Over the past few years, there’s been a significant change in how HDB flat prices move. To give you a clearer picture, here’s how the situation has changed:
From 2005 to 2013, resale flat prices more than doubled – from an average of around $233,000 to over $475,000.
But after 2013, appreciation has flattened out. Today the average flat price in Singapore is about $434,600; a fall of around 8.6 per cent. This has been one of the longest sustained periods of declining resale flat prices we’ve seen.
Now there are a number of different reasons behind this, but the one that stands out most is the issue of lease decay. Singaporeans are now aware that at some point, their HDB flat values will either be zero, or sold back to the government in the Voluntary Early Redevelopment Scheme (VERS).
(Less than five per cent of HDB estates will qualify for the more generous Selective En-bloc Redevelopment Scheme (SERS), which also comes with replacement flats on a fresh lease).
But at what age does the value of an HDB flat start to fall sharply?
This will vary depending on a number of factors, such as location, maintenance, the roll-out of new policy measures, etc. However, we can try to make a guess.
To do this, we will compare the price movement of flats completed in 1970, to the price movement of flats completed in 2000:
From the age of 35 to 41, our older flats more or less keep pace with the appreciation of their newer counterparts (about a 28 per cent difference).
At age 42, however, the price gap with newer flats starts to widen. The price gap between them and their 12-year old counterparts widen to 31.5 per cent. The difference then starts to accelerate significantly, reaching about a 42 per cent difference by age 47.
Today, at the age of 50, they are priced round 57.5 per cent lower than their 20-year old counterparts.
While this is a rough take, we can see the notable fall in value appearing just past the age of 40, and accelerating at 47 to 50 years.
It’s also worth noting that a number of banks won’t grant the full Loan-to-Value (LTV) ratio for flats with 60 years or less. Banks have much deeper data sources, so they probably have an even clearer picture of when values start to fall – but their decision seems close to what we see above.
(Incidentally, many banks don’t give loans at all for properties with 30 years or less remaining on the lease; this is regardless of whether they’re flats or private residences. That’s a resale obstacle to bear in mind, before you buy an older flat or condo).
Another concern is the effectiveness of VERS, which we’ve yet to see in action
The VERS scheme so far exists on paper – we haven’t seen an actual VERS exercise. As such, it could be risky to assume that VERS will let you offload your ageing flat to the government.
One glaring issue is that VERS requires majority consent.
Now if you’ve heard of en-bloc attempts in condos, you already know how hard it is to push through a collective sale. HDB estates have a much higher population, and getting consensus will be more difficult.
On top of that, it’s probable the older estates will have more senior residents. Someone is in their 70s, who has lived there their whole life, is probably not happy to sell and move house at that age.
We’ll see what happens when the first VERS exercise comes along; but it shouldn’t be taken as a guaranteed “ way out”.
Does this mean an older resale flat is a bad buy, or that you shouldn’t hold on to it?
I can tell you that – despite the worries of lease decay, having to do more renovations, etc., there will always be some demand for older resale flats.
There will always be people who, for one reason or another, must stay in a particular location; because they wish to live near their family, they run a business across the street, etc*.
*Finding such buyers is where real estate agents like myself come in. If you have an older flat that you want to sell, contact me and I can help you find an interested party. I can also help if you need a flat in a mature area, and don’t mind the age.
However, the age of the flat should be a real concern to younger buyers, or to buyers who hope to upgrade later. If the flat is already 40 or 50 years old when you buy it, it can be tough to get a good price in five to 10 years (remember you must wait for at least five more years before you can sell, due to the Minimum Occupancy Period).
While there are many conveniences that come with staying in an older resale flat, do consider the wider issues involved. You can follow me on Facebook, and approach me anytime for personalised help in your home-buying solutions.
(Ps. Older properties of any kind, be it private or HDB, tend to need more maintenance or renovation. I have a background in construction and interior design, and I’d be happy to help you look over the unit to estimate the work and costs involved)
Ron Chong is a leading property agent with Orange Tee & Tie, and had a previous background in construction and Interior Design. His background gives him a wider breadth of experience in dealing with Singapore properties, and he aims to provide practical, actionable advice to buyers and sellers today. Like him on Facebook for the latest news and updates.