Many people have been asking whether it is advisable to buy a resale HDB that has already reached 40 years old with a balance lease of 59 years. Most of the time, these HDB flats with certain age are situated in a good location, near the MRT, in a matured estate. They are still in demand among the HDB buyers if the buyers are looking for convenience in terms of amenities, schools and connectivity to their workplace.
Resale HDB in Matured Estates
There are several HDB flats located in a prime area with lease remaining less than 60 years. Here are some of the examples in Queenstown, Commonwealth and Holland area.
I would advise against buying these HDB flats unless you are mentally prepared with the potential risks you would be exposed to in future. If you have a strong reason such as buying near to good school (within 1km-2km), shortening journey time to the workplace, buying near to parents, these HDB flats are still good options for you. If you are thinking of buying to stay long term (10-20years) and not buying for investment purpose, these flats are still good a good choice to purchase.
Reason 1: No Potential Captial Appreciation In Value
There is a strong correlation between the value of the property and the remaining lease. Based on experience, I found that HDB flats in older estates will see their property value diminish with a remaining lease of fewer than 60 years. Needless to say, those which are just around 10 years old or newly MOP flats can fetch far higher prices.
As matured estates come with full amenities, most people will want to buy in estates such as Toa Payoh or Ang Mo Kio. However, if you buy a flat with a remaining lease of less than 60 years, you will feel the impact on your resale value in the future.
One good example is Ang Mo Kio, where you can see a mixture of new and old HDB flats. The price difference is very obvious. Newer HDB flats in Ang Mo Kio with 82 years of balance lease were sold at an average price of S$5xx,xxx. While older HDB flats with 57 balance years or less were sold at an average price of S$4xx,xxx. Below examples clearly show that there is a strong correlation between the price and the balance lease of an HDB flat.
*Take note that these 2 blocks are just within 200m.
This clearly shows that older HDB flats in mature estates will likely see their value decline as the above data showed. As such, as a potential home buyer, you might want to reconsider before purchasing such older HDB flats.
Reason 2: Restrictions in CPF and Loan Amount for Potential Buyers
Resale HDB flat depreciating value concerns has been dominating newspapers headlines and has been a hot discussion topics for these few years. Government has been advocating public to exercise prudence in purchasing older flats. Old HDB flats are not automatically selected for Selective Enbloc Redevelopment Scheme (SERS) because only 4% of all the flats across the island is being chosen to go for SERS. No doubt the mature estates, for example, Holland and Tiong Bahru are situated at good locations, but they are unlikely to be in the SERS list. Therefore, this news has had a huge negative effect on the HDB property market.
In May 2019, HDB announced new rules regarding the CPF usage and its relation to the remaining lease of the HDB flat.
- Scenario 1: If the property covers the youngest buyer to at least the age of 95: CPF Usage: You can use your CPF up to the Valuation Limit (VL).
- Scenario 2: If the property does not cover the youngest buyer to at least the age of 95: CPF Usage: You can use your CPF up to a pro-rated amount from the Valuation Limit (VL).
The policy encourages young buyers to take up newer HDB flats in the resale market. The changes to CPF usage on shorter lease HDB flats are made to cater to ensure the buyers will outlive the lease of the HDB flats in the event the lease expires before the buyer passes on.
If you are intending to buy older HDB with lesser lease remaining, do expect your future buyers of the property to have certain age criteria to utilise CPF in the house purchase. This would mean a smaller group and lesser market demand when you put your house for sale next time.
Reason 3: Might Experience Negative Sales Proceed When You Sell
I have seen many cases where an HDB flat with a shorter lease depreciating very fast and becoming very difficult to resell. The potential for losses or a negative sale is very common for older flats.
If you are intending to buy older resale flats, do more research on the current asking price to see if it is worth to pay as you know the chances of making a profit to sell in future is very slim. Of course, as I mentioned earlier, if you are buying for long term stay and with very strong reasons, you will not be concerned with the falling in value at all.
Reason 4: Old Structural Layout With Other Potential Problems
Most of the older HDB flats’ flooring is finished with concrete cement or ceramic tiles. Over time, the floors may crack or become uneven. Tiles may even dislodge themselves. Older flats are also prone to pipe leaks, clogged sewage, burst pipes and mouldy ceilings. You will also see long term wear and tear causing hairline cracks everywhere. Therefore, most buyers for the older flats will spend more on renovating the whole house. Therefore, the government has the Housing Improvement Programme (HIP) once flats have reached around 30 – 35 years.
In conclusion, if you are mentally prepared to face the above mentioned potential risks, it is fine to buy the older HDB flats in mature estates, where it gives you the convenience.
If you are not comfortable with declining value and potential problems which might arise, you can consider purchasing newly MOP-ed flats or flats within 10 years which are newer with a longer lease, better layout design and better quality construction material used.
Still Torn Between Old HDB Flats or New HDB Flats?
If you have a plan in mind but not sure if it works well – do share with me or let me know.
I will do my best to assist you and make sure your plan covers all the angles so that there are no unpleasant surprises along the way.
Drop me a message on WhatsApp and share with me your concern in your property purchase journey.