As the lease duration of Housing and Development Board (HDB) flats decreases, concerns about lease decay have intensified among potential buyers and investors. Lease decay refers to the declining value of properties as their remaining lease period diminishes, a phenomenon particularly pronounced in the context of HDB flats. Research indicates that when a flat has only 25 years left on its lease, the land value drops to approximately 54.6% of that of a freehold property. This stark realization has sparked apprehension among those eyeing older HDB flats, as the diminishing lease duration can significantly impact future resale values.
Despite these concerns, a notable segment of buyers appears undeterred by the implications of lease decay. Some individuals are willing to invest over $1 million in older HDB flats, reflecting a divergence in market perceptions. These buyers may prioritize factors beyond lease length, such as location, layout, and the unique characteristics of certain flat types. This willingness to pay premium prices for older properties suggests that not all potential buyers are influenced by the fear of declining value due to lease expiration.
However, the overall demand for older HDB flats, especially those constructed between 1966 and 1970, has witnessed a downward trend. Transaction volumes for these flats have decreased over time, indicating a growing caution among buyers. While some categories of flats, like three-room units, have experienced substantial price gains, the market for older flats has faced challenges. The contrast between the performance of three-room flats and older units highlights the complexities of the HDB market, where specific types may thrive while others languish under the weight of lease decay concerns.
Interestingly, certain unique flat types, such as terraced three-room flats, have shown resilience in pricing despite the overarching issue of lease decay. These flats have recorded significant price increases across various age bands, indicating that distinguishing features can mitigate the negative impact associated with shorter leases. This resilience may stem from their appeal to buyers seeking distinctive housing options in a competitive market, suggesting that factors beyond mere lease length can influence buyer preferences and valuations.
Government policies have also played a crucial role in shaping buyer behavior and market dynamics amidst the lease decay phenomenon. Restrictions on the use of Central Provident Fund (CPF) savings for older flats may further complicate the landscape for potential buyers. Such policies could deter some individuals from considering older HDB flats, thereby impacting transaction volumes and price stability in this segment of the market.
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News Source: Edgeprop
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