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Why do people buy old HDB flats? We ask 3 such homeowners.

What’s the “dreaded” age of a flat that gives prospective buyers the jitters? Most experts will say that it is 40 years onwards, due to stricter restrictions imposed on the amount of Central Provident Fund (CPF) money you can use, and the HDB loan amount you can take (see box story).

In Singapore, it has become a normal, or even a given, sentiment that Build-to- Order (BTO) flats will increase in value when they hit the resale market. However, local economist Donald Low mused in a recent Facebook post, that “one of the things that has puzzled me for a while is why the price of flats with 99-year leases should rise for many years before falling gradually as the flat nears the 40-year mark, then more sharply as it nears the 99-year mark. Why don’t they start depreciating right from Day One?”

He further explained: “If we all know that flats which have fewer than 60 years left on the lease will begin to lose value, then by backward induction, flats will begin to lose their value when they have 61 years left on the lease, then 62, and so on, till expectations adjust fully and the prices of even new HDB flat prices do not rise at all – except in times of ‘irrational exuberance’...

“All this suggests that the idea of HDB flats as an appreciating asset is premised on people’s myopia and/ or speculative herding. There’s no underlying (or fundamental) reason why they should rise in value at all, not even in the first 40 years.”

It is a good observation and raises intriguing points. However, this “exuberance” has been fizzling out since National Development Minister Lawrence Wong announced in March 2017 that, unlike what many Singaporeans have come to expect, HDB flats will not be automatically offered the Selective En bloc Redevelopment Scheme (Sers) programme. Only 4 per cent of HDB flats have been chosen since its inception in 1995.

Singaporeans have since become much more aware of the clock ticking down on their flats and homebuyers may be more prudent about paying too much for older flats.

However, oldie-but- goodie resale flats still have a solid fan base. We speak to three such homebuyers.


YOUNG LIM, 35, HOME & DECOR EDITOR

Current home

Young recently purchased a 38-year-old four-room flat in the east.

Price

About $370,000. “I bought it below the estimated market rate, so I believe I got a good deal.”

Why he bought an older flat

“I didn’t mind its age because this is my first home, and my objective is not to regard it as an investment. My considerations were that it’s near where I used to live, and near my family members’ current homes. The estate is also very well-planned, with hawker centres, wet markets and established bus routes.”

Will he sell as soon as he fulfils the Minimum Occupation Period (MOP) of five years?

“I can foresee myself living here in the long term. Moreover, a lot of the other flats in the area are the same age or older, so I’m sure the Government will have to consider how to resettle the estate, if it is not offered the Sers programme.”


BRYAN LIM, 41, WORKS IN EVENTS MANAGEMENT

Current home

A 39-year-old fourroom flat in Bedok.

Price

“I paid $450,000 in November 2013, below the valuation of $452,000.”

Why he bought an older flat

“I was unable to buy a BTO flat as my salary had crossed HDB’s income ceiling. Also, I like mature estates as there are more amenities and the flats’ layouts are better.”

Will he sell as soon as he fulfils the MOP?

“I will fulfil the MOP by the end of this year but I have yet to decide. I may put it on the market to test its market value and see if it is worth selling; I spent quite a bit on the renovation and my house still looks fine. Even if my estate is not offered Sers, I hope that HDB will still do interim upgrading and maintain its upkeep. If living conditions are no longer conducive, then they should tear down the whole place and redevelop it.”


DIANA GOH, 27, BALLET TEACHER

Current home

Diana and her husband just purchased a 30-year-old fourroom flat in Bukit Panjang.

Price

$371,000.

Why they bought an older flat

“It’s bigger, there’s shorter waiting time compared to queuing for a BTO flat and there are grants for resale flats that we can tap on. We also get to choose the location: We are smack between both sets of parents. Also, we were able to gauge the type of neighbours we have based on the condition of the block/level. Family planning was also a factor. We hope to have more than two kids within the next five years hence resale flats, being more spacious, was the better choice for us that is still affordable.”

Will they sell as soon as they fulfil the MOP? 

Yes. The age is certainly a concern which is why we chose to buy one that isn’t too old. We believe there’ll still be a market for 35-year-old flats. Most of our friends are buying BTO flats as they are cheaper and, being newer, they assume it is better. However, from what has been reported in the news, we noticed that new BTOs do not necessarily have better quality stuff.”


The age of the flat aside, potential buyers should also consider other factors when purchasing a flat, such as the condition of the unit, its proximity to amenities, as well as the general upkeep of the estate. So choose wisely!

OLDER = CHEAPER? 

Theoretically, the older the flat, the cheaper it should be. Interestingly, the prices in my neighbourhood in Jurong East revealed some surprises. In December 2017, a high-floor unit in the next block sold for $755,000. Another neighbour in my block recently marketed their low-floor unit at $648,000. Not too shabby for 34-year-old flats.

Surprisingly, the units at the newer 20-year-old flats near my block are transacting at similar or even lower prices. In recent months, the five-room flats there sold between a shockingly low $518,000 (perhaps in original condition or a fire sale) and $735,000 – not too different from those in my block, despite being 14 years younger. This is probably because those units are farther from amenities, compared to my block’s.

Down the street are some blocks built in 1982, meaning they are just four years away from hitting the dreaded “Big 40”. Yet, an original condition unit was marketed at $570,000, while a neighbouring unit in the same block, touted as having a “seaview unit”, at $780,000.

It is as if the age of the flats don’t make a huge difference. However, Jurong East is an up-and-coming town being planned as the second CBD. This may be why prices remain bullish; it may not be the same in every estate.

Our point is this: Every property is unique, as is the buyer, his consumer motivation and how deep his pockets are. All you need is one buyer willing to pay the price you ask. Not everyone wants a shiny new BTO home in an inaccessible new estate that will take the next 10, 20 years to mature, and many still prefer the flexibility that resale flats offer. As for what will happen to our ageing flats in future, our guess is as good as yours. Our personal belief is something will definitely be done. After all, with 80 per cent of the electorate living in HDB flats, the Government of the day really can’t afford to let all of us go homeless and frustrated, can they?

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