Buying an old HDB flat? Here are some things to consider

HDB blocks in Toa Payoh.
HDB blocks in Toa Payoh. PHOTO: ST FILE

SINGAPORE - Data shows that buyers don't mind old HDB flats, paying similar prices for units whether they are 25 or 50 years old.

But beware a potential sharp fall when flats cross 64, with less than 35 years of lease remaining. That's when financing restrictions kick in.

Minister for National Development Lawrence Wong cautioned last month that the vast majority of flats will be returned to HDB when their leases run out.

Flat buyers would best not think of the 99-year lease as a clock that can be reset, The Straits Times' Wong Siew Ying wrote in a commentary.

We summarise some things to consider if you are planning to buy an old flat:

1. How many old flats are there on the market?

There are about one million HDB flats. Of these, 70,000 or 7 per cent are more than 40 years into their leases. About 280,000 units are between 30 and 40 years old, according to HDB figures. That works out to about one in three flats being 30 years or older.

2. What are the average resale prices for these flats?

Average resale prices of flats with 60 years and under of lease was $364,052 in 2016, relatively stable compared with $364,264 in 2015, said Mr Eugene Lim, key executive officer at ERA Realty Network.

For example, the median per sq ft price paid for flats in Bedok with lease commencing in 1970 (aged 46 years in 2016) was $407, just slightly lower than $414 for those built in 1995 (aged 21 years). Median transaction prices were much higher for newer flats built after 1995.

3. Would prices be affected by Minister Wong's comments?

Property consultancy Edmund Tie & Company believes it may dampen demand especially for highly priced old units. It noted that there has been more discussion on the lease issue among buyers recently.

"There's more awareness, people are concerned if they put in a lot of money in the flat, whether they can recoup it in the future... We may see prices of the more expensive units easing 3 to 5 per cent this year," said Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company.

4. Would prices still be robust 10, 20 years later, as more flats hit 50, then 60 years old?

Analysts expect property values to drop more sharply towards the tail-end of the lease when loan restrictions and constraints in using Central Provident Fund (CPF) savings to finance the flat kick in.

Analysts highlight three possible key points in the flat's lease cycle that will mark steeper falls in value:

- At 64 years

With less than 35 years of lease left, banks are unwilling to extend loans to finance the purchase of these flats. That applies to flats that are at least 64 years old.

- At 69 years

With less than 30 years of lease remaining, CPF money cannot be used for down payment or to service the monthly mortgage.

- At 79 years

At this point, the property has to be paid for in cash.

"When leases drop to 20 years and below, the prospective buyers will not be able to get HDB loans, bank loans or use CPF for the purchase. Everything has to be paid in cash in one go," International Property Advisor chief executive Ku Swee Yong noted.

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