Late last year, we saw an interest rule change for buying older resale HDB flats (this is usually defined as a flat that is 50 years or older). You can now use your CPF to buy an older flat, as long as there are more than 20 years left on the lease (previously, you couldn’t use your CPF if there was only 30 years or fewer left).

To be clear, this has helped HDB resale flat volumes a bit; in November last year, for instance, it probably contributed to the number of rising sales. But are we taking away the right message from this?

It would be a mistake to interpret this move as “the government propping up older resale flat values”. In fact, in the linked Straits Times report above, the government explicitly says the emphasis is now on housing – HDB flats are to provide you with a home, and not necessarily with a big windfall.

Take a look at these price movements, and what do you notice?

HDB average price

HDB average price

Right up till 2013, HDB resale prices were always increasing year after year. But from 2013 onward, have generally trended downward. Flat prices averaged over $475,700 in 2013, but today they are around $430,000.

But we’re talking about older resale HDB flats, so let’s look at these units in particular; here are price movements of flats that were completed in 1970:

HDB price trend after 2013

HDB price trend after 2013

On average, many of these older resale HDB flats have lost almost a quarter of their value. From an average of $342,000 in 2013, they have declined in price to about $260,000 today.

WHY DO RESALE HDB FLAT PRICES NO LONGER “ONLY GO UP”?

The answer is simple: it’s lease decay. After 99 years, the value of your HDB flat will be zero.

Earlier generations of Singaporeans knew this of course; but they were less affected as 99-years was a long time away. The only issues of import were that older flats tended to have better locations (mature areas like Queenstown or Marine Parade), and that older flats didn’t seem to be losing their value anyway.

But two things happened to put an end to it.

First, if you bought a flat in the run-up to 2013, you may remember paying Cash Over Valuation (COV).

This is a sum paid on top of the actual value of an HDB flat. This used to be taken for granted, and at one-point median COV soared to about $30,000. But in 2014 HDB announced it would only show the valuation after you secure the Option to Purchase (OTP). When that happened, COV prices began to plummet; and the market stared in shock HDB prices fell for the first time in eight years.

There was never a recovery from this, and today most flats are sold at zero COV (the only exception are super-rare flats like HDB maisonettes).

Second, on National Day 2018, it was announced that the solution to the “99-year timebomb” was the Voluntary Early Redevelopment Scheme (VERS). In essence, the government will buy your area’s flats in an en-bloc, if 80 per cent of owners agree (this is only offered when the flats are at least 60 years old).

This was less than many flat owners hoped for; they had been under the impression that something similar to the Selective En-bloc Redevelopment Scheme (SERS) would be the solution. SERS will replace your flat with a fresh 99-year lease; but only about four to five per cent of HDB estates are eligible.

As such, most flats will be facing VERS. This is less attractive for their long-term prospects; and it is making buyers shy away from aging flats. After all, what if the VERS exercise fails? You will end up stuck with a flat that will depreciate to zero.

Will these older HDB flats be selected for SERS in the future?

SO AM I SAYING AN OLDER RESALE HDB FLAT IS NOT WORTH BUYING?

I admit I haven’t made it sound attractive so far; but to be clear, I am not saying an older resale flat is always the wrong purchase option.

Perhaps to balance it out, I should highlight that older resale flats have their plus points too:

  • Older resale HDB  flats can be in locations that you will rarely,  if ever, see BTO launches; these are areas like Tanjong Pagar or Marine Parade (and if there is a BTO launch, they tend to be so oversubscribed your chances of getting one are slim)
  • Related to the above, older resale flats have been around for a long time. Many older resale flats are near neighbourhood malls, the best hawker centres, the MRT station, etc.
  • You need to wait three to four years for BTO flats; for new condos, you will probably wait two to three years. With resale properties, you can move in as soon as the transaction is complete.
  • Older resale flats are subject to fewer buyer restrictions. Families where both spouses are Permanent Residents, for instance, can buy resale flats but not BTO flats. There is also no income ceiling for resale units.

Finally, there is the fact that sometimes, you just must stay in a certain area (e.g. you need your parents’ help to look after your children).

THIS MEANS AN OLDER RESALE FLAT CAN BE WORTH BUYING, FOR REASONS BEYOND FINANCIAL GAIN

If you are thinking purely as a homeowner, then you should focus on affordability and practicality. Sometimes, an older resale flat checks all the boxes; it’s near your children’s school, it’s near your parents, it’s convenient to get to work, etc.

Your only requirement, in this case, is to ensure you won’t outlive the flat. Consider what will happen if you are in your 70s or 80s when the lease expires: do you have a place to stay at that point?

If you are thinking like an investor though, you will be more focused on potential gains. If this is the case, then it gets a lot trickier. You need to consider that older flats are hard to sell: even if buyers can now use their CPF, they will not expect to pay much for a flat that has, say, 25 to 30 years left on the lease.

As such, you may want to consider a BTO flat instead; a newer flat can also be used as a stepping stone toward private properties, that can hold their value better (e.g. some freehold condos).

I can help you work out the pros and cons involved; just drop me a message, and I’ll be happy to help you determine if a resale flat (old or otherwise) is right for your needs.