Should you buy a resale HDB for a very high price?

Do you know how much your HDB Flat will be when it turns 99 years?

In Dec 2017, Straitstimes published an article to explain that the value of the HDB Flat will be Zero when it reaches the end of it's 99 years lease period, and the land will be returned to the State.

#HDBZeroValue, #HDBFlat, #99yearslease

"The owners of 60-year leasehold private terrace houses along Geylang Lorong 3 got a taste of this process. For the first time, Singapore Land Authority officers had to explain the lease expiry process, which means that owners have to vacate their property - in this case, by Dec 31, 2020 - with no compensation." - Straitstimes Dec 28, 2017

So will buying a resale flat help you grow your wealth? What are the factors to consider before setting your offer for a resale flat?

1. To use CPF savings to buy HDB flats with remaining lease of less than 60 years but more than 30 years, the owner’s age plus the remaining lease must be at least 80 years. E.g. If remaining lease is 50 years, and average of buyers are 28 years old, CPF will not be able to be utilised for the purchase as the age & remaining lease period only adds up to 78 years. What does this mean? Houses with less than 60 years lease will have a smaller pool of potential buyers due to restrictions on CPF usage.

#CPF, #CPFusage, #CPFrestrictions

2. With 40 years of lease period remaining, the loan tenure period will get shorter and the monthly payment of loan will be greater.

#LoanIssue, #Shorterloanperiod, #Highermonthlyloanrepayment

3. With 35 years of lease period remaining, there will be no bank loan available for potential buyers.

#Bankloan, #Bankloanrestriction

4. Flats with less than 30 years lease remaining, potential buyers will not be able to use CPF for down payment nor HDB loan servicing. When it is left with 20 years, no loan will be available for the purchase.

#Noloan, #NoCPF

These explains why value of HDB Flats may depreciate over time, and the real impact will be felt when it has less than 60 years lease remaining since the numbers of potential buyers will become lesser due to the various restrictions put in place.

Hence, do consider the timing of your purchase of a HDB resale flat, as well as understanding the price that you will be paying in comparison over the chances of further possibility of capital appreciation. Similarly, if you are holding onto a HDB flat and wishing that there will be further capital appreciation throughout the 99 years lease period, do consider carefully and weigh your options.

If you need a discussion over the matter, do feel free to arrange for a meet up to further understand the issue.