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The trend of newlywed couples scouting for apartments in hipster neighbourhoods continues to thrive, with younger Singaporeans joining in to explore the island’s array of hipster cafes and eateries. Alongside these gentrified neighbourhoods that boast rainbow cakes, Korean fried chicken, and soufflé pancakes, you will also find older HDB flats – often more than twenty years old – that add to the nostalgic charm of the area.
If you’re a newlywed couple looking for a rustic estate or someone looking to make a profit by renovating an older HDB flat, we’ve got the information you need. Discover the appeal of older properties and the five things you should know before buying one. Get the facts from the experts, and make sure you’re always well-informed.
Why Older Properties are Appealing?
It may seem incomprehensible, but many people choose to invest in an HDB flat with fewer than 60 years left on the lease – and for good reason. Rental yields tend to be higher, there are plenty of amenities, and the cost of renovating an older HDB unit is usually reasonable!
1. High Rental Yields
Older HDB flats located in areas with high rental demand tend to bring great profitability when rented out – known as rental yield. Tenants are drawn to the unique, rustic charm of these older estates, plus the added convenience of nearby amenities such as eateries and shops. And if the unit is kept in great condition and close to an MRT station, the rental price will skyrocket! Savvy homebuyers can capitalize on this; they can get the lower purchase price of older properties combined with the high rental demand, making these HDB flats in older estates a great investment choice.
2. Well-Equipped Neighbourhood
Older properties situated in neighbourhoods that have had time to settle, offer people a wealth of convenience. Instead of waiting a few years for a school or sports hub to appear, you can benefit from the immediate access that these properties provide. These immediate amenities makes them a popular choice amongst homebuyers.
3. It’s Not That Expensive To Renovate
When it comes to older properties, it doesn’t mean they are all dilapidated with mouldy walls and ceilings. Many older HDB flats or condos may still be in great condition despite their age. For those wanting to transform a property, a makeover with construction costs ranging from $50,000 to $80,000 can turn an aged home into a gorgeous and modern living space. Therefore, home buyers who don’t mind a bit of renovation can find a good deal in an older property.
Combining affordability, attractiveness, and convenience, young couples now find it much easier to purchase flats that are decaying lease. Nevertheless, when considering the purchase of an older apartment, there are a few essential elements to take into account, as well as a few unexpected facts you may not have heard about older properties.
The Facts About Older Properties…
Fact #1: CPF Limitations
Previously, couples had reservations about getting a resale HDB flat because of the limits to the amount of home loan and CPF usage for property buying. However, in May 2019, these regulations were revised to better reflect the evolving needs and lengthened life expectancy of Singaporeans.
Under the revised regulations, the amount of CPF that can be used to purchase a property is dependent on the length of the remaining lease to cover the youngest buyer to the age of 95. Prior to May 2019, if a property’s lease was shorter than 30 years, CPF couldn’t be used for the purchase. But with the recent rule change, this has been adjusted down to 20 years.
For young couples, the changes may sound enticing, but it can be a struggle to take full advantage of them. To make use of 100% CPF financing for a flat, you and your spouse would need to find one with a lease of at least 70 years, from your current age of 29. Anything shorter than that will require more money up front to cover the cost.
Fact #2: Lower Bank Loans
Before making a purchase, it is important to consider how much you are eligible to borrow to fund your HDB purchase. Thanks to changes in CPF limitations in 2019, buyers are now able to take an HDB housing loan of up to the full 85 per cent Loan-to-Value (LTV) limit, as long as the flat’s remaining lease can cover the youngest buyer to the age of 95. Nevertheless, should the loan tenure exceed 25 years for HDB flats, or when the loan period goes beyond your age of 65, the LTV limit will unfortunately be reduced.
If you’re looking to buy an older flat, banks may be more hesitant to lend you money since there’s a higher risk of depreciation over time; meaning you could be limited to how much you can borrow for an older property in comparison to a newer one.
Thing #3: SERS is a Gamble
For those unfamiliar with the Selective En Bloc Redevelopment Scheme (SERS), it is an urban renewal strategy launched by HDB in 1995 aiming to renovate older residential properties, which works in the same manner as an en-bloc. If your building is selected for SERS, you will be relocated to a new HDB flat with a fresh 99-year lease. In addition, you will receive generous compensation for your relocation.
Gambling on an old HDB flat being chosen for SERS may sound like a good idea, but the odds are not in your favour. Since 1995, only 4% of HDB flats have been selected for the SERS program. So, if you’re hoping to purchase an older flat in Singapore with SERS as your goal, it may be best to lower your expectations.
Fact #4: Lease Decay and Diminishing Value
As the lease of your HDB flat gets shorter and shorter, its value will depreciate, making it even more difficult to recover your investment. Selling an older HDB is harder than a newer one, compounded by the CPF limits and banking loan restrictions, meaning it may take longer to find a buyer or you may need to lower your asking price.
No matter how much effort you’ve put into keeping up your property’s interiors, the exterior may have seen better days and could be bringing down its resale value. This is why if you’re looking to buy an old property with the aim of selling it on, it’s worth considering the potential cost of lease decay and the reduction in value that might come with it.
Fact #5: Issues Of Maintenance
Good news – the property you’ve checked is free from mould, damage, and rot! But have you taken a peek at the other units in the HDB block? You see, maintenance issues like ceiling water leakages can be caused by the people living upstairs. Older HDBs are more prone to such issues, much like how our bodies experience more aches and pains as we get older.
If you’re on the hunt for an older condo, it’s important to ensure that the condo’s management council is still active and willing to put in the effort. Some older condos have management councils that have accepted the fact that there will be wear and tear and have given up. You don’t want to waste your time sending emails and calling the management council for something as simple as a leaking pipe, do you?
The Bottom-Line: Buying Older Properties
Searching online quickly reveals 1,001 reasons to buy an older property, but I want to give you the facts. While there can be advantages to owning an old flat, it may not be the best choice for a newlywed couple planning on a long future together. CPF restrictions, lower bank loans, the potential of SERS being uncertain, lease deterioration, depreciation, and maintenance problems are some of the factors you should bear in mind when deciding whether to buy an older property.
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