Wednesday, May 08, 2013

Shorter lease flats

Minister of National Development, Khaw Boon Wan, has a difficult task. He wants to bring down the price of new flats to four years of average salary, but he has to placate existing HDB owners who are angry that the prices of their existing HDB flats will be adversely affected. He has announced that his plan is to stop the prices from rising, and to make sure that any fall will be "just a few percent".

It is difficult for the minister to balance the conflicting interest of existing and new flat owners. He can consider two approaches:

a)  Create a new class of "non-open market" flats that have to be sold back to HDB. This was proposed by a political party.

b) Offer a new category of HDB flats with a shorter lease of 60 or 75 years. This flats will be cheaper, due to the shorter lease.

I think that proposal (b) will be better and will not cause too much disruption to the current situation. New buyers, who does not like the shorter lease, have the option to buy the longer lease at the current prices. The cheaper flats, on shorter lease, will be more attractive to those buyers who find the current prices to be too expensive.

Currently, industrial buildings are being sold on 30 and 60 year leases, and are accepted as good investments. In time, shorter lease HDB flats will also be acceptable. Actually, many of the flats with original 99 years have their current lease reduced to 75 years already, after 25 years have passed by.

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