small, densely populated city-state like Singapore (with a population of 6.04 million as of June 2024), we should expect property prices to likely remain high as long as the economy continues to prosper.
At the same time, most Singaporeans also recognise the importance of homeownership. Owning a home not only fosters a sense of belonging to the country but also provides financial security, as homeowners are protected from rising rental costs that could eat into their disposable income. In retirement, having a fully paid-up home allows individuals to live without the burden of rental expenses.
However, with property prices climbing, some potential homeowners may feel that purchasing an HDB flat—directly from the government or the resale market—has become too expensive. They may be hesitant to buy an HDB flat they want due to high prices, especially when faced with a monthly mortgage that exceeds their comfort level. At the same time, they may still have important aspirations, such as owning a larger HDB flat for their growing family or living in a neighbourhood they desire. Telling them to manage their expectations isn’t an ideal response.
One possible solution to make homeownership more affordable without compromising size and location would be offering HDB flats with shorter leases. Currently, most HDB flats are sold with a 99-year lease. By introducing shorter lease options—such as 70-year leases—HDB flats could be sold at lower prices through direct BTO sales or from the resale market. This might encourage Singaporeans to continue buying homes while keeping property prices more affordable.
How Much Cheaper Would HDB Flats Be?
With all things being equal, an HDB flat with a shorter lease would be cheaper than one with a longer lease. But how much cheaper would they be?
To explore this, we looked at the HDB resale market and BTO launches, referencing an article by our friends at Stacked Homes. According to their analysis, 4-room HDB flats that are 0-9 years old have an average price of $676,377. In contrast, 4-room flats that are 30-39 years old sell for an average of $523,132, or about 22% less.
While this is a rough estimate that doesn’t account for the exact location or the evolution of 4-room HDB flats over the years, it shows that the general sentiment of the open market is to pay about 22% less for a flat with a remaining lease of about 60-70 years less as opposed to one that has 90-99 years left on its lease.
Source: Stacked Homes
In the BTO market, where HDB sets prices, we can examine the pricing of 2-room Flexi flats. These flats offer eligible applicants the option to purchase a shorter lease at a lower price.
Looking at the prices from a 2019 BTO launch, HDB sold 2-room flats with a 45-year lease at 60% of what the same flat would cost with a 99-year lease, making it roughly 40% cheaper. If we calculate the price difference based on a straight-line relationship – 40% cheaper for 54 fewer years on the lease – a flat with a 70-year lease would sell for about 78% of its original price, or approximately 22% cheaper than a flat with a full 99-year lease.
Price
99-year lease
100% Of Price
45-year lease
60% Of Price
70-year lease
78% (or about 22% cheaper)
Interestingly, this figure—22% cheaper—is the same as what we found in the resale market.
We want to emphasise that this is not an exact science, as market demand will always affect pricing. If more buyers are open to purchasing flats with shorter leases, the 22% discount we calculated for flats with a 70-year remaining lease could shrink.
Additionally, it’s speculative on our part to suggest that HDB would price a 70-year lease flat exactly 22% lower, based on the pricing model for 2-room flats with a 45-year lease.
In fact, when HDB conducted a Selective En bloc Redevelopment Scheme (SERS) exercise in 2022, it offered homeowners the option to purchase a new replacement flat with a shorter 50-year lease, instead of a fresh 99-year lease. Notably, the 50-year lease was priced at about 75% of the cost of a 99-year lease, or roughly 25% cheaper.
This suggests that our estimate of a 22% discount for a 70-year lease may actually be quite generous in comparison. However, for now, this rough estimate is the best comparison we can offer.
Read Also: New SERS Rehousing Options: What You Need To Understand About The Two Shorter-Lease Alternatives
Will HDB Policies Change?
While HDB currently only sells 2-room Flexi flats with leases shorter than 99 years, it’s not unreasonable to suggest that policies could change in the future if conditions allow. As mentioned earlier, HDB has already offered homeowners the option to purchase a replacement flat with a 50-year lease during a SERS exercise instead of the standard 99-year lease.
Additionally, HDB already runs the Lease Buyback Scheme, which allows older Singaporeans to sell part of their flat’s remaining lease back to the government in exchange for additional retirement income. Selling HDB flats with shorter leases from the outset isn’t too different from this, as both involve monetising a portion of the flat’s lease.
Who Will Benefit From Shorter Lease?
Currently, most HDB flats have a 99-year lease, typically enough to serve at least two generations. Even if someone purchases an HDB flat at 21, they would need to live past 120 to outlast the lease, meaning the flat is almost always passed down to the next generation.
However, for homeowners who are single or married without children, leaving behind a home may not be a priority. In such cases, a cheaper flat with a shorter lease might be more attractive. For instance, a 30-year-old purchasing a 70-year lease flat would likely find it more than sufficient for their lifetime.
Even for families with children, passing on an HDB flat might not hold much value if future generations prefer to purchase their own homes. In these cases, inheriting an older flat with a dwindling lease would likely result in nothing more than it being sold off as part of the estate, adding little beyond some financial gain.
For lower-income families, the option to buy a more affordable flat with a shorter lease could be even more appealing. This would allow them to meet their housing needs without the financial burden of a full 99-year lease. This could provide flexibility for different life circumstances, whether for those prioritising affordability or those without long-term generational housing plans.
Read Also: 6 Things You Need To Know Before Buying An Older HDB Flat With A Lease Of Less Than 50 Years
Photo Credit: Soh Qi Hang/DollarsAndSense
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