Singaporeans are buying older, but bigger properties; should you join in?

A new record was broken in June of this year for an HDB property. A rare HDB terrace house in Whampoa sold for $1.26 million, despite being around for 49 years old. The reason was mainly due to its size: it was a 2,260+ sq. ft. unit with two storeys; and it’s almost impossible to find so much space at below $1.3 million these days. However, is it really a good idea to buy such older, bigger properties?

There are a few things to take note of:

A trend of bigger homes has gripped the Singapore property market in 2021

Following the Covid-19 pandemic, Singaporeans have begun to snap up larger homes. According to Cushman & Wakefield, for instance, the median size of units bought has increased from 710 sq. ft. to 743 sq. ft, over the course of the past year.

For example, look at the sales volumes of condo units that are 750 sq. ft. and below (two-bedders or smaller), versus units that are 1,000 sq. ft. and above (three-bedders or bigger):

 

You can see that, from the time of the Circuit Breaker in June 2020 to end-June 2021, larger condo units have seen more transactions than smaller ones. This has held true for every month.

We can see a similar preference in the HDB resale market:

The transaction volume for 3-room flats started to dip significantly by Q1 2021, and as of end June there were 479 transactions; down from 626 transactions in the same time last year.

4-room flats saw 991 transactions in end-June 2021, slightly less than the 995 transactions at the same time last year.

5-room flats, however, hit 629 transactions in end-June 2021; up from just 602 transactions in the same time last year.

We even had a record number of million-dollar flats this year (389 units total); and most of these flats are 5-room flats, executive flats, or rare, huge flats like two-story maisonettes. A good number of these rare flat types date back to the ’70s and ’80s, suggesting buyers are willing to accept lease decay in return for space.

2021 is turning out to be the year for bigger properties, for several good reasons

As I’ve mentioned in several past articles, there are a record number of flats reaching their Minimum Occupancy Period (MOP) this year. As such, the bulk of buyers right now are HDB upgraders, who have just disposed of their flat. These buyers tend to be family units of four to five persons, who have less interest in shoebox units, or two-bedders.

In addition, there was a fear of new cooling measures earlier in the year. Such fears can sometimes prompt buyers to purchase bigger, higher-quantum homes as they might be afraid of being priced out later, if new cooling measures raise stamp duties / impose loan curbs.

Big, affordable condo units tend to be older resale properties

Much like flats, bigger condos tend to be older condos.

For example, an older condo like Mandarin Gardens (completed in 1986) has units that are over 2,000 sq. ft., but are still priced at $2.1 million or below. As I write this, units at People’s Park Complex (completed 1970) has 1,603 sq. ft. units, with a quantum of just $1.48 million.

(I can find many more examples for you, if space is the most important factor. Just drop me a message, and I can show you many huge, low quantum properties on the market right now).

Simply put, a two-bedder condo back in the 1970’s or 1980’s is probably the size of a three-bedder today. It’s in stark contrast to more recent offerings, where $1.3 million might get you 500 to 750 sq. ft.

Should you also join the trend toward older, bigger resale units?

  • It depends if you’re a pure owner-occupier, or investor-owner
  • Make sure it lasts to the end (if ageing in place)
  • There is less legacy value in older units
  • Buy without expectation of en-bloc sales

1. It depends if you’re a pure owner-occupier, or investor-owner

If you’re buying purely for your own stay, and you don’t care whether there’s resale gains, then by all means buy what makes you comfortable.

For example, the purchase of a 49-year old HDB terrace house is a bad move, by investment standards. These properties will depreciate toward their last few decades, and there will be little or no value once it’s down to its last 20 years.

However, it might make perfect sense to a retiree, or to a home owner who has decided to stay there for the remainder of their life. Consider that a 2,200+ sq. ft. condo would probably cost them well over $2.1 million, even if they opt for a cheaper resale unit (if they wanted a private landed home, it would probably be at least $3 million).

By purchasing the HDB terrace house instead, they have the same amount of space, and about an extra million dollars to fund a good retirement.

So it’s important to be clear on your purpose, before you buy. Remember this is not a decision you can easily undo, so take the time to mull it over.

2. Make sure it lasts to the end (if ageing in place)

If you’re intending to stay to the end of your life, the remaining lease should last until you’re 90 years old. This is to prevent any possibility of you becoming homeless, should you live longer than expected.

Besides this, you also need to consider if the unit layout works in your later years. For example, HDB maisonettes have two storeys; but while that’s a lot of space, it also means you need to deal with stairs. Will you be alright to climb up and down when you are in your late 70s?

You also need keep in mind that very large and elaborate properties – such as landed homes with BBQ pits on the roof, extensive courtyards, etc. – are hard to keep clean. This might be a burden, if you don’t intend to live with a helper.

Older home buyers should seriously consider features like elevators, if they want a multi-storey home. For condos, an interesting alternative is to get a big dual-key unit, where in-laws or other family members can live in a sub-unit next to yours.

3. There’s less legacy value in older units

If your children already have their own homes, and are doing well, then perhaps you don’t need to worry about resale value. But if you want to benefit future generations, lease decay is a real concern.

Bear in mind that bank financing isn’t available for properties with 30 years or less on the lease. In fact, total financing can fall to 55 per cent or lower, even for properties with 60 years or less on the lease. So if your children inherit the property with 30 years remaining, chances are they can’t sell it for much.

You may want to consider getting a freehold property instead, if your goal is to benefit children and grandchildren. This is especially true for landed properties, if you dream of having several generations under one roof (condos tend to be too small for this, and penthouse units don’t appreciate as well as true landed homes).

4. Buy without expectation of en-bloc sales

A common fantasy is that you can buy a very old condo, and enjoy the massive space. A few years later, an en-bloc sale will come along, and fund your next purchase.

While it’s not impossible, this is never something you should bet on. Remember Mandarin Gardens that I mentioned above? The en-bloc attempts have failed despite jaw dropping offers of $2.9 billion.

Don’t assume every other home owner in the development is eager to cash out. If it turns out that many of them are in their 70s or 80s, and don’t want to move at their age, chances are no developer will have enough money to persuade them.

So if you decide to buy a very old property for the space, accept that there may be few or no other benefits.

Still not sure if buying that big, old house is a good deal?

It’s best to examine it based on your individual financial and home ownership needs. Do contact me for help, as a conversation of 10 to 15 minutes could save you years of stress. You can also follow me on RonChongProperty.sg, for more detailed updates as the situation unfolds.

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