The Housing Board is offering the owners of flats picked for the Selective En bloc Redevelopment Scheme (Sers) the option of a replacement flat with a shorter 50-year lease (Nearly all 540 Ang Mo Kio Sers residents need not top up for new flats if they take up 50-year lease, July 4).

A looming problem down the road might be fewer takers for the flat with a shorter lease should it be put on the market by either the owner or his estate after his death.

One solution could be to leave the replacement flats' lease at 99 years. For owners who cannot afford to top up the difference in cost, HDB could instead offer a bullet loan, which is similar in concept to a zero coupon bond. It would not require debt servicing, and a lump sum repayment would be made to HDB when the flat is later sold by either the owner or his estate.

In the meantime, until the loan is repaid, interest on the bullet repayment loan would continue to accrue and be added to the principal amount owed. The interest charged could be the same as the HDB home loan interest plus a premium to compensate for the lack of monthly debt servicing.

Doing this would also avoid having a messy situation of flats in the same block having different lease lengths. From HDB's point of view, it would also not be a risky proposition as it would have a mortgage on the property and the owner would have put in a large portion of equity in the form of the compensation from the flat that was picked for Sers.

To avoid abuse, the scheme could allow only certain groups, such as the elderly or those with disabilities, to qualify. Variations could also be made depending on the situation, such as granting the owner only a portion of the loan as a bullet repayment if he has sufficient cash flow to service the rest.

Ong Soon Teik