An issue weighing heavily on many public housing-dwelling Singaporeans' minds has been addressed this National Day Rally 2018.

The NDR 2018 was held at at the ITE College Central, Ang Mo Kio, on Aug. 19, 2018.

This was what Prime Minister Lee Hsien Loong said about the 99-year Housing Board (HDB) flat lease running out and the measures that will be in place to mitigate this eventuality.

Managing expectations: Newer HDB flats won't experience massive value appreciation

A four-room flat in Ang Mo Kio bought by a first-generation resident for S$25,000, would now be about 40 years old, and can fetch more than S$400,000 in the resale market, more if it is in a good location.

This is a huge appreciation of value.

Even the poorest one-fifth of homeowners each have on average S$200,000 of wealth in their HDB flat, PM Lee said.

Young couples buying a flat today probably won’t see such a tremendous appreciation, because our economy is maturing and can no longer grow as fast.

The oldest flat in Singapore is about 52 years old.

Assuring Singaporeans HDB leases have value despite them running out eventually

PM Lee explained how the remaining lease of a flat can retain substantial value to meet retirement needs.

Singaporeans can continue living in the flat, rent out a room for income if needed, and one day pass the flat down to their children.

Or Singaporeans can right-size, sell the flat and move to a smaller unit.

Or Singaporeans can go for Lease Buyback, and return the remaining lease to HDB, then use the money received for retirement.

To help residents monetise their older flats, the government will expand the Lease Buyback scheme and improve the liquidity of the resale market.

The Ministry of National Development will work on this.

More reassurances about HDB leases outliving the owners

Very few of today’s HDB owners will outlive their leases

HDB estimates that it will happen to less than 2 percent of households, including those who have bought resale flats.

But it could happen to the buyer's children if they inherit the flat, but this should not be a problem if the children buy their own BTO flat, with its own 99-year lease.

What will the Singapore government do when leases run out?

If Singaporeans return the flat to the government when the lease expires, the government will help them get another flat to live in.

PM Lee said it may be a Build-To-Order (BTO) flat from HDB with a fresh 99-year lease, if the buyer is eligible for another one.

Or it may be a resale flat on a shorter and cheaper lease.

Or it may be a two-room Flexi flat for retirement.

But whichever option chosen, it is only fair to pay for the new lease.

Why is lease expiry necessary?

PM Lee then explained the justifications for leases to expire.

The flat returns to the state to allow the government to redevelop the land, and build new flats for future generations.

This is the only way to recycle the land and ensure that all descendants can buy new BTO flats of their own.

If flats are sold without a lease, the owners would pass their flats down to some of their descendants, many generations into the future.

But those not lucky enough to inherit a property would get nothing.

Singapore society would split into property owners and those who cannot afford a property

This is why 99-year leases apply to private housing too.

Practical reason why leases cannot be extended

Buildings suffer from wear and tear at the 50-year mark in Singapore's tropical climate, and internal electrical wiring might be obsolete in the future.

The recurrent maintenance cost will be very high.

It is easier to demolish and rebuild, than to preserve.

Some important heritage buildings will be preserved, but selectively.

The government has also pledged to keep existing HDB flats liveable and in good condition, despite leases only expiring in a few decades' time.

New upgrading programme to be launched

The upgrading Home Improvement Programme will be extended.

There are flats that missed qualifying for the original HIP launched 10 years ago and are now starting to show their age at the 30-year mark.

The original HIP covers flats built up to 1986.

The HIP will be expanded to include blocks built up to 1997.

This means another 230,000 flats will benefit.

These flats include those in Pasir Ris, Yishun, Tampines, Jurong and a number of other estates.

Two upgrading programmes in 99 years

PM Lee said Singapore is determined not to let public housing degenerate into slums, which has happened in many other cities.

There will be a second round of upgrading, at about the 60- to 70-year mark.

It will be called HIP II.

Therefore, every HDB flat can expect to be upgraded twice during their lease.

Once when they are about 30 years old, through the Main Upgrading Programme (MUP) or Home Improvement Programme HIP, and a second time through HIP II when they are about 60 to 70 years old.

The first flats will reach 60 to 70 years old about 10 years from now.

That is when Singapore plans to launch the HIP II programme.

The first HIP will cost the government more than S$4 billion.

HIP II will probably cost even more, because the flats will be twice as old by then.

The final batch of HIP flats will be announced by next year.

Within a few years, all flats eligible for HIP will have been upgraded.

That means altogether 450,000 flats upgraded under MUP plus HIP.

Selective En bloc Redevelopment Scheme (SERS)

PM Lee also explained the rationale as to why Selective En bloc Redevelopment Scheme (SERS) cannot be carried out extensively.

SERS is a very limited scheme meant for selected HDB blocks or precincts, which have high development value that can be unlocked -- such as Tanglin Halt.

Because there is a lot of value unlocked, the value is shared with residents through generous compensation.

With generous compensation, acquisition can be made compulsory, which means HDB decides on SERS, and residents don’t get to vote.

HDB estimates that only around 5 percent of flats are suitable for SERS.

But more households will be able to benefit from redevelopment before their leases expire.

Why? Because the government has good reason to take back more flats, and redevelop them as they grow older, before 99 years are up.

By planning ahead, this will prevent the leases in towns that will expire around the same time having all the flats returned to the state within a few short years.

Redevelopment of old towns can then take place over 20 to 30 years, rather than within four to five years -- the duration which they were built.

This would start with oldest flats that reach about 70 years old onwards.

This will allow things to be done in a more orderly and measured way.

New scheme to take back flats: VERS

PM Lee then introduced a new scheme that is a derivative of SERS.

The government will take back flats progressively over several decades, starting from 70 years, and stage out the redevelopment.

This new scheme, Voluntary Early Redevelopment Scheme (VERS) will compensate those whose flats are taken back early.

Residents will get to vote on VERS.

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But the terms will be less generous than SERS, because there will less financial upside.

Therefore, the scheme will be voluntary.

If the residents vote yes, the government will buy back all the flats and redevelop the precinct, and residents can use their proceeds to help pay for another flat.

But VERS won't start for another 20 years.