Young Couple, Older Flat in Singapore: What Are Some Challenges You Might Face? (2022)
The trend for young couples to seek out older apartments in ‘hipster’ (read: increasingly gentrified) has been on the rise since 2019. The current pandemic appears to have contributed to the growing trend.
Enduring work-from-home arrangements has changed the way we shop for homes. More are valuing space over location, and want to live in a neighbourhood where a plethora of amenities are within walking distance. Typically, these flats are in older, mature HDB estates, with these homes being built in the 1980s or earlier.
A perfect example will be this couple who bought an old Beach Road flat and transformed it into their dream home. More recently, a five-room flat at Marine Parade was sold for $1,010,888 which only has 51 years and nine months left on its 99-year lease.
Recent CPF changes in May 2019 expanding the circumstances in which buyers can use CPF to pay for an older property, as well as get a full HDB loan, have made it easier and more affordable for young couples to buy flats that are reaching maturity.
However, there are some serious considerations to take note of when purchasing an older HDB flat. We delve into some of the problems associated with getting older HDB flats and the potential cash flow and other challenges that a younger couple getting one might face.
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6 Reasons Why Young People May Prefer Older HDB Flats
1. Older HDB Flats Are Usually in Better Locations
Older flats are typically located in mature estates, which are more convenient and have better amenities, as well as often more central locations. An older flat would allow them to reap the benefits of their location for living and commuting.
Tampines is an example of a mature estate. You might think Tampines is very far from the city centre (which is true), but there are popular shopping malls such as Tampines Mall or Century Square, which are convenient and filled with amenities. Furthermore, Tampines will be Singapore’s first town centre to have district cooling.
Seven existing buildings, like Tampines Mall, OCBC Tampines Centre 2, Our Tampines Hub and Tampines One will be modified to connect to a distributed district cooling network, including Tampines Mall.
Related article: HDB DBSS Flats in Singapore: Price Guide to All 13 DBSS Projects
2. Older HDB Flats Are Larger in Size
Built when Singapore was less heavily populated and when space was not yet at such a premium as today, older HDB flats tend to be bigger in floor area — an older 3-room HDB flat could be bigger than some modern 4-room BTO flats!
With such large sizes no longer being built today, these older HDB flats are the last best hope of many Singaporeans to live in spacious housing that still remains affordable.
Related article: Buying Old HDB Resale Flats: We Ask 3 Young Couples in Singapore Why They Did So
3. HDB Resale Prices Are Lower for Older Flats
As the value of every HDB flat is also tied to their leases, the age of such older HDB flats, and the shorter time left on their lease, means that their prices are also generally lower, offering a more affordable solution to younger couples hoping to outlay less on their initial home.
With HDB resale prices at an all-time high, the prices of older, but much more affordable flats in mature estates are understandably more appealing than that of freshly MOP-ed flats. It may not necessary make a great investment (since it is expected to continue depreciating), but it makes for a very affordable home.
Related article: 60 Freshly MOP-ed HDB Resale Flats in Singapore to Expect in 2022/2023
4. Possibly Stay Closer to Family
If your parents bought a home when they were young and didn’t move, it’s likely they live in a mature estate/older neighbourhood. If you intend to take advantage of the Proximity Housing Grant associated with living near your parents, getting an older resale HDB flat in an older neighbourhood is a great idea.
Especially in today’s context, most couples are dual-income families who have to share both the family workload and the income load. The added help staying near your parents can help you with can definitely be something that may push you toward buying a mature flat in a mature estate.
5. Buying Resale Flats Offer You Immediate Availability
Both COVID-19 measures, delays on BTO projects and the sudden return of many Singaporeans have increased the necessity of getting a flat as quickly as possible. Persistent BTO building delays and young families’ unwillingness to wait for extended BTO completion periods are factors driving young Singaporeans to the HDB resale market.
For those who want to ‘start’ their lives now, the best possible way to move forward is to get a resale flat that will be immediately available. Some of these mature flats are vacant and can be sold off quickly so they can be your new home in the shortest period of time.
However, according to HDB, the HDB resale price index for Q2 2022 is 163.9 which is an increase of 2.8% as compared to Q1 2022. So do take note that although there is immediate availability, the HDB resale prices are still high.
6. The Possibility of SERS
SERS (Selective En Bloc Redevelopment Scheme) is a Government scheme that works similar to en bloc. When a flat has been selected to be part of the SERS scheme, there is a generous compensation package tied to it and its subsidies carry with it a fresh lease of 99-years for a flat nearby the home you purchase.
Related article: HDB SERS (Selective En Bloc Redevelopment Scheme): What Is It and Does Your HDB Flat Stand A Chance? (2022)
However, SERS currently extends to only 84 sites. Most of these flats have very unique styling, are bigger and are within neighbourhoods that are more mature. As a result, it might seem a goldmine for some short-term gains that will give you time to choose a new flat.
On 26 May 2022, the Immigration and Checkpoints Authority (ICA) announced plans to expand the Woodlands Checkpoint. Nine HDB buildings in the area will be purchased as part of this expansion to make space for the enormous redevelopment.
Conversely, these benefits come with a host of challenges – specifically targeted at young couples.
Challenges Faced With an Older HDB Flat
1. Older HDB Flats May Be Harder to Sell
The thing about older flats with dwindling leases is that the closer they are to lease expiration, the more difficult it will be to find a buyer for them. While many couples purchase such older flats with the intention of staying there for the long term, even for life, the future is unpredictable.
You never know when you may need to sell off your property for financial reasons, and if you are unfortunate enough to be placed in such a situation, this challenge will rear its head.
Not to mention it is doubtful if a potential buyer will be willing to pay even the same HDB transaction price you paid for the flat when it had a longer lease remaining, much less more.
2. There Are CPF Usage Limits
Recent CPF rule changes have loosened the requirements for using CPF to purchase ageing flats, with homebuyers now permitted to get a full 85% HDB housing loan and pay up to 100% of the valuation price (up from 80%) with CPF provided the flat’s remaining lease will be sufficient to cover the youngest buyer to the age of 95. For those who fall short of this criteria, CPF payment amounts and HDB loan amounts will be pro-rated according to how far short the buyers fall.
While being able to use your CPF to pay the entire value of a flat is appealing, this could pose a challenge for younger couples, as the younger you are, the harder it is to find a flat whose lease lasts long enough for you to reach age 95, just to unlock 100% CPF financing.
For example, if you are 30 and your spouse is 28, you would need to find a flat that has at least 99 – 28 = 71 years left on its lease, to last your younger spouse till age 95. Anything less than that will reduce the amount you can cover with CPF, reduce the LTV you can get from HDB if you are planning to avail yourself of a concessionary loan, and increase the amount of cash you need to pay upfront.
3. There Are Also Borrowing Limits When Buying an Older Flat
If you are planning to take a bank loan, do note that the changes to CPF rules do not affect bank requirements for a home loan. It will still be based on your eligibility, the bank’s valuation of your property, and ultimately the bank’s approval.
Getting a mortgage from a bank is subject to limitations, the most common of which is that your mortgage may come with a lower LTV as banks see it as a risk with the prospect of depreciation over time. Buying a mature flat is a gamble, but it can be a calculated risk if you rely on professionals who are aware of property market trends and have the know-how to handle the finances behind it.
Speak to PropertyGuru Finance’s mortgage experts, who can help you navigate the financial aspects and steer you toward the best mortgage loan for your flat.
4. Buying for SERS Comes With Drawbacks
While buying in the hope of SERS (or buying flats already selected for SERS) is attractive, it has its drawbacks. In the former case, buying flats to “invest” in this possibility is risky because SERS is not guaranteed
Whereas in the latter case, prices of SERS-selected flats have risen, and continue to rise, with 3-room flats in Tiong Bahru going for as much as $600,000, which may be financially unsustainable for a young couple.
Besides that, SERS has its pros and cons. You would have to take note of the fact that you’ll probably be forced to readapt your life and your new HDB flat might be smaller.
Related article: HDB SERS (Selective En Bloc Redevelopment Scheme): What Is It and Does Your HDB Flat Stand A Chance? (2022)
5. Lease Buyback Scheme
While the government is seeing the increase in demand for resale flats and enacting subsidies accordingly, there are still inherent schemes put in place to protect mature couples who already live in mature flats. The Lease Buyback Scheme is one of them. It allows an older couple in their 60s to sell the tail end of their flat lease back to HDB to get some money. This will not be applicable to younger couples who are buying these flats as resale flats. Thus, you will not be able to use it to top up your retirement funds and thus lose out on some of the inherent benefits of buying a mature property.
HDB Resale Prices in Q2 2022
As previously mentioned, HDB resale prices have been growing but it is slowing down. According to the Singapore Property Market Report Q2 2022, Q1 2022 saw a 15th consecutive quarter of growth in HDB resale asking prices, albeit at a slower pace. According to figures released by HDB on 22 July 2022, HDB resale flats saw a continued rise in transaction prices.
Nevertheless, there are HDB resale grants that can help you out.
Under the CPF Housing Grant Scheme, you are eligible to receive up to $50,000 in housing subsidies. An example of the most “basic” one that most buyers would be eligible for is the Enhanced CPF Housing Grant (EHG). Before you commit to anything, however, it’s best to check that you meet the requirements listed on the HDB site.
If you are wondering which HDB flat may fit your budget, we have consolidated the median resale HDB transaction prices for 2-room to 5-room HDB flats so you don’t have to.
Median HDB Resale Prices for 3-room to 5-room Flats (Q2 2022)
HDB town | Median HDB transaction price of 3-room HDB flat (Q2 2022) | Median HDB transaction price of 4-room HDB flat (Q2 2022) | Median HDB transaction price of 5-room HDB flat (Q2 2022) |
Ang Mo Kio | $365,000 | $515,000 | $785,000 |
Bedok | $345,000 | $465,000 | $643,000 |
Bishan | $432,500 | $605,000 | $851,000 |
Bukit Batok | $345,000 | $495,000 | $790,000 |
Bukit Merah | $370,400 | $751,000 | $866,000 |
Bukit Panjang | $357,000 | $475,000 | $584,500 |
Bukit Timah | – | – | – |
Central | – | $964,000 | – |
Choa Chu Kang | $400,000 | $485,000 | $571,000 |
Clementi | $369,500 | $732,500 | $900,000 |
Geylang | $340,000 | $570,000 | – |
Hougang | $365,000 | $495,000 | $608,800 |
Jurong East | $351,500 | $490,000 | $647,500 |
Jurong West | $340,000 | $469,000 | $550,000 |
Kallang/Whampoa | $372,500 | $780,000 | $836,500 |
Marine Parade | $418,000 | – | – |
Pasir Ris | – | $500,000 | $600,000 |
Punggol | $436,000 | $550,000 | $580,000 |
Queenstown | $385,000 | $829,000 | $875,000 |
Sembawang | – | $472,500 | $545,000 |
Sengkang | $425,000 | $512,500 | $580,000 |
Serangoon | – | $526,500 | – |
Tampines | $390,000 | $510,000 | $625,500 |
Toa Payoh | $320,000 | $700,900 | $784,000 |
Woodlands | $337,000 | $450,000 | $545,000 |
Yishun | $360,000 | $470,000 | $622,000 |
Source: HDB
Note: The empty fields mean that there were insufficient transactions, and no data was published.
Should You Buy an Older HDB Flat?
While many do see the benefits of purchasing an older flat, it might not necessarily be the best thing to do for a new couple who is just starting out.
Mature flats come with their risks if you do intend to hold them out as a property investment in the short term. Making this decision isn’t a straightforward calculus, and you need to carefully consider your moves. If you need more property financing advice, our PropertyGuru Finance mortgage experts can help.
Related article: Comparing HDB Flats in the Same Estate: How Old Should You Go? (BTO vs HDB Resale Price 2022)
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