HDB flats sold on 99-year leases 'to be fair' to future generations and for 'practical' reasons

SINGAPORE — Public housing flats are sold with 99-year leases because the government has to be fair to future generations and guard against Singapore from becoming a society split into the haves and the have-nots, said Prime Minister Lee Hsien Loong on Sunday (Aug 19).

Addressing the issue of depleting leases of older Housing and Development Board (HDB) flats at length for the first time, Mr Lee acknowledged in his National Day Rally that some residents have asked what options do they have when the lease of their flats expire, and why the leases are not longer than 99 years.

He explained that HDB sells its flats with 99-year leases so that when they expire, the Government can redevelop the land and build new flats for future generations.

"This is the only way to recycle the land and ensure that all our descendants can buy new BTO (Build-to-Order) flats of their own," he said.

He explained that if the HDB sold its flats as freehold ones instead, "sooner or later we would run out of land to build new flats for future generations".

Mr Lee also cautioned that this would also result in a scenario where flat owners pass their flats down to some of their descendants, who will in turn do likewise for their children, while "those not lucky enough to inherit a property would get nothing".

"Our society would be split into property owners and those who cannot afford a property. And I think that would be most unequal, and socially divisive," he said, adding that this is why the government also sells land for private housing on 99-year leases.

Another reason for keeping the 99-year lease is a "practical" one, taking into account the high and recurring costs of fixing the obsolete mechanical and electrical systems and concrete that "will have deteriorated in our tropical climate".

At the end of the day, the government may keep a few blocks which have "historical and heritage value, or sentimental reasons, or which will remind people what the old days were like", but these would be exceptions, said Mr Lee.

"For the others, we can rebuild newer, better, more liveable flats, blocks, and townships, more suited to what our grandchildren and great grandchildren will want to live in," he added.

"Today, if I offer you to live in a 100-year-old flat, I don't think there will be many takers… You want the lifts, the power supply, modern sanitation, convenience. You want the finishes, the styles. You want to be up-to-date. And I think your grandchildren will also want to be up-to-date."

The issue of the lease expiry of older HDB flats has been in the spotlight since a blog post in March last year by National Development Minister Lawrence Wong cautioned that not all old flats will be eligible for the Selective En Bloc Redevelopment Scheme (Sers).

Amidst reports of buyers paying huge sums of money for ageing resale flats, in the hope that the flats would be identified for Sers, Mr Wong wrote: "As the lease run down, especially towards the tail-end, the flat prices will come down correspondingly.

"So buyers need to do their due diligence and be realistic when buying flats with short leases. This is especially important for young couples, who have to plan for a much longer future."

As at Dec 31 last year, HDB manages a total of about one million flats, with the vast majority having more than 60 years of lease remaining.

In his speech on Sunday, Mr Lee noted that 99 years "is a very long time" – enough to cover one or two more generations beyond its first homeowners.

To illustrate, he said that if an individual gets a new flat in his early 30s, he will be at least 130 years old by the time his lease is up.

"Probably (he) won't need this flat anymore!" said Mr Lee, adding that if the resident has children, they will "also be very old, almost as old as the flat itself", and if he has grandchildren, they "will already be grandparents".

Mr Lee also noted that the flat will remain a "good retirement nest egg" for the owner as it will still have more than 60 years of lease left then, after living in it for 30 or 40 years.

The flat would still have "substantial value" and the owner have options such as renting out a room for income or right-sizing the flat – selling it and moving to a smaller unit.

He could also opt to return the remaining lease to HDB under the Lease Buyback scheme.

Mr Lee said the Ministry of National Development is working on expanding the scheme and looking at how to "improve the liquidity of the resale market, making it easier for people to buy and sell old flats". He did not elaborate.

Addressing homeowners who have bought a resale flat, Mr Lee noted that Singapore's oldest flats are 52 years old, meaning they have another 47 years to their lease, which he describes as "still a long time".

He said that HDB estimates that including those who have bought resale flats, less than two per cent of households here will outlive their leases.

"It is not likely to happen to you. It could happen to your children if they inherit your flat. But this should not be a problem if your children buy their own BTO flat, with its own 99-year lease, as many do," he said, noting that a flat inheritance would be "a gift and a bonus".

He gave the assurance that those who might see the lease of their flats run out in their lifetime need not worry "because the government will help you get another flat to live in".

This could be in the form of a BTO flat with a fresh 99-year lease, a resale flat with a shorter and cheaper lease, or a two-room flexi-flat for retirement, he pointed out.

"Different options, depending on your needs and what you can afford," he said. "But whichever option you choose, you will have to pay for the new lease."

This is "only fair", said Mr Lee, as "you bought the original flat knowing when the lease would run out, and when the flat would have to be returned to HDB".

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