Property Herald: Will the new 6-year lease of HDB shops result in sensible bidding?
- Nicholas Mak
- Feb 23
- 2 min read
Introduction
Recently, the Housing and Development Board (HDB) announced a change in the tenancy duration of rental shops leased out by the HDB in future tenders. Going forward, all successful bidders of HDB shop tenders must maintain their tendered rent for two tenancy terms (i.e. 6 years), instead of the current one tenancy term of 3 years. By requiring tenderers to commit to rent over a longer period, HDB aims to encourage tenderers to bid prudently.
No silver medal for second place
Although HDB’s intension to curb the overzealous high bids in government shop tenders is a praiseworthy one, the requirement for retail shop tenants to bid for a 6-year lease, instead of a 3-year one, would not necessarily result in prudent bidding in future HDB rental shop tenders.
The new 6-year tenancy may prompt most tenants to bid rationally. However, this new rule would not eliminate the occurrence of eye-watering high bids because all it takes is one bidder who is either overly bullish or overestimated his business viability to submit a sky-high rental bid in a HDB tender.
Like the Government Land Sale (GLS) tenders, the HDB shop tender will be awarded to the bidder who submit the highest bid. There is no silver medal for second place. Such tender process will encourage aggressive bidding among a handful of bidders even during normal market condition.
No penalty for early lease termination
Based on my understanding, there is no penalty for HDB shop tenants who prematurely terminate the tenancy before the end of the 6-year lease. In this case, some tenants could still bid aggressively high rentals during the HDB tender for the shop. Subsequently, when they feel the bite of the high rental costs, they could back out and return the shop to HDB before the end of the 6-year tenancy without penalty.
However, the high rental bid would set the “benchmark” or refence point for other bidders. On the other hand, the tenant’s premature termination of the lease may not be publicised. Hence, subsequent bidders would be unaware that the high rental bid resulted in the early termination of the lease.
10-year MOP versus 6-year shop lease
Another factor that some retail shop tenants may consider when placing high rental bids is to get the “first-mover advantage” for shops in popular locations, such as those with Prime and Plus flats.
Some retail shop tenants may think that since the buyers can afford Plus and Prime flats, which are more expensive than the HDB Standard flats, they would also have bigger shopping budgets. Furthermore, these HDB owners must live in their Prime and Plus flats for a longer Minimum Occupation Period (MOP) of 10 years, compared to the usual 5 years. Hence, the retailer may believe that these Prime and Plus flat owners would become a captive pool of consumers with thicker wallets.
A 6-year HDB shop lease is not a panacea for curbing rapidly rising rental rates.
Therefore, the government would still need to consider other measures to encourage prudent bidding in tenders for HDB shop and in due course, for Government Land Sale tenders.
Extending HDB shop leases to six years is a well-meaning fix but far from enough to stop reckless high bidding. Even with longer tenancies, weak exit rules and fierce location competition keep risky bids alive, and AI Vision Technology could even help analyse rental trends to spot unsustainable bidding patterns early on.
Extending HDB shop leases to six years clearly won’t fix reckless bidding alone, and pcbassemblage highlights how weak exit rules keep risky rental offers common in these tenders.
The mention of no penalty for early lease termination really caught my eye. I can't help but think this might lead to more aggressive bids because some tenants might bank on being able to back out later. Block Blast It's like a safety net that could backfire unexpectedly.