Buying a property in Singapore is a big milestone, especially for singles. Firstly, we have to hit our 35th birthday and secondly, it is a huge financial commitment we have to bear on our own. The average age at first marriage is around 28.8 years for females and 30.4 years for males. This means singles will have to wait 5 to 6 years longer on average than our coupled friends before we can buy a HDB flat.
With BTO construction delays adding months and years to the already long wait for BTO flats, resale flats may be the only realistic option for singles who can’t wait any longer for a place to call our own. You can read more about how I decided between a 2-room BTO and a 3-room resale flat as a single.
There are many options for resale flats and the most important factor that affects the price is the remaining lease. Whether the resale flat is a BTO flat that is freshly out of its Minimum Occupation Period (MOP) or it is a flat that can cover us to age 99 or an old flat that is more than 50 years old, singles have a tough choice to make. In fact, some estates have both old and new resale flats in close proximity.
In this article, we will take a deep dive into whether it makes more financial sense to choose between a BTO flat that is just out of MOP or an older resale flat.
For this comparison, we will be using the estate of MacPherson which not only happens to be one of the locations of the May 2021 BTO launch but also a neighbourhood that has few blocks of BTO flats that just finished their MOP in 2020 as well as a mix of older resale flats along Circuit Road.
While singles can choose larger resale flats, 3-room flats have a lower price quantum and are likely to be the more affordable option. We will be using 3-room flats as the common flat size for this comparison.
In general, MacPherson belongs to the larger Geylang estate which has a median price of $276,500 for 3-room flats according to HDB resale statistics for the first quarter of 2021.
BTO Flats That Just Finished The Minimum Occupation Period (MOP)
The 3-room flats of MacPherson Weave launched during the May 2021 BTO launch was priced at $343,000 to $405,000.
In comparison, the 3-room flats of MacPherson Residency launched in 2012, which recently MOP-ed in 2020, had a launch price of $285,000 to $328,000.
From Jun 2020 to July 2021, there have been 23 transactions for 3-room flats from the MacPherson Residency BTO estate (Blocks 18A, 18B, 18C and 18D). The prices for these transactions ranged from $425,000 to $573,000 with an average of $515,300. These flats all have a remaining lease of 94 to 95 years and a floor area of 67 sqm.
Older Resale Flats That Have Remaining Lease Of Around 50 Years
Between June 2020 and July 2021, there were 77 transactions for 3-room flats along Circuit Road, in the same area as MacPherson Residency. These were in Blocks 34 to 39, 43 to 50, 57 to 63, 66 to 70, 72, 85 and 87 Circuit Road. These flats have a remaining lease ranging from 44 years to 51 years with floor areas of 52 to 72 sqm.
Unsurprisingly, due to the remaining lease, the prices are much lower, ranging from $192,000 to $290,000 with an average price of $235,000. What may be unexpected is the floor area. Contrary to the common perception that older flats are bigger, most of these 3-room flats actually have a floor area (average of 58 sqm) smaller than the new BTO flats with a standard floor area of 67 sqm for Model A units.
Which Flat Option Makes More Financial Sense
Just by the price quantum alone, an old resale flat with a remaining lease of 50 years is much more affordable than a new resale flat that is just out of MOP. Using MacPherson as an example, an old resale flat with an average remaining lease of 47 years is priced at an average of $235,000 while a newer resale flat with an average remaining lease of 94.5 years is priced at an average of $515,300.
Assuming that we live and stay in the flat all the way to the end of its lease, the price per year of the remaining lease works out to $5,000 a year for an old resale flat and around $5,450 a year for a newer resale flat. This makes buying an old resale flat slightly more cost-effective. Of course, this is a simplistic calculation that excludes the cost of taking a mortgage, interest payments and other costs associated with buying a flat. This also ignores any potential price appreciation that a newer flat may enjoy.
Additionally, the cost of renovation can make a big difference in the cost of buying and staying in an old resale flat, compared to a newer resale flat that may require less intensive renovations. Older resale flats are likely to require a more thorough renovation, which may even require a complete gut job with rewiring of electricals to accommodate our current technology-intensive lifestyles.
Remaining Lease Matters
As the remaining lease decreases, the flat prices tend to decline which makes older resale flats more affordable. However, the remaining lease also affects the amount we can borrow or use for purchasing older flats.
Currently, we may only use the full amount of our CPF savings to finance our if the remaining lease can cover the buyer until the age of 95. Otherwise, the amount of CPF we can use is prorated. If we are a single (age of 35) buying a resale flat with a remaining lease of 47 years old, we will be affected by this limitation. We check the actual amount of CPF we can utilise using this CPF calculator.
If we are planning to take a bank loan, we may also be hampered by a shorter remaining lease as banks may not be as willing to loan us the full amount of our LTV limits of 75%.
This, along with the CPF usage limitations, could affect our financing plans and we may have to fork out more cash for downpayment. For more in-depth advice on our financing options for older resale flats, a good trusted broker like our friends at RedBrick can provide you with a free non-obligatory quote and consultation.
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