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Should I Buy Resale HDB at Mature HDB Estates (< 60 Balance Lease)?

Updated: Apr 14, 2020

Is It Advisable to Go Ahead & Buy?



Few days ago received a text from a reader to ask if it is advisable to buy resale HDB that has already reached 40 years old with balance lease of 59 years. Usually those HDB with certain age are situated in good location and in matured estate. They still have some popularity among the HDB buyers if the buyers are looking for convenience in terms of accessing the amenities / schools / workplace.


There are many features and differences between HDB Loan and Bank Loan.

Resale HDB in Matured Estates


There are many estates are aging and having lease remaining less than 60 years. Here are some of the examples in Chinatown, Queenstown, Commonwealth and Holland area.



“I personally will advise not to buy HDB with balance lease less than 60 years”

I would advise against buying HDB at super mature estates unless you are mentally prepared with the potential risks you would be experiencing in the future. If you have a strong reason such as buying near to good school, shortening journey time to workplace, buying near to parents, the mature estates are still good choices for you. If you are thinking to stay long term but not buying for speculation or investment purpose, the mature estates are still good to go ahead (green light!).



 

Maybe-Not-Reason 1: No Future Upsell Potential


There is strong correlation between transacted property price and 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 are able to fetch far higher prices.


As matured estates come with full amenities and situate at good locations, most 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 distinct according to their balance lease. Newer HDB flats in Ang Mo Kio with 80 to 90 years of balance lease were transacted at an average price of S$6xx,xxx. On the other hand, older HDB flats with 59 balance years or less were transacted at an average price of S$3xx,xxx. The above instances clearly show that there is strong correlation between the price and the balance lease.


Older HDB flats in mature estates will likely see their value decline as the above data showed. As such, you as the prospective home buyers might want to think thrice before purchasing such flats in matured estates.



 

Maybe-Not-Reason 2: Restriction in CPF and Loan Amount for Next Buyer


Resale HDB's depreciation in value has been dominating newspapers headlines and has been hot discussion topics for these few years. Government has been advocating public to exercise prudence in purchasing flats in matured estate. Old HDB flats are not automatically selected for Selective Enbloc Redevelopment Scheme (SERS) because only 5% of all the flats across 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 impact on the HDB property market.



In May 2019, HDB announced new rules regarding the CPF usage and its relation to remaining lease of the HDB flat.


  • Scenario 1: If property covers 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 property does not cover 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 older buyers to take up more older flats in the resale market because they are the age group that is easier to hit the age criteria. The changes to CPF usage on short lease HDB are made to cater to future home buyers who wish to purchase the increasing stock of HDB with shorter remaining leases.


If you are intending to buy short lease HDB, do expect your target buyers for your house in the future will have certain age criteria to utilise CPF in the house purchase. This would mean smaller target group and lower market demand when you put your house for sale next time.


 

Maybe-Not-Reason 3: Might Experience Negative Sales Proceed if Resell Again


I have seen cases where a HDB flat with a short 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 resale flats in mature estates, do more research on the current asking price if is worth to pay by taking into consideration of falling in value in the near future. Of course as said earlier, if you are buying for own long term staying with strong reasons, you are not concerned with the falling in value at all.



 

Maybe-Not-Reason 4: Old Structural Layout With Other Potential Problems


Most of the old 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. Old flats are also prone to leaking pipes, clogged sewage, burst pipes, seepage 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 5 to 6 figures to renovate the whole house. However, the old building structure may affect the house one day. Therefore, the government has Housing Improvement Programme (HIP) once flats has reached around 30 - 35 years.



 

In conclusion, if you are prepared mentally to face the above mentioned potential risks, it is totally no problem to buy those old flats in mature estates where give you the convenience and time saving to be near to good schools / parents / workplace.


If you are not comfortable with declining value and potential problems which might arise, you can consider to purchase newly MOP-ed flats or flats within 10 years which are newer with longer lease, better layout design and better quality construction material used.

 

Still Torn Between Old Flats or New 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 to make sure you look at your plan from multiple angles and ensure you have a very clear picture on what’s going on.


Drop me a HI! in whatsapp and share with me your top most concern in the property upgrading journey.



 

JJ Wong is the founder of MOPUpgraders.sg and has been a Property Wealth Planner in the real estate market for the past 6 years. He has helped many clients achieve their aspirations with the right financial planning and sound timeline planning. He is the man behind upgrading case studies of those who are holding on property under 10 years.

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