Lease decay

All leasehold property, meaning 99 year HDB flats and most 99 year private leasehold developments, loses value over time simply because the right to occupy the land is finite and eventually reverts to the state. This is not just an ageing or condition issue, a shorter remaining lease directly reduces how much CPF and bank loan a future buyer can use to fund a purchase, which shrinks the pool of buyers who can afford the flat and pushes price down independent of the physical state of the unit itself.

Lease decay does not move in a straight line. Value tends to hold up reasonably well while the remaining lease is long, then falls away more steeply once the lease shortens enough to meaningfully constrain CPF usage and loan tenure, broadly from the back half of the lease onward. This is why two flats identical in every other way can price quite differently once one of them crosses that threshold and the other has not yet.

Buyers commonly focus on today's price per square foot and overlook how much lease will remain when they eventually want to sell, or how the remaining lease interacts with their own age and CPF usage at the point of purchase (see the age 95 rule under remaining lease). Sellers, on the other hand, sometimes resist repricing down as the lease decays, anchoring instead on what comparable flats sold for years earlier when the lease was still meaningfully longer.

Before pricing or bidding on a leasehold property, check the exact remaining lease today, not the original tenure at completion, work out how that lease interacts with the buyer's own age and CPF withdrawal limits at the point of purchase, and weigh how the estate's location and redevelopment prospects, including any URA Master Plan signals or SERS possibility, might offset or worsen the general lease decay pattern for that specific property.

As an illustrative example, two otherwise identical flats in the same block, one with a remaining lease comfortably above the point where CPF and loan constraints start to bind, and one just below it, can see a meaningfully different pool of interested buyers, since the second flat rules out buyers whose CPF usage or loan tenure would run into the lease shortfall. This dynamic tends to matter more the closer a flat's remaining lease sits to a threshold that affects financing, which is why the same number of years remaining can matter a great deal more for one buyer's situation than another's, depending on that buyer's own age and financing plan.

Winfred Quek is an Associate Marketing Consultant at Crestbrick Pte Ltd (CEA Licence No. L31010886H). CEA R073319H. This page is for general information only and does not constitute financial, investment, or legal advice. Verify current figures with IRAS, HDB, CPF Board, or MAS before making any decision.