Time can be a funny thing. Even here in Singapore, despite being a very young nation, time does gets to us. We were reminded in 2017 when Minister Lawrence Wong pointed out that buying units in older HDB flats was a risk because not every flat will benefit from the Selective En bloc Redevelopment Scheme, better known as SERS.
Now, even CPF has relaxed the rules on buying older HDB flats. It used to be that flats with a remaining lease of less than 30 years cannot be paid with CPF, but now it has been reduced to 20 years. One can also get an HDB housing loan of up to the full 90% loan-to-value limit (LTV) as long as the remaining lease covers the youngest buyer to the age of 95.
Does it mean you should go hunt for an old property in the estates of Tiong Bahru and the likes?
Eh? Why not? I thought SERS was for all old HDB flats
SERS (Selective En Bloc Redevelopment Scheme) is a government programme that works quite similarly to an en bloc sale. When your flat is selected for SERS, the home owners will be offered a generation compensation package and subsidies for purchasing a fresh 99-year lease flat, usually near their original homes.
If you are thinking of buying an old, hipster flat in hopes of getting into SERS, take a hint. S in SERS stands for “Selective”.
Only 4% of HDB flats have been identified for SERS, since it was introduced in 1995! Flats are picked for SERS in groups called “sites”, and there have been 81 such sites identified to date. If your flat is not picked for SERS, it will be returned to the government when your lease expires.
And Minister Wong’s caution comes on the heels of news that buyers were paying high prices for “old” flats. His warning is really for property investors who are not looking to stay in the older flats, but are gambling in the hopes that SERS will bring them short-term gains, compensation as well as priority to choose a new flat.
While you could analyse the sites where land could be put to much better used such as Woodlands, Pasir Ris and Toa Payoh to try and spot SERS-potential old flats, there is still an inherent risk involved.
But here’s the thing – the earliest HDB flats were only built in the late 1960s and early 1970s, which means that most have over 50 years left in their lease. So, the truth is, no one can really say what will happen to HDB flats once the lease expires, since that bridge hasn’t been crossed yet.
Buying an HDB flat with less than 60 years left on the lease
Say you’re a newlywed couple looking to enjoy the idyllic life in one of Singapore’s gentrified neighbourhoods, which have attracted young people with a penchant for unique food options and coffee that costs much more than $2. Coincidentally, many such neighbourhoods also boast “old” flats from the 1970s, which adds to their rustic charm.
Here’s how much you’d need to cough up to live there:
1. A 3-room flat in everybody’s favourite hipster neighbourhood, Tiong Bahru
Tiong Bahru today is an interest mix of new and old. Walk along Kim Tian Road and you’ll see flats that aren’t as old as the original Power Rangers (they debuted in 1993), complete with a handful of modern multi-story carparks. But head down Yong Siak Street and you have Singapore’s literary stalwart BooksActually on one side, and 50-year-old flats on the other. These are some of the oldest apartments in Singapore.
The flats at nearby Moh Guan Terrace have about 53 years left on their lease. Recent transactions in this cluster of flats are slightly over $600,000 for a 3-room flat, which comes up to $723 per square foot.
Rental rates for these same 3-room flats can range between $2,000 to $3,000 a month.
It’s a unique neighbourhood, to say the least – and it is the nostalgia-inducing charm that has attracted cafes, restaurants and bookstores to base themselves here.
2. A 3-room flat in Singapore’s nightlife hub, Keong Saik
What used to be a red-light district on the fringes of Chinatown is now a destination for tourists looking for a unique Singaporean experience.
Keong Saik is home to multiple critically acclaimed eateries and several boutique hotels.
The 3-room units at nearby 4 Sago Lane are far enough from the bustle along Keong Saik Road to avoid insomnia. Recent transactions at this block range between $400,000 to $523,000, or $652 per square foot. Rental rates for these 3-room flats come up to $2,000 to $2,500 a month.
Even though there’s only 54 years left on the lease, it’s walking distance from SGH, Chinatown and even the Michelin Guide Bib Gourmand awardees at Maxwell Food Centre. That’s a convenience that cannot be underestimated.
3. A 4-room flat at beachside Marine Terrace
Marine Parade is the first estate that is built entirely on reclaimed land. It is near to the hipster neighbourhood of Katong and several of the old blocks along Marine Terrace, Marine Parade Road and Upper East Coast Road are sea-facing HDB units.
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In 1992, Marine Parade became the first estate in Singapore to undergo the Main Upgrading Programme, the government’s scheme to upgrade ageing estates.
In March 2019, a 4-room unit in Block 54 Marine Terrace was sold for $480,000, or $507 per square foot. It has 54 years left on the lease, but it is within walking distance to East Coast Park, Katong. Given its close proximity to the ECP highway, Changi Airport and downtown Singapore are easily accessible.
With Marine Terrace MRT station on the Thomson East Coast Line opening in 2023, it’ll be even more convenient to travel from Marine Terrace to Orchard, Caldecott and even up north to Woodlands.
An entire 3-room flat at Marine Terrace typically fetches $2,600 to $3,000 in rental income.
Is the convenience and charm of living in such neighbourhoods worth it?
The most recent statistics state that for the first half of 2019, the median price of 3-room flats in the Central area was $415,000, and the median price of 3-room flats in the Bukit Merah area was $313,800. So yes, these flats are definitely on the high-end.
But the fact is, if you’re looking to live in a neighbourhood like Tiong Bahru, Keong Saik or Marine Parade, it’s really the convenience of the nearby amenities that you’re paying for. What’s more, because they were built in the 1970s, the area of the flat is larger than flats built today, and this might be a selling point for some buyers.
But those considerations aside, the fact remains that you will undoubtedly have problems recouping your property value as the years go by. That’s because you’re most likely going to be the last owner of your unit.
The good news is, there’s always rental income. As I mentioned above, these units are currently being rented for $2,000 to $3,000 a month. That comes up to at least $18,000 in net annual rent collected (after deducting various costs like maintenance and property tax). That’s 4% in rental yield – not bad at all.
And since the same factors that attracted you to the property will attract others, you should be more than able to find a steady stream of tenants, even in the final years of the lease, should SERS not kick in.
New CPF rules on purchasing old HDB flats
For purchases of HDB flats after 10 May 2019, there are new CPF rules that govern the purchase of older HDB flats. You can now use your CPF to pay for a HDB flat if it has at least 20 years left on the least, and if the lease can cover the youngest buyer until 95 years old.
|Changes||Before 10 May 2019||After 10 May 2019|
|Minimum lease left to obtain maximum CPF usage and HDB housing loan||Flats with 60 years or more left can be paid with CPF up to VL||Flats with at least 20 years left on the lease and which can cover youngest buyer until at least 95 can be paid with CPF up to full 90% loan-to-value limit for housing loan.|
|Flats with 30 years to less than 60 years can be paid with CPF if the remaining lease of the property can cover the youngest buyer to the age of 80, capped at a percentage of VL or property purchase price, whichever is lower.|
|HDB housing loan||Restrictions on the amount of HDB housing loan for purchases of flats with less than 60 years remaining.|
What do you think of the new CPF rules for housing? We want to hear your thoughts.
SERS & VERS – Complete Guide to “HDB En Bloc Sale” Schemes (2019)
HDB Grants Guide 2022 — What’s the Max CPF Housing Grant You Can Get?
Using Your CPF to Purchase Property? 3 Important Facts to Know (2022)