Who is this article written for
This article is specifically written for buyers considering the purchase of a property with ageing lease.
The points discussed in this article will be relevant to both private property and HDB flats with ageing lease.
By convention the idea of purchasing an ageing property is often shunned upon. But we understand there are reasons that could be drawing you to this option.
The goal of the article is to highlight the key risk involved, how to mitigate it and provide ample considerations to help rationalise if your plan is foolproof
We are Decoupling Expertise
Before committing the next 5 mins reading this article, it helps to know who is behind the pen.
We are a team of specialist realtors that specialises in helping our readers research, shortlist and purchase investment properties.
Our core expertise revolves around helping SG property owners purchase 2nd investment properties without ABSD. Decoupling is often the go-to strategy that we utilise to help our readers minimise ABSD, hence the name Decoupling Expertise.
Our articles serve as a documentation and testimony of our client engagement. If you fancy having solutions tailored to your challenges drop us a text.
60th Year as the mark of an ageing property
The 60th year mark is the yardstick that is being used to qualify a private property or a HDB flat as an ageing property.
This definition stems from the conventional standards that banks used to mark a reduction in maximum loan that it is willing to lend out, due to higher foreseeable risk of taking in an ageing property as a collateral.
Similarly CPF board adopted a similar stance towards ageing property, limiting the use of CPF on older property with short remaining lease that cannot cover the youngest applicant in the flat till the age of 95 years old.
Benefits of purchasing a property with less than 60 years lease
Having said that, there are several reasons that make a short lease property enticing.
#1 – Affordable quantum in prime location
Older properties which pass the 30 year to 40 year mark, with 60 to 50 year lease remaining are often the most affordable option for you to consider when looking to be located in a prime location.
Consider the following price difference of a private condo in the Bishan area.
Referencing the table with PSF price disparity below, within the same prime location in Bishan, older developments like Bishan 8 and Rafflesia would cost between $200 – $300 psf cheaper than newer developments like Sky Vue and Sky Habitat.
PSF price disparity between older condo vs newer condo
| Project Name | Tenure | Completion | Age | Lease Remaining | Avg Price (S$ psf) |
| BISHAN 8 | 99 yrs FROM 1996 | 1999 | 28 | 71 | 1,645 |
| RAFFLESIA CONDOMINIUM | 99 yrs FROM 1997 | 2003 | 27 | 72 | 1,421 |
| SKY HABITAT | 99 yrs FROM 2011 | 2015 | 13 | 86 | 1,815 |
| SKY VUE | 99 yrs FROM 2013 | 2016 | 11 | 88 | 2,127 |
It is understandable that you will consider shorter lease condo developments like Bishan 8 and Rafflesia, when you are looking to move into a prime location for your child’s primary school and is working within a tight budget.
PSF price disparity between older HDB vs newer HDB
| Project Name | Lease Start | Completion | Age | Lease Remaining | Avg Price (S$ psf) |
| 590A Ang Mo Kio Street 51 | 99 Yrs FROM 2019 | 2017 | 5 | 94 | 949 |
| 207 Ang Mo Kio Avenue 1 | 99 Yrs FROM 1976 | 1975 | 48 | 51 | 517 |
Similar price disparity and affordability is being observed for HDBs proximate to Ang Mo Kio MRT. You can get an older 4 bedroom HDB at a $517 psf vs a newer HDB at $949 psf, a price disparity of $400 psf.
#2 – Paying less for more space
Beyond price and age of property, some of you are simply looking to optimise towards getting a large spacious unit in an ideal location for your family dwelling.
In fact, the spacious and generous allocation of space to yards, store room and bay windows in older properties which is bane to many property owners, can be attractive to you.
From a purchase quantum perspective, an older property would allow you to pay less for more square footage.
Referencing the table below. A 3 Bedroom unit at 1,163 sqft would only cost $1.8 mil in both Bishan 8 and Rafflesia, compared to Sky Vue and Sky Habitat, you would be paying $500k to $600k more for the same square footage.
The same is applicable to HDB flats, you would be looking to pay less for a 5 bedroom older HDB flat as compared to a smaller 5 bedroom HDB flat that just achieves its MOP status.
Purchase Quantum disparity between older condo vs newer condo
| Project Name | Tenure | Completion | Age | Lease Remaining | Size of 3 bedroom unit (sqft) | Quantum 3 Bedroom Unit |
| BISHAN 8 | 99 yrs FROM 1996 | 1999 | 28 | 71 | 1163 | 1,870,000 |
| RAFFLESIA CONDOMINIUM | 99 yrs FROM 1997 | 2003 | 27 | 72 | 1195 | 1,830,000 |
| SKY HABITAT | 99 yrs FROM 2011 | 2015 | 13 | 86 | 1216 | 2,460,000 |
| SKY VUE | 99 yrs FROM 2013 | 2016 | 11 | 88 | 1141 | 2,700,000 |
#3 – Free yourself from mortgage
Financial freedom could be a priority when selecting a homestay property.
The hard truth is that a property that you are leaving in is difficult to monetize for capital return or passive income. The only way to realise its gain is at the tail end of the cycle when you sell it and downgrade to a smaller property or a less central location.
If this is topic of interest refer to article “ Real estatement investment for retirement in Singapore – Strategies and Considerations
With that in mind, some of you could be looking to minimise or totally eliminate outstanding mortgage on your homestay property. This allows you to focus your capital resources on more productive investment assets like a second property.
Purchasing an older property that is priced at a lower quantum would involve significantly less debt and allows you to be free from mortgage earlier.
#4 – Enbloc Opportunities
The average profit generated from owners that have gone through a successful en bloc ranges from $500k to $800k profits.
For some this could be a main or added draw for you to consider a private condo with an ageing lease of less than 60 years old.
For HDB buyers, the HDB Selective En Bloc Redevelopment scheme could serve as a safety cushion for you to purchase an older HDB flat, thinking that it could be selected for a Selective En Bloc scheme when its lease runs low.
Financing challenges associated with purchasing a short lease property
In this section, we will specifically highlight the challenges associated with financing a property with less than 60 years of lease remaining.
#1 – Bank loan for property lease less than 60 years
Depending on the actual age of the short lease property that you are looking to purchase, this will prove to be a problem to either you or your future buyer.
Banks as a lender, seeks to manage its mortgage default risk by assessing the risk of the collateral that it takes in. In this case, if the property has a lease of 60 years or less remaining, banks will not extend the full 75% loan to valuation limit for your mortgage. It will offer a lower loan to valuation percentage, subject to the bank’s discretion.
If the property has less than 35 years remaining on its lease, banks will not be willing to extend any mortgage at all.
Limitation in HDB Loan financing for property with less than 60 years lease as well
Similarly, age and remaining lease of a property plays a factor in determining the maximum loan quantum you are eligible for when financing your HDB with a HDB loan.
For properties whose remaining lease cannot cover the youngest owner age till the age of 95. The maximum 75% LTV for HDB loan, will be reduced and pro-rated from 75%.
#2 – Limitation in CPF usage for property with short remaining lease
CPF board takes a similar stance towards property with short leases. If the remaining lease of the property is not sufficient to cover the age of the youngest owner till the age of 95. The amount of CPF you can use for the property will be prorated.
To calculate the applicable prorated CPF amount refer to the following calculator.
CPF Pro-rated amount for property with short remaining lease
More cash required when purchasing a property with short lease
Accounting for the limitation in both bank loan and CPF usage stated above, it means that you have to be ready to finance the purchase with significantly more cash as compared to a younger property that enjoys the full 75% loan to valuation ratio and full CPF usage limits.
Risk of purchasing a property with short remaining lease
Having established the benefits associated with getting an older property in earlier sections. We will now proceed to highlight the key risk involved in purchasing an ageing property.
#1 – Worst case when lease runs out
Let’s start with the worst case scenario. The worst that could happen is that your property’s lease runs out when you are still alive.
By far, there has not been any precedent of what would happen to a property when it reaches its 99 year lease in Singapore. But referencing the State Land Act, when a private property’s lease expires its ownership will be reverted to the state. For HDB flats, the ownership of the property will be reverted back to HDB.
In short, what it means is that you will lose your property and have to find alternative housing arrangement if you outlived your property’s remaining lease.
Can you top up a property’s lease ?
Currently, the option of a lease top is not available for HDB flats. The best and most probable case scenario would be HDB repurchasing back the property from owners for redevelopment on the Selective En-bloc Redevelopment Scheme (SERS).
For private property owners, there is a possibility of a lease top up. But it is subjected to the approval of SLA. The authority will then review whether the lease is inline with the government’s long term developmental plan for the land.
Aside from approval, a hefty land premium will be charged by SLA. It is an initiative normally undertaken by developers during a enbloc process and rarely attempted by individual property owners.
#2 – Problem reselling it to another buyer
The concerns that you currently have over purchasing a short lease property will be snowballed over to your future buyer as well. At the point of sale your prospective buyer will potentially be purchasing a property with even shorter remaining lease.
This results in difficulties in finding a buyer for your property and difficulties in selling it at an acceptable price.
In reality properties’s price starts plateauing once it hits its 30 year mark. Referencing the price trend for Rafflesia, an older condo development situated in Bishan. Its price plateau from 2012 to 2022, until it received an abnormal boost from covid pent up demand.
Rafflesia – Short Lease Property – Price Trend
#3 – Jeopardise retirement plan
Property forms a major investment asset for most Singaporeans and most Singaporean families will count on downsizing their property for a source of retirement funds.
The challenge comes when the amount you have invested in an older short lease property does not bring about much capital gain or potentially result in a loss of capital. The amount that you will receive from the sale of it may not be sufficient for you to purchase a smaller property and fund your retirement.
We discuss at length on real estate investing strategies for retirement within the article link inline.
#4 – Not eligible for HDB lease buyback program
Still on the topic of retirement, one source of retirement financing for HDB owners could potentially come from the HDB lease buyback program.
In summary, the HDB lease buyback program offers seniors of age 65 years or older with a combined income of $14,000 or less, the option of monetising the remaining lease on their HBD flat by selling it back to HDB.
In return HDB will provide a monetary compensation for the lease sold with bonus given when compensation is used to top up CPF RA account.
The kicker to this is that you will need a minimum lease of 20 years remaining in order to be eligible for this program and purchasing a short lease HDB flat could potentially exclude you from this option.
This could potentially be relevant to younger property buyers that are purchasing older executive maisonettes with short remaining leases without considering what could happen in later years during retirement.
#5 – Enbloc and SERS not happening
For a private condo development to be successfully enbloc, it would require consensus from 80% of the residents residing in the development. Along with it, there must be an attractive bid coming from a developer. Any failure in enbloc attempt will require a 2 year wait out period before restarting the process.
For those that are purchasing a short lease property with the hope of en bloc windfall. You could be stuck in a rut of a waiting cycle and at the end of the day as the property’s lease runs down, you could face a tougher time reselling the property.
For HDB buyers, the enbloc equivalent is SERS, the Selective Enbloc Redevelopment Scheme. Under the SERS program, HDB will select blocks of flats for redevelopment. In return, it will compensate you based on prevailing market value of the flat and provide subsidised rehousing options with a renewed lease.
But given that only 5% of flats in Singapore are selected for the SERS program, similarly you could be stuck in a rut if your flat does not get selected for a SERS program as its lease runs down.
#6 – Major renovation and repair cost
One of the propositions of getting an older property is its affordable purchase price. But one factor that could be overlooked at the onset is the sunk cost that would be involved in renovating and conducting repair work on any existing major defect area in the property.
This could likely set you back by $100k to $150k, depending on the condition of property that you purchased.
How to make it work ? If you are really bent on purchasing a short lease property.
The crux of mitigating the risk involved with purchasing an ageing property with less than 60 year lease is to not rely on it as an investment asset. Instead, adopt the view of it simply being a place of dwelling and expense the cost associated with it as though it is a rental expense.
Even better, consider how you can rent a unit in your desired location while owning another property with higher capital appreciation potential.
Consider the following options related to mitigating risk associated with buying a ageing property,
#1 – Rent a older property and own a younger property
An option worth considering for both HDB property owners and private property owners would be to rent a unit similar to the older unit that you are looking to purchase, in terms of both size and location.
But own a property that possesses the right attribute for capital appreciation. Refer to the article “ Which condo is good for investment in Singapore ? “
This allows you the best of both worlds, living in the location that you like but still owning an asset that can appreciate in value.
#2 – Own a 2nd property in addition to the older property
Another option to consider is paying the minimum amount with minimal to no loan for an older private property with less than 60 year lease and making plans to own a 2nd investment property.
Under this configuration the older property will serve its purpose as a homestay property while the 2nd property will be the one that you focus your financial resources on for investment returns and early retirement planning.
A point to note is that this plan is only applicable for private property owner. For hdb property owners you may have to incur ABSD when getting a second property while holding on to your HDB.
Refer to the article “Can I own a HDB and a private condo at the same time ?”
#3 – Structure a 99-1 ownership for the short lease property
As an expansion or interim step to the earlier point of owning a separate investment property.
If you do not have enough finances to purchase a 2nd property. You could consider structuring the ownership of the older short lease property with a 99-1 tenancy in common shareholding structure. This will give you a easy option to decouple and purchase a 2nd investment property when you are ready.
Similarly for HDB owners you can consider purchasing the older HDB flat using the essential occupier scheme. This will allow the occupier to purchase a 2nd investment condo after the 5 year MOP period.
Both this option gives you an escape option to invest in another investment asset as you count on the ageing property for homestay.
#4 – Select a property with en bloc potential from the onset
If owning a 2nd property is not a option for you then it helps to select the short lease property with attribute that developer will look out for enbloc
Attributes include …
- Small to medium size land plots, as larger land plot require greater financial resources for developer to acquire. Increasing the hurdle for enbloc success
- Proximity to MRT
- Proximity to reputable school
- Located in a desirable neighbourhood
- Located in a neighbourhood that is undergoing transformation
#5 – Purchase it after its price have plateau
The last measure will be to avoid overpaying for the older short lease property. The worst thing to do is to set a benchmark price for acquiring an ageing maisonette or an aging condo.
Make sure to only commit to the purchase if it is significantly cheaper than a younger property.
Is it worth it purchasing a property with less than a 60 year lease ?
It really depends on individual circumstances and objectives.
But the key is to not count on the property as a investment asset and not overestimate the certainty of a potential enbloc or SERS.
Next Steps – 2nd Opinion for your plan ?
Having spent the last 10 mins reading this article, hopefully, it has helped you crystalise some of the thoughts you have in mind.
Take the next step by seeking a 2nd opinion for your ideas and furthering it by having us shortlist some potential property for consideration.
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