RELATIONSHIP BETWEEN HDB PRICES & UPGRADING PROGRAMMES: ARRESTING THE LEASE DECAY

Abstract

This paper aims to investigate the impact of price premiums from Home Improvement Programme (HIP) and HIP II on the lease value in order to slow down the lease decay of Housing and Development Board (HDB) flats. The research motivation stems from the lack of study regarding the effect of upgrading programmes and how it could influence the magnitude of lease decay. Upgrading programmes do value-add to the HDB flat prices, and this study uses hypothetical scenarios to examine how different quantum of price premiums would influence the lease depreciation schedule. Using the Singapore Land Authority Leasehold Table as the base scenario, eight other scenarios were projected using price premiums of 0.3%, 0.8%, 2% and 3% – based on existing literature, which are added from Year 69 (when flat is 30 years old) and Year 39 (when flat is 60 years old). The first key finding is that the quantum of price increment affects whether the lease decay could be delayed, and the length of delay achieved. The second key finding is that with a bigger price premium in the earlier stage of the HDB flat (at around 30 years of age), it would help to offset the increased rate of deterioration of lease value in the later years of the HDB flat. However, the implication of price premiums would possibly translate into a less affordable resale housing market for the general population.