Will your HDB flat be put up for SERS?

By Felicia Tan

/ EdgeProp Singapore |

September 14, 2021 11:27 AM SGT

Flats in the Redhill and Alexandra area. (Photo: Samuel Isaac Chua/EdgeProp)

SINGAPORE (EDGEPROP) - En bloc sales – whether for private condominium developments or HDB flats – will generally net homeowners certain benefits that come with the completion of a sale.

For condominium homeowners, this comes in the form of significant cash gains. For HDB homeowners, this may come in the form of a new flat and a refreshed 99-year lease, or cash to purchase a new unit elsewhere.

That said, the en bloc process differs when it comes to HDB flats and condominiums. Unlike condominium en bloc sales, where unit owners get to decide if they want to put up their condominium for sale, HDB flat owners will have to wait for the government’s selective en bloc redevelopment scheme (SERS) instead. (See: See potential condos with en bloc calculator)

“The one fundamental difference is that HDB flat owners have no ownership rights to the land, whereas condominium unit owners – whether it be a 99-year leasehold property or freehold – own a share of the land,” says Nicholas Mak, head of research & consultancy at ERA Realty Network. “That’s why condominium owners can vote to sell their property in a collective sale.”

Condominium en bloc sales are driven by the collective sale committee (CSC), with the members made up of owners in the development. “It is also dependent on the owners, where the majority [at least 80%] of them have to agree that they want to sell collectively,” says Lee Nai Jia, deputy director (business development and industry) at the Institute of Real Estate and Urban Studies at NUS. “The proceeds that you get from the collective sale will be more significant as the developer is paying based on potential redevelopment of the land.”

Meanwhile, SERS is more of a “top-down approach”, adds Lee of NUS, “where the government issues a notification that your block will be undergoing SERS. Then, it’s up to you to decide which option you want to go with.” They will be able to buy a new flat of a similar size in the new HDB development coming up. (See: Find HDB flats for rent or sale with our Singapore HDB directory)

For condominium en bloc sales, there is usually a premium for owners, whereas the compensation for SERS is based on the market value of the flat, points out Mark Yip, CEO of Huttons Asia.

Should you be hoping for your HDB flat to go en bloc, here are some things you should know.

The HDB’s selective en bloc redevelopment scheme or SERS

SERS refers to the government’s scheme to buy back HDB flats aged 50 years and above. The scheme was introduced by the government in August 1995 to bring “a new lease of life to some older estates”, according to the HDB website: https://www.hdb.gov.sg.

To Lee Sze Teck, senior director of research at Huttons Asia, SERS is a “good policy tool that ensures our housing stock is refreshed to account for changes in socio-demographic trends”.

NUS’s Lee on the other hand, sees SERS as another scheme by the government to help HDB homeowners live more comfortably. “Some of the HDB estates may have ageing HDB blocks that are in disrepair,” he adds. “Instead of upgrading every home individually, sometimes it’s easier and cheaper to relocate everyone in those blocks elsewhere. At other times, the government may want to redevelop the land for alternative uses.”

What will happen if your flat is up for SERS?

Under the scheme, residents living in flats designated for SERS will be told about it. Next, there will be an exhibition on the neighbourhood that is undergoing SERS. It will showcase the new development and amenities available in the neighbourhood.

The sum received is usually based on the market value of the flat, according to HDB. The sum is enough for residents in SERS flats to be able to buy a similar-sized unit wherever they prefer.

According to the HDB website, the compensation is based on the market value of the flat at the point of the SERS announcement. See here for more details.

Expenses, including a $10,000 removal allowance as well as stamp and legal fees, will be included in the compensation from the government.

What is the likelihood that your flat will be earmarked for SERS?

In 2017, then-Minister for National Development, Lawrence Wong said that not all old HDB flats will be eligible for SERS.

Writing in a blog post dated March 24, 2017, Wong cautioned that under the government’s criteria, only 4% of HDB flats were identified for SERS since the scheme was launched in 1995.

Wong’s post was in response to a report by Chinese daily Lianhe Zaobao on March 15, 2017, that covered the high prices of HDB flats with shorter leases in the resale market.

See: Perils of owning ageing leasehold properties

In August 2018, HDB estimated that only about 5% of flats were suitable for SERS, with most already completed.

According to ERA’s Mak, chances of having a flat be selected under SERS are slim. Even if the details have yet to be firmed up, the introduction of the new voluntary early redevelopment scheme (VERS) announced in 2018, shows that “SERS is not a guarantee”, he adds.

“If the HDB blocks are perfectly serviceable, it is an economic waste to tear it down and build a new one,” continues Mak. “The construction itself has a tremendous carbon footprint. Even before the process itself, the manufacturing of cement emits a lot of carbon.”

It is very unlikely that the newer HDB blocks will be up for SERS as well, says Mak. “The probability of SERS for these younger flats will be quite low due to the growing emphasis on sustainability.”

NUS’s Lee agrees. The chances of SERS in the near-term is “next to zero”. He adds: “With Covid-19 and the labour shortage in the construction sector, I think SERS may stop for a while.”

The criteria for SERS

To date, the government has not set out any firm criteria for SERS.

However, based on past completed SERS projects, we’ve noticed that most of the flats that were earmarked for SERS are mostly around the city fringe area.

We have also identified several factors, according to the analysts’ opinions.

1. Land value and age

While past SERS projects that took place in the city fringe may have been due to the higher value of the land, Mak and Lee have a simpler reason for it. That is, the first few neighbourhoods in Singapore were built in the city centre. Naturally, these would be older and would be eligible for SERS.

However, for certain blocks with historical value like the ones at Moh Guan Terrace in Tiong Bahru, Lee of NUS surmises that the government could let the lease expire instead. Just one street away, those former SIT (Singapore Improvement Trust) flats built in the post-war years, such as those along Seng Poh Road, Eng Hoon Street and Guan Chuan Street, Chay Yan Street and Tiong Poh Road, have been privatised and given conservation status by URA in 2003.

SIT flats at Tiong Bahru. (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Those low-rise, walk-up HDB blocks with their curved staircases at Moh Guan Terrace were built by HDB and have leases from 1973. “I don’t think the government will apply SERS on these blocks at Moh Guan Terrace because they don’t want to demolish them,” says Lee of NUS. Their architecture is unique to that era and part of the heritage, he adds. “For old HDB blocks that are less unique in nature like the squarish ones, the likelihood of SERS is relatively higher, especially if the whole district is being rejuvenated.”

Whether an area will be earmarked for SERS depends on the kind of redevelopment the government has in mind, says Mak. SERS is costly for the government, he adds. “In essence, SERS gives its residents a fresh 99-year lease in a new development, opposed to the government repaying a percentage of the open market value on the remaining lease.”

2. Underutilised blocks

During the 1960s to the 1990s, many HDB blocks were not built according to the plot ratio system of land sales today, which is the gross floor area divided by land area.

Flats during that time were planned using a standard density measure of 200 dwelling units per hectare. It was only sometime in the 1990s that the plot ratio system was introduced.

Those HDB blocks that undergo SERS usually sit on land plots where the use can be intensified, adds Mak.

3. Rejuvenation of an area

A renewal of the estate is one of the main reasons for HDB blocks in an area to go up for SERS.

“It may be part of the government’s long-term planning vision for the area,” says NUS's Lee. “In some areas, if the long-term vision is to have a mix of commercial, retail and residential, it may be neater to conduct SERS.”

The recent SERS exercise at Tanglin Halt covers a big area, observes Mak. This is part of the rejuvenation of the Dawson Estate, where the government is building new HDB flats that will attract a younger generation of families, notes Mak. “This includes community spaces, an integrated transport hub with MRT station and bus interchange, as well as other uses that will benefit both the young and the old alike.”

Meanwhile, 191 private terraced houses at Geylang Lorong 3 where the leases had expired at the end of December in 2020, were returned to the state. The land is slated for redevelopment into new public housing flats. The site is located about 900m from the Kallang MRT station and 500m from the new Geylang Bahru MRT station, and will be part of the plan to rejuvenate the Kallang area under the URA Master Plan 2014.

4. Land space

The availability of land is another consideration for flats to be considered eligible for SERS, says Mak. “Sometimes, there is no space to build brand new flats as a replacement home within the area,” he adds.

Bendemeer Road was one of the SERS replacement sites. (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Possibility of SERS driving up HDB prices

Should SERS be guaranteed for all HDB homeowners, a consistent number of flats going through the scheme will effectively make HDB flats freehold, says Mak. “Where then does that put 99-year leasehold private property? If it becomes a given that your old HDB flat gets SERS, the value of HDB flats will eventually go up. Over time, the gap between prices of HDB flats and private property will narrow even further.”

What happens if my flat is not being selected for SERS?

In theory, this would mean that the value of your flat will be reduced to zero when the 99-year lease expires and the property will revert to the state. According to Mak, it’s like the HDB owners are paying for 99 years’ worth of rent upfront when they buy a brand new flat. “At the end of the lease, if the landlord doesn’t want to extend the lease, the tenant has to leave,” he says.

The state will probably help residents find alternative accommodation, which was seen in the case of the houses at Lorong 3 Geylang, where the leases expired at the end of December 2020. “The owners were given options to transit smoothly,” says Yip.

Is it worth buying an old flat in the hopes that it will be selected for SERS?

Buying a very old flat may not necessarily guarantee a windfall for the homeowner. “There are instances where homeowners are worse off when they buy a SERS flat,” says Lee of NUS. “This is due to the potential levy or seller stamp duty (SSD) that has to be paid to the government should SERS take place within the time period. This is not commonly seen, and it’s very unlucky for the homeowners, but such incidents do happen.”

Speculating whether a particular block of flats in an older precinct will be up for SERS is also “dangerous”, notes Lee. For instance, people look at the Redhill and Commonwealth areas where many HDB blocks have already been through SERS, and may think that the remaining old HDB blocks could be due for SERS too. “Yet for the longest time, these flats are not up for SERS yet. Eventually, you are faced with the issue of an expiring lease and certain structural flaws that come with older flats,” he says.

Instead, NUS's Lee advises homebuyers to buy something for their own use. “Now is not the best time to seek SERS flats,” he says. “It is better to seek something for home occupation in terms of size, future family planning, proximity to schools and so on,” he says. “Having SERS should be seen as a surprise gift, and only if it ever happens.”

Having personally undergone SERS once, Lee of NUS says it is more similar to a home upgrading programme. “People see SERS as having gained a windfall, but in reality, it is tiring and it is essentially getting a new apartment in exchange for the old one,” he says.

How will VERS affect SERS?

The government has already stated that terms for VERS will be less generous than SERS, although details have not been confirmed yet.

With VERS, homeowners in selected precincts where flats are aged 70 years and older, will get to decide if they want their flats to be taken back by the government before the lease runs out. This is unlike SERS where residents have to surrender their flats upon receiving the announcement.

For homeowners, SERS is a sweeter deal than VERS, but it’s also more to do with the government’s vision. “The government may use SERS to acquire older HDB flats in areas such as the Greater Southern Waterfront because they need more space or they want to upgrade that development,” says Lee of NUS. “They will be very selective moving forward.”

See also: VERS versus SERS

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