Updated: Oct 25, 2022
Just like the undying trend where many younger Singaporeans explore the island to discover hipster cafés and eateries, there is a trend for newlywed couples to scout for apartments in hipster neighbourhoods—just look at these young homeowners.
These neighbourhoods, often gentrified, boast unique food options like rainbow cakes, Korean fried chicken, and soufflé pancakes. You will also find older HDB flats, often twenty years or older, that contribute to the nostalgic vibes of the neighbourhood.
There is also another group of people who believe that older HDB flats are larger, and look specifically to purchase them just so they can do them up and sell it for a profit. Whether you are a newlywed couple looking forward to living in a rustic estate, or someone looking to profit off of an older flat, you need to be aware of potential issues that may come with buying an older property.
Luckily for you, we are in the business of telling you the truth. In this article, you will learn about the appeal of older properties as well as 5 things nobody told you about buying older properties.
The appeal of older properties
Here, you might be asking “Why would anyone buy an HDB flat with less than 60 years left on the lease?” While this may be mind boggling to you, others take an interest in older properties for several good reasons including its higher rental yields, abundance of amenities, as well as the reasonable cost of renovating an old HDB unit.
1. High rental yields
Rental yield refers to the profitability of renting out a property. Oftentimes, older HDB flats are located in areas with high rental demand. Tenants are drawn to the rustic charm of an older estate, along with convenient amenities like eateries and shops in the area.
Furthermore, if the unit is well-maintained and close to an MRT station, they would fetch a higher rental price. Homebuyers therefore capitalize on the lower purchase price of older properties coupled with its high rental demand and opt to purchase HDB flats in older estates.
2. Well-equipped neighbourhood
Image credit: Flickr
Older properties are often in neighbourhoods that have had the time to develop. This offers people a great deal of convenience—you don’t have to wait years before a school or a sports hub appears in your neighbourhood. Older properties are therefore popular for the “short-cut” that it provides homebuyers with.
3. It’s not that expensive to renovate
Image credit: Renovate.sg
When we talk about older properties, we are not referring to homes with mouldy walls and ceilings that are left to rot. Many times, well-maintained HDB flats or condos that are older may not seem their age. Construction costs can range from $15,000 to $30,000 and can turn any old property into a sparkling new abode. Hence, home buyers willing to give properties a makeover may find value in purchasing older properties.
Taken together, it is now easier, more affordable, and more attractive for young couples to buy flats that are reaching maturity. That said, however, when buying an older apartment, there are some serious considerations to keep in mind and certain things that nobody told you about buying older properties.
The thing about older properties…
Thing #1: CPF limitations
In the past, couples were reluctant to purchase older HDB flats due to the restrictions that they faced in terms of home loans as well as the use of CPF for property purchase. But in May 2019, changes were made to the rules to take into account the changing needs and higher life expectancy of Singaporeans.
Under the new rules, the total amount of CPF that can be used for property purchase will depend on the extent the remaining lease of the property can cover the youngest buyer to the age of 95. In addition, before May 2019, if the remaining lease of a property is less than 30 years, no CPF can be used for property purchase. This number has been revised to 20 years in the recent rule change.
While these changes sound enticing, it could still be difficult for younger couples to fully capitalize on the changes. For one, it is difficult to find a flat with a lease that lasts long enough for them to reach the age of 95 and thus unlock 100% CPF financing.
For example, if you and your spouse are 29, you would need to find a flat that has at least 70 years left on its lease (99-29=70) to last you till age 95. Anything less than 70 years will reduce the amount you can use your CPF to cover for: you’d have to fork out more cash upfront.
Thing #2: Lower bank loans
How much you are eligible to borrow to fund your HDB purchase is a big factor to consider before making a purchase. Along with the changes in CPF limitations in 2019, buyers are now able to take an HDB housing loan of up to the full 90 per cent Loan-to-Value (LTV) limit if the remaining lease of the flat can cover the youngest buyer to the age of 95. However, the bad news is that the LTV limit will be lowered when your loan tenure exceeds 25 years for HDB flats or when the loan period goes beyond your age of 65.
Banks may also be less likely to lend you money if you buy an older flat than if you buy a newer one. This is because the bank considers the risk of depreciation over time. In other words, you may not be able to borrow as much money to fund an older property as compared to a newer flat.
Thing #3: SERS is a gamble
For the uninitiated, Selective En Bloc Redevelopment Scheme (SERS) is an urban redevelopment strategy, introduced by HDB in 1995 to renew older residential properties, that works in the same way as an en-bloc.
When your block is selected for SERS, you will be relocated to a new HDB flat with a brand new 99-year lease. You will also receive generous compensation for rehousing.
Many Singaporeans purchase older flats in hopes that it will be selected for SERS. We’d hate to burst your bubble, but we are here to tell you things that nobody else would. So, here’s the truth: not all old HDB flats will automatically be selected for SERS. In fact, since it was launched in 1995, only 4% of HDB flats have been identified for SERS! Banking on this and this alone would be a gamble that you’d not want to risk.
Thing #4: Lease decay and diminishing value
Here’s the general rule: your HDB flat will be worth less and less as the number of years left on its lease dwindles. With an older property, you’d have even less time for you to earn back what you invested.
It would undoubtedly be more difficult to sell off an older HDB as compared to a newer one. Moreover, with the CPF limitations and lower bank loans explained above, people who’d like to take your property off your hands will find it even more challenging to do so. This could cause you to take a long time to sell or force you to lower your asking price in order to close the deal.
Furthermore, even if you’ve spent your days maintaining and renovating the interior of your property, the aged estate’s condition and exteriors may have degraded due to wear and tear, lowering your resale value.
So, if you purchase an old property with the intention of selling it off, its diminishing value and lease decay may encourage you to think twice.
Thing #5: Issues of maintenance
“I’ve already checked. The property has no signs of mould, damage, or rot!” Well, that’s great, but did you check on the other units of the HDB block? Oftentimes, issues of maintenance like ceiling water leakages come from your upper-floor neighbour. Just like how you experience more aches and pains than you ever did a decade ago, older flats run a higher risk of having such maintenance problems.
For those who are looking to purchase an old condo, you’d want to make sure that the condo’s management council is involved and actually bother to put in the work. In some older condos, management councils have given up and resigned to the fate that wear and tear is inevitable. You don’t want to spend your life writing emails to the management council to have them fix a leaking pipe, would you?
The bottom-line: Buying older properties
A quick search online will find you 1,001 reasons why you should purchase an older property, but we’re here to lay down the facts. While we do not discount the benefits of purchasing an older flat, it might not necessarily be the best move to make, especially for a newlywed couple with many more years to go.
CPF limitations, lower bank loans, uncertainty of SERS, lease decay, diminishing value, and issues of maintenance are among some of the things that you have to take into account when considering an older property.