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Concerns arise over proposed condo leasehold policy   2011-02-16 - SGT

The information that the Ministry of Construction is considering a proposal to set a time-limit ownership for apartment buildings has sparked widespread concerns, as covered on the local media couples of days ago. Supporters believed that the leasehold policy, if approved, would help government management organizations to facilitate a condo building’s upgrading and renovating once it turns obsolete. Meanwhile, others showed concerns that it may find hard to translate the plan into reality for different reasons, and the leasehold policy, if applied, may cause a negative impact on the local condo market.


Deputy construction minister Nguyen Tran Nam was quoted as saying on Phap Luat newspaper that many countries have applied a leasehold policy for apartment buildings, and the ownership duration is given in accordance with the age of the building. When the due date comes, those buildings will be taken back for reconstruction.


“It will be easier for management organizations to get back old buildings for reconstruction rather than offering a freehold ownership as seen on Monday,” he says.


Nguyen Manh Khoi, deputy head of Housing Management Department under the construction ministry, echoes the deputy minister’s ideas, saying that the proposal is not conceived by the construction ministry, but rather an experience learned from other countries. The proposal has yet set specifics how many years a leasehold period should be, but Khoi suggests that a grown-up person buy a house to live within 70 years, a time long enough for stable accommodation.


Khoi says the program of reconstructing old buildings had faced tough challenges because there were different opinions among residents in such buildings. Therefore, the proposal will not only facilitate the reconstruction but also create conditions for management organizations to get back land sites for other purposes.


Nam believes that the housing price will be capped at a reasonable level thanks to the leasehold policy because used apartments would be devalued by time, matching with the time left. Therefore the old apartment will be cheaper when it is resold.


However, many people show concerns about the proposal, saying that people have for ages become familiar with the concept of buying a property for freehold, and the property will be left as a fortune for the next generation. Many property developers worry the leasehold policy, if it is not done in a good way, will probably discourage people buying apartments for accommodation, and investors will hesitate to invest in, thus the condo market will be hit by the policy.


In addition, some people say that other countries have applied the form because their governments have used the State budget to build the apartments and offer favorable financial support for homebuyers. Meanwhile, most condo buildings have been built as commercial apartments by private companies, and local buyers have had to buy their properties by their own savings, and thus their properties are mean more than a place to live but as a fortune for the next generation.


Commenting on the issue, Brett Ashton, managing director of Savills Vietnam, and his director of sales Guy Major, share their experiences as an international property service provider, saying that in the UK the leasehold policy is different.


The leasehold ownership reform in 1987 in the UK allows all leasehold properties with leases in excess of 80 years could be extended indefinitely free of charge, and on Monday the only place where leases for apartments and houses that have leases shorter than 80 years is in London where the feudal remnants remain.


Outside of these feudal estates leasehold properties in the UK will be for a minimum of 80 years, so the lease can be extended in perpetuity. The usual practice in the UK is now to offer apartments with a lease in excess of 80 years and a share of freehold.


The company’s experts say social housing whether leasehold or freehold is a completely separate issue, and perhaps the best working example is Singapore where 80% of the population lives in HDB (housing development board) apartments which are all leasehold. Social housing in Singapore is all built by, financed by and owned by the state, with private sector developments.


“The concept of homeownership is without doubt a good one as it is inspirational and a driving force for individual and more importantly family success,” the experts say.


Regarding the ideas that setting a time-limit for condo buildings will make it easier for management organizations to rebuild old buildings and to cap the housing price, Savills says what is more likely to happen is that as the leasehold term drops below 20 remaining years, owners will stop maintaining it because they think it will be knocked down and rebuilt.


The paradox on this argument is why anybody should ever buy an apartment as it is guaranteed to go down in value and if everybody wants to rent, then who will buy, Brett Ashton ponders.


“Housing is a natural store of wealth for people all over the world and what is being suggested here is that people throw their money away on an ever decreasing investment,” he comments.


“If you truly want to reduce the price of housing, then land prices must come down and fair and equal access to land must be assured through public auctions of land in a clear and transparent manner such as they do in Hong Kong and Singapore,” the expert says.

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