Ask an Agent: Your lease decay property questions answered

As Singapore’s housing stock gets older, lease decay is becoming a bigger consideration for buyers and homeowners. Older properties can offer more space and established locations, but a shorter remaining lease can also affect future demand, CPF usage, financing and how easy it may be to sell later.

For this edition of Ask an Agent, we gathered your questions on buying lease decay properties, when to sell, rental returns, SERS and VERS, as well as what homeowners should consider as their leases run down.

The questions were answered by Jackson B., Associate Group Director (CEA: R059742F), who has been in the real estate industry for eight years.

Buying considerations

VB asks: What should I consider when buying a larger condo of around 1,500 sqft with 81 years left in a mature estate with no major developments planned in the next five to 10 years? What could my exit strategy look like?

A 1,500 sqft condo offers plenty of space, but that larger footprint will usually also come with a higher overall price.

With around 81 years remaining, the lease may still be relatively comfortable today. However, if there are no major redevelopment or rejuvenation plans nearby, future capital appreciation would depend more on organic demand within the district and wider market movements. Because of this, buyers should look carefully at whether surrounding transactions can support the price they are paying.

For example, if you are buying at S$3 million, but the highest comparable transactions nearby are around S$2.5 million, that could create a more difficult exit later. On the other hand, if similar properties in the area have already transacted at the same or slightly higher prices, there is more support for your entry price.

It is therefore important to negotiate as strongly as possible on the price per square foot and avoid overstretching.

For your exit strategy, look for supporting transaction prices nearby, plan conservatively rather than depending on strong capital appreciation, and consider exiting before the remaining lease becomes much shorter.

Around 65 years of remaining lease was suggested as a useful point to keep in mind, as a longer remaining lease could leave the next buyer with fewer CPF and financing restrictions.

Overall, the property may still work if space is an important priority. However, the entry price becomes especially important when there are few major changes planned for the surrounding area.

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Anonymous asks: We are a civil servant couple in our early 30s with three kids. Should we explore lease decay properties for more space, or maximise our capital in the long run? Could a property with 50 to 60 years left become a burden?

For a young couple in their early 30s, a property with only 50 to 60 years remaining may not be the best fit.

At this stage of life, there are still many working years ahead, along with the potential for income growth and career progression. Because of that, it may make more sense to focus on capital appreciation rather than prioritising maximum space immediately.

One option is to look for a property with a longer remaining lease within the same budget. Areas with transformation or rejuvenation plans may also offer a stronger exit over a shorter holding period of around five to eight years. Freehold options with sufficient space could be explored too, if they fall within budget.

Another possibility is to separate your investment needs from your space needs. Instead of buying a large home mainly for comfortable living, you could invest in a property chosen for capital appreciation while renting a larger home for the family. Some landed homes may also offer considerably more space at rental prices that compare favourably with certain condos, depending on the location.

Ultimately, the aim is to strike a balance between getting enough space for a family of five and maintaining a comfortable exit strategy later.

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Peter asks: There are 47 years of lease left. Can I buy with confidence that the property will retain its value over the next 20 years?

If you are buying mainly because you expect the property to retain its value over the next 20 years, the risk may be too high. A property with 47 years remaining today would have only around 27 years left after another 20 years.

Bala’s Curve can be used as a broad way to understand why leasehold values do not necessarily decline at a steady rate throughout the entire lease. As the remaining tenure gets shorter, the impact of lease decay may become more noticeable.

More importantly, the next buyer could face greater limitations when trying to secure financing or use CPF towards the purchase. That could reduce the number of buyers who are able or willing to take over the property when you eventually want to sell.

Therefore, buying a property with 47 years remaining may not be advisable if retaining its value over another two decades is a major part of your plan. 

An exception could be if you genuinely see the property as your long-term or forever home and are less concerned about resale value. In that case, space, affordability and lifestyle may carry more weight than future capital appreciation.

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Chrissy asks: How do you talk to sellers when negotiating for lease decay properties?

Focus on the practical restrictions that may come with the shorter remaining lease. One consideration is the financing available to your future buyer. Another is whether CPF usage could become more limited as the property’s lease gets shorter.

Since many buyers rely on both financing and CPF when buying a home, these restrictions could eventually affect the number of people who are able to purchase the property from you. These factors can then support your negotiations with the seller.

The aim is to account for the additional risk you may be taking on and use that to negotiate a better entry price per square foot.

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Anonymous asks: When does lease decay start to affect how much CPF I can use?

The two numbers to keep in mind are 20 and 95.

Under current CPF rules, the remaining lease generally needs to be more than 20 years for CPF savings to be used towards the purchase. Meanwhile, if the remaining lease does not cover the youngest buyer until at least age 95, the amount of CPF that can be used may be prorated. 

It is therefore worth working out how much CPF you may be able to use before entering negotiations for a shorter-lease property. The CPF Board also has a CPF housing usage calculator, which buyers can use to estimate how much CPF may be available based on factors such as their age and the property’s lease.

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Anonymous asks: How do you calculate a lease top-up?

For an individual HDB flat owner, there is no standard option to simply pay a fee and restore the flat to a fresh 99-year lease.

Private properties on State leasehold land work differently. Property owners may apply to SLA for a lease renewal, but approval is not automatic. Each application is considered based on its circumstances, including the Government’s longer-term plans for the land and input from relevant agencies.

For older private developments where owners no longer see value in continuing to hold the property, a collective sale may also eventually be considered. 

In short, there is no straightforward lease top-up calculation that an individual condo owner can simply work out and pay.

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Selling and timing

Yvonne asks: Is it better to sell a 37- to 38-year-old executive flat within the next 10 years, or keep and rent it out?

There is no universal answer because the decision should ideally be based on your rental income, maintenance costs, outstanding mortgage, alternative investments and how much you could receive from selling.

However, from a lease-decay perspective, selling within the next 10 years may be worth considering.

A 37- to 38-year-old HDB flat currently has around six decades of its original lease remaining. Another decade would bring it closer to the point where roughly half of its 99-year lease has been used.

As the remaining tenure decreases further, CPF and financing considerations could gradually affect more prospective buyers. As such, if selling is already part of your longer-term plan, it may therefore be better not to leave the decision too late.

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Anonymous asks: When should you sell before lease decay becomes serious?

Ideally, consider your exit before the remaining lease falls below 50 years. Around 65 years remaining may be an even more comfortable point to start thinking about selling.

For example, if a buyer is around 30 years old and the property has about 65 years left on its lease, the buyer’s age plus the remaining lease would add up to around 95 years. This could put the buyer in a more comfortable position when it comes to CPF usage.

As the remaining lease falls from 65 years towards 60, 55 or 50 years, the pool of buyers may gradually become smaller. Therefore, homeowners who already know they eventually want to exit an ageing leasehold property may want to start planning before reaching these later stages.

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SH asks: What is the relationship between price and lease decay?

The relationship between price and lease decay is not necessarily linear. As a property gets older and its remaining lease becomes shorter, financing and CPF restrictions could start affecting more potential buyers. If that reduces the buyer pool, demand may weaken, which could then put greater pressure on the property’s price.

In other words, the concern is not simply that one year disappears from the lease every year. The impact could become more noticeable once the shorter lease starts affecting how easily future buyers can purchase the property.

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Steven Lim asks: What is the impact of lease decay properties on longer-term rental returns?

Older properties in mature locations can still achieve decent rental returns in the shorter term.

However, longer-term rental returns may gradually weaken as the property continues to age. Older developments can require more maintenance, while tenants may also compare the building’s condition, appearance and facilities against newer options. This could narrow the tenant pool or lead some tenants to offer lower rents.

When these factors are combined with higher maintenance needs, they can eat into rental profits and overall yield. For this reason, it may not be ideal to hold a lease decay property for too long purely for rental income.

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Anonymous asks: How is the Singapore property market now?

On the new launch side, developments have continued to achieve strong sales even at higher prices per square foot, with some sizeable projects selling more than half their units during their initial launch period.

Meanwhile, the private resale market has been more stable. Although prices have continued moving, growth has been slower than during the stronger post-COVID period. 

HDB resale has also seen more interest following the announcement that the 15-month wait-out period would be lifted. An increase in enquiries was seen among HDB listings after the announcement. However, any impact on prices may take around three to six months to become clearer rather than appearing immediately.

Read more: 15-month wait-out period for private property owners buying HDB resale flats removed

Commercial property has remained relatively stable too, although specialised assets such as shophouses may behave differently because of their limited supply and unique characteristics.

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Government schemes

Peter asks: What are the odds of SERS or an en bloc by the government? Will residents be pushed onto the streets when an HDB lease ends?

SERS should not be relied on when planning what will happen to an older HDB flat. Only a small proportion of HDB flats have historically been selected for SERS, so owners should not assume their own block will eventually qualify.

VERS could offer another route for some older flats in future, although its exact framework has not yet been finalised. It is expected to work differently from SERS because residents would have to collectively agree to take part. Compensation under VERS may also differ from SERS because the flats involved would already be older by the time they are considered. 

Read more: The 99-year question: How VERS will refresh ageing HDB towns

If an HDB flat reaches the end of its lease without going through either scheme, homeowners should prepare to find alternative housing before the lease expires. Once the lease runs out, the property would return to the Government.

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Christopher asks: How do I assess the chance that my flat will qualify for VERS?

At this stage, there is no clear way to calculate the chances of a particular flat qualifying for VERS. As mentioned, its detailed framework has yet to be finalised, while the scheme is also expected to depend on collective agreement among residents.

However, two factors may be worth looking at. The first is whether the land has strong economic or redevelopment potential. The second is whether major rejuvenation or transformation plans are expected nearby.

For example, Circuit Road and the wider Paya Lebar Air Base area as a location where substantial changes are expected in the longer term. Even then, these factors alone would not determine whether VERS happens.

Residents would still need to support it, while the Government would ultimately need to agree with the plans for the area.

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A final reader case: Owning an HDB while working overseas

While our final question falls outside this round’s lease decay theme, it raises an unusual situation that other Singaporean homeowners may also find useful.

A Singaporean couple asks: We secured a PLH flat, paid the deposit and started renovations before receiving an opportunity to work overseas. We cannot live in the flat while overseas, but we understand that we cannot rent it out either. Do we have to return to Singapore? Is there any leeway for us to rent it out and fulfil the rest of our MOP when we return?

The first step is to write to HDB immediately and explain the situation. Couples or families who relocate overseas for legitimate reasons may, depending on their circumstances, be given an exception that allows them to rent out the whole flat. 

However, this would need to be discussed directly with HDB so that the household can receive advice based on its particular case. If approval is given to rent the flat while overseas, the MOP would pause during this period and resume when the owners return to Singapore and move back into the flat.

For example, if only six months of a 10-year MOP had been completed before moving overseas, around nine and a half years would still remain when the owners eventually returned. 

As such, there is no need to immediately forfeit the flat or give up the overseas opportunity. Instead, contact HDB as soon as possible, explain the circumstances and find out what arrangement may be available.

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Stay tuned for the next Ask an Agent

Ask an Agent is a monthly initiative by 99.co where a guest property agent is invited to answer your questions about a selected topic. The aim is to provide homeowners, buyers and sellers with clear and practical insights into today’s property market directly from industry professionals.

Lease decay does not automatically make an older home unsuitable. However, as the remaining lease gets shorter, it becomes increasingly important to think about both why you are buying and how you eventually plan to exit.

For younger buyers, that may mean balancing space against future capital growth. For existing homeowners, it may mean deciding whether to sell earlier, continue renting the property out or hold it for the longer term.

Most importantly, buyers should think not only about whether they can purchase a property today, but also about the position their future buyer may be in when it comes time to sell.

We will be back with another round of Ask an Agent, where we will explore a new topic within the Singapore property market and continue answering the questions that matter to homeowners, buyers and sellers.