How does a leasehold property work if it run out lease

How does a leasehold property work if it run out lease

In Singapore 70% or more of our residential properties are leasehold. Very often we want to know and always ask real estate agent this question, what happens to a leasehold property after the 99 years lease run out ?

The answer is actually straight forward. The property or land will goes back to the land owner. which is usually the government or the developer who ever owns the land. For most local public properties. since the land belongs to The Housing Development Board (HDB), the properties will be returned to the HDB when the lease runs out.

But interestingly, most buyers mistakenly assumed that the government will compensate the home owners with a replacement flat or through some cash payout at the end of the lease especially those living in the HDB.

That is a wrong perception. There is no residual value after the lease runs out. The government is not obligated to pay anyone anything after the lease expires. If the government so decides to compensate these owners, it is really their prerogative and it is not an obligation on their part.

The lease system works somewhat like a Tenancy Agreement. After the Tenancy Agreement ends, other than returning the security deposit back to the tenant, the Landlord is not obligated to pay or incentivise the tenants to move out.

The government tends to favour leasehold

land or property titles as it gives them the flexibility in re-allocating land to meet socio-economic needs.

However, not all leases run its due course. Some leases get topped up mid way before it expires. By way of a collective sale (otherwise know as en-bloke sale) by residents of the estates and the land investor, usually they are by the developer. Unlike HDB property, the residents of private property are usually handsomely compensated by the developer, a price way above their current market value. Provided there is consent of at least 90% from the residents before the collective sale can go through.

Some properties within Singapore with very short leases left, especially those along primer location, residential (landed) leases along Bukit Timah area, the lease will not be top up for continue use as residential, it will be returned to the government as states land and subsequently lease out for tender for other use. And since we are living on borrowed time it is even harder for interested buyer to be granted a bank loan if the lease balance is very short. I trust this will give you an idea, how leasehold property work if it run out of lease.

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Category: Credit

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