Since the first HDB flats were built in 1960, they have remained a cornerstone of housing in Singapore. Over the years, HDB has consistently built new flats, and it is estimated that there are currently about 1.13 million HDB flats in the country.
Instead of opting for Build-to-Order (BTO) flats, which require a waiting period and may not be easily secured during high-demand launches, homebuyers can choose from more than 1 million existing flats. Many older flats also have unique selling points, such as executive maisonettes and jumbo flats, which offer larger living spaces or are situated in centralised locations near the city centre.
While there is nothing inherently wrong with purchasing an older flat, as long as it is within your means, homebuyers should be aware of the potential challenges that come with purchasing an HDB flat that is older than they are.
HDB flats come with a 99-year lease. Additionally, many housing schemes are tied to the requirement that the lease must cover the (youngest) homeowner until the age of 95. This means that if your flat is five years or more older than you, you may face additional challenges.
Read Also: Why HDB Resale Flats Can Be Affordable If We Choose To Purchase Within Our Means
#1 Reduced Ability To Use CPF Savings For Your Home
In Singapore, many individuals use their CPF savings to purchase a home. However, one key CPF rule stipulates that the lease of the flat must cover the youngest buyer until the age of 95. If this condition is not met, CPF funds will be pro-rated based on how much of the remaining lease can cover the youngest buyer up to age 95.
For example, if a 24-year-old buyer (born in 2000) purchases an older flat built in 1990, the flat’s remaining lease in 2024 would be 65 years. This lease would only cover the buyer until 89, falling short of the required age of 95. As a result, the buyer would not be able to use CPF savings to pay for the property up to its Valuation Limit.
Read Also: How Much CPF Can You Use For Your Home? Valuation Limit And Withdrawal Limit Rules Explained
#2 Reduction In HDB Grant
HDB grants are typically offered to eligible first-time homeowners to help reduce the cost of their flat’s downpayment. These grants can be substantial and play a valuable role in supporting homeowners purchasing their first flat.
One such grant is the Enhanced CPF Housing Grant (EHG), which provides up to $120,000. The exact amount of the grant depends on the applicant’s income.
However, an important caveat is that the HDB flat must have a sufficient remaining lease to cover the youngest core member(s) until the age of 95 to qualify for the full EHG amount. If this condition is not met, the EHG amount will be pro-rated.
#3 Lease BuyBack Scheme Ineligibility
For older homeowners looking to downsize to a smaller flat, it is important to note that purchasing an HDB flat older than you by five years or more makes you ineligible for the HDB Lease Buyback Scheme. This scheme allows elderly homeowners to continue living in their HDB homes while unlocking the value of their properties by selling a portion of their lease back to the government in exchange for cash and higher CPF LIFE payouts.
Eligibility for the Lease Buyback Scheme requires homeowners to retain a lease covering them until at least 95. For instance, a 65-year-old homeowner must maintain a lease of at least 30 years to meet this requirement.
If your HDB flat is older than you, it naturally means there would not be enough remaining lease to sell back to the government under this scheme.
#4 Lower HDB Loan
HDB loans offer a loan-to-value (LTV) ratio of up to 75% of the purchase price or valuation, whichever is lower. This means that as a homebuyer, you can borrow up to 75% to finance your HDB purchase.
However, a lower loan limit, pro-rated from the maximum of 75%, will apply if the remaining lease of the flat cannot cover the youngest applicant until at least the age of 95. Consequently, if you purchase a flat that is five years or more older than you, you will not be able to fully utilise the maximum loan amount, available grants, or CPF savings to finance your flat.
Read Also: Complete Guide To Taking A Concessionary HDB Housing Loan
You can read this infographic for a summary of the challenges when buying an older HDB flat:
Top Image Credit: Raymond Quek, DollarsAndSense
The post 4 Challenges Of Buying Old HDB Resale Flats That Are 5 Years Older Than You appeared first on DollarsAndSense.sg.
