What happens when leases on private estates are about to run out?

FRANCIS KAN

AGEING leasehold properties are in the spotlight amid a boom in en-bloc sales last year.

For instance, the 40-year-old Normanton Park estate was sold last October for $830.1 million. The deal set a record — it was the highest land rate for a 99-year leasehold collective sale site last year.

But others living in similarly old estates may not be as lucky. They will have to contend with how their properties will depreciate in value as their leases run out.

Prospective buyers of their homes will face restrictions on bank loans and the use of their Central Provident Fund (CPF) savings. No CPF money can be used to buy a property with a lease of less than 30 years remaining.

THE LAY OF THE LAND

There are three main types of land ownership tenures in Singapore — freehold, 99-year and 999-year leases. There are also a handful of estates on shorter 60- or 70-year leases (see sidebar).

Properties built on freehold land belong to the owner indefi nitely. Homes on a 999-year lease can be held for many generations. But most land in Singapore falls under 99-year leases, which means many homeowners may lose their homes when their leases are up.

When a 99-year lease expires, land ownership returns to the Singapore Land Authority (SLA). SLA is not required to compensate homeowners for the loss of their properties. Owners of a 99-year leasehold property can collectively agree to pay the SLA a premium to “top-up” the tenure of the lease back to 99 years.

The agency will then decide whether to accept or reject the application based on factors such as Government’s long-term plans for the land.

However, the land premium charged by the SLA is usually high, putting it  out of the reach of most individuals.

THE EN-BLOC ROUTE

The other option for owners of properties whose leases are expiring is an en-bloc sale, when the premium for extending the lease is borne by the developer buying the property. Hungry for prime land, private developers have been more than willing to shell out the premiums this year.

According to Dr Lee Nai Jia, research head at property consulting firm Edmund Tie & Company, the average premium payable for leasehold sites transacted last year to top up leases and intensify land use is estimated at $246 million — higher than the $227.5 million paid for collective sales from 2005 to 2008.

Homeowners can no longer live in their homes after a collective sale, but they are compensated — possibly quite handsomely.

As at Dec 1, 2017, there have been 25 residential collective sale transactions valued at a total of $8.4 billion, based on fi gures by leading global commercial real estate consultancy Colliers International.

But the chances of hitting the en-bloc lottery remain slim for most. Despite high-profile transactions like Normanton Park, figures from Edmund Tie & Company show that only 0.75 per cent of the total private housing stock in Singapore was sold via collective sales last year.

TO BUY OR NOT TO BUY

A spokesman for property portal 99.co advises that if your aim is to purchase a home to pass on to the next generation, you should give 99-year leasehold properties a miss.

But if you are content to own the home for your lifetime or for investment purposes, it is worth considering 99-year leasehold properties. This is because they are more affordable than 999-year leasehold and freehold developments in the same areas.

If you are hoping for an en-bloc sale, pick a development near an MRT station, good schools and/or other amenities. “These make a property more desirable to private developers, upping your chances of securing an en-bloc sale down the road,” says Dr Lee.