Geylang plot action a wake-up call for property owners, buyers: Experts

SINGAPORE — With the authorities recently affirming the policy stance that no compensation will be awarded to residential property owners upon lease expiry, private home buyers and sellers will soon need to brace themselves for a reality check.

Over the coming decade, thousands of condominium or apartment unit owners here, for example, will find themselves sitting on properties with leases shorter than 50 years — making these properties highly undesirable, going by current buyer sentiments.

On Tuesday, the Singapore Land Authority (SLA) confirmed that, as a general policy, there will be no compensation for the owners of the 191 private terrace houses at Geylang Lorong 3 — a 2ha piece of land that will become the first residential plot to be returned to the state upon the expiry of its lease in 2020. Apart from Geylang Lorong 3, there are no other 60-year private residential leases issued by the state.

The next major private housing estate affected by lease expiry will be Fuyong Estate in 2046, according to the SLA.

When its comes to condominiums and mixed-use developments, there are 13 projects in Singapore — built between 1972 and 1977 —with leases that will run out in less than 60 years. In other words, by 2027, they have less than 50 years of lease left — the point at which private property values in general would plummet, property experts said.

Across the island, there are 48 such 99-year lease developments that are currently more than 30 years old, the youngest of which — the 21-unit Cardiff Court and the 116-unit Katong Park Towers — were built in 1987, based on Urban Redevelopment Authority data compiled by associate professor Sing Tien Foo from the Department of Real Estate at the National University of Singapore School of Design and Environment.

Some of the oldest developments include the 288-unit People’s Park Complex (built in 1972), as well as the 752-unit Neptune Court and the 280-unit Pearl Bank Apartment which were completed in 1975 and 1976, respectively.

As remaining tenures get shorter, property sellers have to lower their asking prices, and buyers will find it harder to get loans from banks. For a young country such as Singapore, the situation where a glut of private residential units with relatively short leases will come onto the market in the coming years is unprecedented, said the experts.

While Singapore is also facing a situation where the leases of public flats will start to run out, the impact on the private residential market could be more keenly felt, given that private property purchases are seen by many as a form of investment, and prospective buyers are less keen on units with low resale value.

Owners of private homes with dwindling leases have limited options — they can either rent out the units, or typically sell at a loss. The best scenario is a collective sale, but such an opportunity may not always be available. Pearl Bank, for instance, has undergone three en-bloc sale attempts in 2007, 2008 and 2011, but all failed.

Finance professional Brandon Huang, 37, grew up in Pearl Bank, and his parents still live there. He felt that far from being assets, properties with leases that are running out could become a liability. “My parents want en-bloc sale, of course. The property is really old, the lease is running down, making it less easy to finance for prospective buyers,” he said.

The experts reiterated that in a land-scarce country such as Singapore, there will always be demand for residential properties. And if sellers are realistic about their asking price, there will be takers — just as second-hand cars with only a few years left on their Certificates of Entitlement (COEs) are still able to find willing buyers.

Assoc Prof Sing said: “There will be a segment of buyers who don’t have a large sum of money upfront, or don’t wish to take up a big mortgage. And paying S$300,000 for a place with 10 years left, for instance, could be a viable option.” He added: “There is no investment potential ... (but) it is just like paying for COE, which runs out after 10 years, and that’s it ... or buying cars with just two to three years left, but you’re able to get it cheap.”

Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants, reiterated that as long as sellers are realistic about the asking price, they will be able to offload their properties — no matter how short the leases are.

Renting out the homes is another viable option. “As long as the properties are of good quality and location, homeowners in Singapore will always be able to rent them out,” said Mr Alfred Chia, chief executive of financial advisory firm SingCapital.

As a cosmopolitan city, Hong Kong’s property market has similarities with Singapore’s. Over there, there are concerns over a lease “cliff”, which the local government is still figuring out how to deal with.

In Hong Kong, the leases of virtually all land will expire in 2047. This was after the government renewed all the leases for 50 years when Hong Kong was returned to China in 1997.

“They don’t have freehold residential or commercial properties available. So, the lease expiry will affect everyone at about the same time,” said Mr Nicholas Mak, head of Research & Consultancy Department at SLP International Property Consultants.

Singapore buyers and sellers will have to adapt to the market, just like the Hong Kongers have done, the experts noted. For one, buyers here need to adjust their mindset and see property purchases as less of an investment.

Mr Chia said: “Property value in Singapore ... will not appreciate as much as it did in the past. Homeowners should aim to pay off their housing loans before they are 60 or 65 years old.

“Then, they can focus on building their retirement funds, and even have options such as renting out their rooms, or downsizing (their homes).”