Young Couple, Older Flat: What Are Some Challenges You Might Face?

The trend for young couples to seek out older “hipster” apartments has been on the rise since 2019.  Recent CPF changes in May 2019 expanding the circumstances in which buyers can use CPF to pay for an older property, as well as get a full HDB loan, have made it easier and more affordable for young couples to buy flats that are reaching maturity. 

However, there are some serious considerations to take note of when purchasing an older flat. We delve into some of the problems associated with getting an older flat and the potential cash flow and other challenges that a younger couple getting one might face.

 

6 Reasons Why Young People May Prefer Older Flats

1. Better Location

Older flats are typically located in mature estates, which are more convenient and have better amenities, as well as often more central locations. An older flat would allow them to reap the benefits of their location for living and commuting.

2. Larger Size

Built when Singapore was less heavily populated and when space was not yet at such a premium as today, older flats tend to be bigger in floor area — an older 3-room flat could be bigger than some modern BTO 4-room flats! With such large sizes no longer being built today, these older flats are the last best hope of many Singaporeans to live in spacious housing that still remain affordable. 

3. Lower Price

As the value of every HDB flat is also tied to their leases, the age of such older flats, and the shorter time left on their lease, means that their prices are also generally lower, offering a more affordable solution to younger couple hoping to outlay less on their initial home.

4. Close Proximity to Family

If you intend to take advantage of the Proximity Grant associated with living near your parents, getting an older resale is a great idea. Especially in today’s context, most couples are dual-income families who have to share both the family workload and the income load. The added help staying near your parents can help you with can definitely be something that may push you toward buying a mature flat in a mature estate.

5. Immediate Availability

Both COVID-19 measures, delays on BTO and the sudden return of many Singaporeans have increased the necessity of getting a flat as quickly as possible. In times of emergency the best possible way moving forward is to get a resale flat that will be immediately available. Some of these mature flats are vacant and can be sold off quickly so they can be your new home in the shortest period of time – almost comparable to renting. 

6. The Possibility of SERS

This new scheme that was recently released by the government has become one to watch for young couples looking for a trendy apartment in an accessible neighbourhood. SERS (Selective En Bloc Redevelopment Scheme) is a government scheme that works similar to en bloc. When a flat has been selected to be part of the SERS scheme, there is a generous compensation package tied to it and its subsidies carry with it a fresh lease of 99-years for a flat nearby the home you purchase.

However, SERS only amounts to 4% and currently extend to only 81 sites. Most of these flats have very unique styling, are bigger and are within neighbourhoods that are more mature. As a result, it might seem a goldmine for some short term gains that will give you time to choose a new flat.

Conversely, these benefits come with a host of challenges – specifically targeted at young couples.

 

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Challenges Faced with an Older Flat 

1. Harder to Sell 

The thing about older flats with dwindling leases is that the closer they are to lease expiration, the more difficult it will be to find a buyer for them. While many couples purchase such older flats with the intention of staying there for the long term, even for life, the future is unpredictable. You never know when you may need to sell off your property for financial reasons, and if you are unfortunate enough to be placed in such a situation, this challenge will rear its head — not to mention it is doubtful if a potential buyer will be willing to pay even the same price you paid for the flat when it had a longer lease remaining, much less more. 

2. There Are CPF Usage Limits 

Recent CPF rule changes have loosened the requirements for using CPF to purchase ageing flats, with homebuyers now permitted to get a full 90% HDB housing loan and pay up to 100% of the valuation price (up from 80%) with CPF provided the flat’s remaining lease will be sufficient to cover the youngest buyer to the age of 95. For those who fall short of this criteria, CPF payment amounts and HDB loan amounts will be pro-rated according to how far short the buyers fall. 

While being able to use your CPF to pay the entire value of a flat is appealing, this could pose a challenge for younger couples, as the younger you are, the harder it is to find a flat whose lease lasts long enough for you to reach age 95, just to unlock 100% CPF financing. 

For example, if you are 30 and your spouse is 28, you would need to find a flat that has at least 99-28 = 71 years left on its lease, to last your younger spouse till age 95. Anything less than that will reduce the amount you can cover with CPF, reduce the LTV you can get from HDB if you are planning to avail yourself of a concessionary loan, and increase the amount of cash you need to pay upfront.

3. There Are Also Borrowing Limits 

If you are planning to take a bank loan, do note that the changes to CPF rules do not affect bank requirements for a home loan. It will still be based on your eligibility, the bank’s valuation of your property, and ultimately the bank’s approval. 

Getting a mortgage from a bank is subject to limitations, the most common of which is that your mortgage may come with a lower LTV as banks see it as a risk with the prospect of depreciation over time. Buying a mature flat is a gamble, but it can be a calculated risk if you rely on professionals who are aware of property market trends and have the know-how to handle the finances behind it. 

Speak to PropertyGuru Finance’s Home Finance Advisors, who can help you navigate the financial aspects and steer you toward the best mortgage loan for your flat.

4. Buying for SERS Comes with Drawbacks

While buying in the hope of SERS (or buying flats already selected for SERS) is attractive, it has its drawbacks. In the former case, buying flats to “invest” in this possibility is risky because SERS is not guaranteed. Whereas in the latter case, prices of SERS-selected flats have risen, and continue to rise, with 3-room flats in Tiong Bahru going for as much as $600,000, which may be financially unsustainable for a young couple.  

5. Lease Buyback Scheme

While the government is seeing the increase in demand for resale flats and enacting subsidies accordingly, there are still inherent schemes put in place to protect mature couples who already live in mature flats. The Lease Buyback Scheme is one of them. It allows an older couple in their 60’s to sell the tail end of their flat lease back to HDB to get some money. This will not be applicable to younger couples who are buying these flats as resale flats. Thus, you will not be able to use it to top up your retirement funds and thus lose out on some of the inherent benefits of buying a mature property.

 

Should you Live out your Hipster Dreams?

While many do see the benefits of purchasing an older fat, for a new couple who is just starting out, it might not necessarily be the best thing to do. Mature flats might not be cheaper than BTO ones and there come with it risks if you do intend to hold it out as a property investment in the short term. Making this decision isn’t a straightforward calculus, and you need to carefully consider your moves.  

 

Need more guidance to weigh your home financing situation? Our friendly team at PropertyGuru Finance can help you get your bearings, weigh pros and cons, and guide you through the process with ease and peace of mind. 

Ready to shop for a hipster HDB flat? Browse the top HDB resale flats on PropertyGuru

For more property news, resources and useful content like this article, check out PropertyGuru’s guides section

 

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