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11 Dec 2019
Out of the box
Feedback View - 1505
HDB lease decay - real or not?

There is a lot of discussion about the HDB lease decay. I will now add my view. 

The HDB lease decay is used to describe the situation that the value of the HDB flat will become $0 at the end of the 99 year lease, and the value will start to drop after the remaining less becomes less than 30 years. 

This is a fact. It cannot be disputed.

If so, why did our government leaders said that the HDB flat was a good investment? Indeed, a generation of owners have made a large profit when they sold the HDB flat that they bought earlier. 

The phenomenal growth in the value of the HDB flat during the past decades came from three sources:

a) The HDB flats sold prior to 1980 were indeed cheap. It was sold by HDB at subsidized prices, based largely on construction cost. The value of land was negligible then.

b) All property prices, HDB and private, has escalated during the past five decades to the high level today.

c) There was a large boost during the last 15 years due to the influx of foreigners. This has reached its limit.

Due to these factors, a 5 room HDB flat in Marine Parade was sold for $35,000 in 1975. The same flat today, with a remaining lease of 50 years, is asking for $850,000.

These factors that contributed to the large growth in value is no longer available to the buyer of the HDB flat today. The buyer has to pay the current price, which reflects the high market price today. There is a small subsidy by the government, but not to the same extent as in the past.

The buyer cannot count on the huge growth in property prices in the future. The current prices are beyond the "affordability level".

The reality is that the buyer of a HDB flat pays a high price for their flat and faces the prospect of the lease decay. It is no longer a good investment. It should be treated as paying advanced rental of the HDB flat for the remaining term of the lease.

Did the leaders "lie" when they said that HDB flat was a good investment? No, they did not. It was a good investment at that time. But times have changed. It is no longer a good investment today.

Tan Kin Lian

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