Your HDB Flat is a Depreciating Asset (eventually)

Recently, the stark reality about the value of our HDB flats was reiterated by our current MND minister, Mr. Lawrence Wong – where upon expiry of its lease, your flat will be returned at zero value to the State via HDB. The Straits Times too has been unforgiving with its relentless churning of articles on the topic of “Lease Expiry” with its latest article on private estates nearing the end of its lease and residents distraught.

Hard Truth


A few investment bloggers and investing forum had been harping on the fact that many properties in Singapore are leasehold by nature; which means the property value eventually depreciates to zero upon expiry of its lease (be it 20, 30, 99 years etc) and returned to the State,

A unique feature of Singapore’s leasehold is that the value of the property does not depreciate in a straight line but that similar …

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  1. Fred says

    Sorry, I do not have google account to respond over there.

    Your depreciation chart and graph are appreciated.

    Let’s compare leasehold for HDB and Pte properties and leave freehold out.

    While Pte pties can be en bloc or collective sale, for the lease top-up to 99 years again needs authority approval. One of which is the redevelopment NOT just A&A works and the premiums to top up. However, the table is only a guide from the authority for values to be top-up in market values against freehold property at the current point of time.

    While both HDB and Pte Flats have shown in reality is not a general decline as both flats aged.

    In fact, we see increases esp in established areas or as regions mature with more and more amenities developed such as MRT stations or transport nodes, entertainment, education, health and many others. The prices hike in tandem with the development. This is especially so for HDB flats as against Pte/condo flats. HDB builds township NOT individual enclaves with only internal facilities.

    In other words, HDB have forward plans of transportation nodes, entertainment, education, medical and social services, Pte developers do not or cannot. HDB/URA Masterplanners had shown us so far to favour HDB townships for more developments.

    Another point which favours HDB flats as they mature, is the Interim/Home/neighborhood upgradings or improvements periodically to ensure the vibrancy of its flats. It also has SERS, a redevelopment to rejuvenate these old areas so that it remains economically healthy. REdhill areas are good example, hence the prices of old HDB flats remain high.

    These improvements/upgradings ensure the HDB estates remain vibrant and relevant unlike old private estates. Hence, the prices are not likely to go down.

    The news of Lorong 3 GEYLANG landed properties having only 3 years lease left, were actually built by S.I.T the predecessor of HDB. Since privatised, the owners had their opportunities to enbloc sometime back, but the owners refused, leading to their current plight.

    • says

      Why has HDB prices has not experienced a general decline in reality as they aged?

      In totality, HDB prices can be summarized in a general equation

      Inflation adjusted Price increase/(decrease) = Demand-supply for HDB+ wage growth of starting workers – the effect of leasehold

      The demand-supply of HDB depends to a large extent on the population growth of our country. From 2000 to 2010, our population grew 2.8% per year. However, after GE 2011, a policy stance shifted and we are seeing a tightening in immigration about 1.3% per year. This will lead to lower demand and we can notice how HDB resale prices have fallen since the end of 2011 even when we account for inflation.

      Secondly on the wage growth of Singaporeans. Over the past decade, the wages of Singaporeans has grown by 4-5% per year. However, is this wage growth sustainable? IMO the answer is no. Continuous growth of 4-5% is simply unattainable if other workers in the developed world are not getting that growth rate. This is because businesses will realize it is cheaper to do business elsewhere than here and will move away (unless Singapore labour has a special trait which we are only capable of and others are not)

      Lastly, the effects of leasehold is slow currently. Given that many HDB flats are about 20-30 years old, the leasehold depreciation is only about 0.6% per year. What happens if HDB flats are left 20-30 years, the speed of depreciation will have tripled. Therefore, to keep ensuring HDB resale prices to increase, an estimation is that our population has to grow 5-6% per year or wage growth has to double to counter the speed of depreciation effect.

      Upgrading of estates is another factor; but when all estates all upgraded to the same convenience and ability, all estates should have the same draw and only convenience is the key.

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