More clarity is needed on whether we own our HDB flats.
This year Singapore turns 52. As the Prime Minister’s annual National Day Rally approaches, we take this time to reflect, not just what we can do for our country, but what our country can do for us.
By Eugene Huang
When it comes to real estate in Singapore, we are influenced by laws, regulations and policies that the government has put in place. While this has paved the way towards a fair, sustainable and efficient marketplace, there are still certain concerns or enhancements we wish the government would consider:
What happens when the 99-year lease runs short?
Colloquially coined as the “99- year time bomb”, those of us staying in a HDB flat would probably have wondered what would happen at the end of the lease tagged to our homes.
Many argue that flat owners do not actually “own” the flats. Instead, we are all tenants of our HDB flats, which means that we would have to return our flats to the Housing Board at the end of the 99-year lease. In other words, a HDB flat is of no value by the time it hits the end of its lease.
While we have witnessed flats in older estates being selected for the Selective En-bloc Redevelopment Scheme (SERS), National Development Minister Lawrence Wong mentioned earlier this year that not all old HDB flats will undergo SERS.
To date, there has not been any record of any HDB development that has reached the end of its time. So far, the government has always stepped in and used SERS to help rehouse residents as well as provide compensation.
The statement by the Minister has left many feeling uncertain over the fate of their homes. Hopefully, the government will be able to shed light on this and give more clarity as to what will happen when the 99-year lease of HDB flats run short.
Coping with declining rents, rising interest rates
Mortgages became very cheap because of the Global Financial Crisis in 2008, as the US dropped interest rates drastically to help stimulate its economy. This in turn influenced the Singapore Interbank Offered Rate (SIBOR) to decline in a similar manner, making mortgages very affordable.
The tide has since turned and the US Federal Reserve is now seeking to head off rising inflation with a series of interest rate hikes. This has become a growing concern with homeowners and property investors alike, as mortgage interest rates are predicted to double over the next couple of years.
With overhanging supply and weak rental demand, property investors must brace themselves for mortgage payments much higher than what their tenants will pay in rent. We cross our fingers and pray these investors have sufficient liquidity to hold out for a sustained period of negative cash flow.
Pitfalls of foreign property investments
For those of us who have considered purchasing properties for investment in other parts of the world, we would have come across certain projects that offer attractive deals or innovative financing schemes.
From down payments that come in amounts as little as hundreds (even your non-contract iPhone costs more than that!) to financing schemes that guarantee immediate cashback or other dubious incentives, it’s surprising that while Singaporeans are well-educated, we fall prey to such deceptive schemes.
Perhaps it’s the dream of retiring in a luxury property, away from the hustle and bustle that we fail to be realistic. Instead, we find ourselves looking through rose-coloured glasses and before we know it, we’ve fallen victim to yet another scam project.
The government has tried to step in and help. For example, the Council for Estate Agencies released a guide on consumer tips and what to look out for when buying foreign properties. Despite the cautionary tale, many buyers are still unable to tell the good from the bad.
This lack of discernment is concerning; we may be a trusting bunch, but the onus is on us as buyers to do our due diligence before making a purchase. It is up to us to ensure the deal does not go south, or wind up in payment schemes that lead to financial commitments much heavier than what we signed up for.
There is a growing number of investors who need to know how to safeguard themselves from such pitfalls. We hope the government will educate unsuspecting investors and put measures in place to prevent Singaporeans’ hard-earned money from being swindled.
Decoupling should be better leveraged
Many couples (or even multiple property owners) have taken alternative routes to purchase a second or subsequent property without the need to cough up funds to foot the Additional Buyer’s Stamp Duty (ABSD).
Decoupling is the act of freeing one owner from a property to allow him / her to purchase another property, without incurring the ABSD. Of course, this is not without certain limitations. For one, decoupling is not allowed between married couples staying in a HDB flat. You can, however, decouple if the transfer of ownership is between parents and children, or ex-spouses.
There is more flexibility for decoupling when it comes to private properties. Even so, you would be subjected to the costs of decoupling. Just the Buyer’s Stamp Duty and Seller’s Stamp Duty alone can easily set you back tens of thousands. Aside from that, legal fees are doubled as both buyer and seller would each have to engage lawyers to handle the transfer of shares from one to another.
Ultimately, decoupling is not the end-all solution as it does not necessarily guarantee savings. There are times where the costs associated with decoupling may be more than bearing the cost of the ABSD, so it is essential to do our calculations before executing the transaction.
It’d be good to relook the property cooling measures and regulations, and perhaps come up with methods that are less of an inconvenience for buyers.
Whether certain regulations will be lifted or revised, for now, it’s still uncertain. But we are optimistic that these concerns will be addressed.