You will be able to explain how the remaining lease affects resale value, financing and CPF use.
Farah's uncle owns a flat in Queenstown, bought in the 1970s. A few years ago he decided to sell and move closer to his daughter. Flats in the area were selling well, so he expected a good price. Instead, the viewings were slow, and the buyers who came asked the same questions: how many years were left, and could they use their CPF and get a loan. Several walked away when the answers came back. He sold in the end, for less than he had hoped, to a buyer paying mostly in cash.
His flat hadn't changed much. Its lease had.
HDB flats are sold on 99-year leases, and most private condos are on leasehold land too, commonly 99 years. What you own is the right to the home for whatever years of the lease remain, and when they run out the property returns to the state. Freehold private homes are the exception.
The lease clock started when the flat or the development was completed, and your purchase doesn't reset it. So a resale flat built in the late 1980s, like the one Farah and Hakim bought in Bedok, already had about 62 years left on the day they got the keys in this example. Each year they own it, the remaining lease falls by one. When they sell in ten years, it will have about 52 years left. A new BTO flat starts close to the full lease and has decades before this matters.
Some older estates have been picked for redevelopment schemes, in which owners are offered a replacement flat. Those schemes are selective. Don't plan on your block being chosen.
Lease decay reaches you mainly through the person who buys from you.
Buyers face limits on how much CPF they can use for an older flat, and banks and HDB face limits on how much they can lend. Both depend on whether the remaining lease will last the youngest buyer to an age set in the rules. If it falls short, the CPF they can use is cut back in proportion, and the loan can be reduced too. Below a minimum remaining lease, CPF can't be used at all. CPF Mastery: every account and the choices you control, lesson 2.2, Valuation and withdrawal limits, and why older leases are capped, explains the CPF side and the CPF Board's housing calculator.
So when Farah's uncle put his flat on the market, many buyers could use less CPF and borrow less than they would for a younger flat. That shrank the pool of buyers to those with more cash, and fewer buyers usually means lower prices. That is lease decay in practice: the flat stays the same, but what buyers can pay for it changes.
There is no official formula for how value falls with the lease, and actual prices depend on location, size, condition and the market. But the pattern most people expect is this. Over the early decades of a lease, the remaining years matter little to price. As the lease gets shorter, each year lost matters more, because the remaining lease runs out within a buyer's lifetime and the financing limits start to bite.
That is why lesson 1.5, Compare two homes over ten years, tested a 10% fall in the resale flat's value by year ten, as a check on whether the decision hung on the lease rather than as a forecast. For Farah and Hakim, it did.
Most buyers check the remaining lease on the day they buy, and far fewer work out what it will be on the day they plan to sell, which is the number the next buyer will see. Write down both for your planned home. Then open the CPF Board's housing calculator and enter a typical next buyer, someone around your current age, with the lease that will be left by then. If that buyer could use their full CPF and get a normal loan, lease decay is unlikely to hurt your sale much. If they couldn't, expect a smaller pool of buyers and plan for a lower price, or a longer time to sell.
Farah and Hakim tried it for a buyer aged 35 in ten years, with 52 years left. They looked up the current age threshold on the CPF Board website and found that a lease of 52 years would not take that buyer to it, so the buyer's CPF use would be cut back. They kept the Bedok flat, which they had chosen for the location and for Farah's parents, but they wrote down that the flat was a home for ten years, not a long-term investment, and planned their next move with that in mind.
Lease decay doesn't make older flats a bad buy. They cost less, often sit in mature towns with good transport, and can suit buyers who plan to stay long or who use mostly cash. What matters is buying with the lease at sale in view, not just the lease at purchase.
In the activity below, write the remaining lease of your planned home today and in the year you expect to sell.
Write the remaining lease of your planned home today and at the year you expect to sell.
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