Home isn’t just where the heart is. In Singapore, it’s also where the money is. Many people pour all their money into their homes, signing up for onerous loans that they spend most of their lives paying off, because their homes aren’t just a place to live—they’re an investment vehicle and a retirement plan.
So the recent warning from the government that not all old HDB flats will be eligible for the SERS (Selective En bloc Redevelopment Scheme) was a sobering message for those Singaporeans who’ve bought old resale flats and might live to see the day when their home is acquired by the government upon expiry of their lease.
No matter what people say about old resale flats, they’re still on the market and people will continue to buy them despite the uncertainty. Since the government has made clear in no uncertain terms that when the first batch of old flat leases starts to expire, some people are going to be left without a home, here are two rules to live by.
You must have other forms of savings or investments apart from your home
The lack of retirement-readiness of the average Singaporean has been well-documented. Prioritising home purchases over saving and investing in other ways has definitely played a part in creating this state of affairs.
The CPF system, originally conceived as a form of retirement savings, is now used by many people who empty their Ordinary Accounts to pay for their homes.
There are many others who don’t bother to invest even when they’ve built up a sizeable amount of savings, because they intend to spend it on their first home.
While property in Singapore is indeed expensive, as we all know, don’t make the mistake of thinking that owning a big, expensive place automatically means you can retire whenever you like.
Despite the government’s statement that HDB flats can be a good store of asset value IF you make prudent housing decisions, a prudent decision to them could mean waiting years for a BTO in a poorly-located non-mature estate.
Property isn’t the get-rich-quick investment vehicle it used to be. You must have savings and investments outside of your home. Don’t put all your eggs into one basket, especially if that basket is an old HDB resale flat.
Try to get a higher return on investment from your property purchase
You can expect the value of your property to fall sharply when the lease is nearing its conclusion. Loan restrictions will reduce the pool of buyers available to you, and if you don’t manage to sell it at too big of a loss, your only hope will be to pray that the flat will be selected for SERS.
That isn’t to say that you can’t raise your return on investment, even for an old flat. There are other ways to monetise your home, such as by renting out spare bedrooms in your flat.
In the event that you eventually do intend to sell the flat, it’s better to do so sooner and not later. Depending on the lease, you might still be able to turn a profit if you get rid of of the flat in 5 to 10 years if the property market picks up in the next decade.
Finally, it’s also important to examine the price of potential flats you’re considering, and to ensure you don’t get ripped off. Don’t go and pay $900,000 for an HDB flat just because it’s located in an area that’s considered hip right now.
Study the resale prices in your area and make sure you’re getting a good deal. If you want your flat to pay off as an investment, you will need to resell it long before its lease is up.
You also want to try to maximise the amount of housing grants you qualify for as a proportion of the sale price of the flat. Remember that having your parents live with you or within 2km of your new flat will tack on an extra $10,000 to the grants you receive. And as the grants are pegged to income, you might want to apply early on, when your income is lower.
Would you consider buying an old HDB resale flat? Tell us why or why not in the comments!