Should we buy an old but central HDB unit, or a newer one but located further away?

Dear Stacked Homes,

I'm sure I'm not alone in this dilemma, but unfortunately my friends have been lucky enough to get BTOs and SBFs, leaving us with nobody to consult on this topic.

We're first-time buyers in our very late 20s who are looking for a four-room resale in the Queenstown and Bukit Merah area, but are being priced out of the newer flats that generally start from $800,000.

We cannot fully rule out the possibility of selling to upgrade in the future, so the lease decay that comes with old flats is a troubling consideration. Here comes the dilemma: Do we buy an older 1970s-1980s flat in that central fringe area, or do we buy a newer 1990s-2000s flat further out in areas like Dover (less amenities) or Jurong East?

We prefer to stay on the West to Central end of the East-West line to be closer to my parents, and we do not own a car — so locations like Depot Road may not make the most sense for us, albeit being priced more reasonably.

Which of the two options would make more sense financially, and are there any other factors we should take into consideration?

Also, truly a thank you for your site that has incredibly helpful for a creative and a first-time buyer who knew nothing about real estate. And I also love your amazing UX on the site!

Thank you!

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Hello,

Thank you for your kind words, it's great to hear that what we've been doing has been helpful (our creative director would certainly be happy regarding the UX!).

Housing for first-time buyers has certainly been a sticky topic, and the escalating prices of newer flats pose a significant challenge for young couples seeking to purchase their first home. This affordability issue extends beyond flats in central areas; even in outskirt locations such as Bukit Batok and Punggol, flats that have recently fulfilled their Minimum Occupation Period (MOP), are priced at over $700,000.

Before we delve into the options you could consider, one important factor to take into account is your intended holding period. The duration for which you plan to own the property can greatly influence your decision-making process.

Suppose you anticipate a relatively short holding period, let's say around five years, and your intention is to sell the unit once it has fulfilled its MOP. In such a scenario, opting for an older flat may not pose a significant concern, as property prices are unlikely to experience drastic declines within the short term and the potential risks associated with buying an older flat might be mitigated. Any potential decline in value over a short period is unlikely to have any major impact on your financial outcome.

However, if you plan to stay for a longer period, ranging from 10 to 15 years, it would make more sense to consider purchasing a recently constructed property. Opting for a newer property offers several advantages for a longer-term stay.

The first one is obvious, its remaining lease is longer, which generally attracts more potential buyers compared to properties with shorter remaining leases. Additionally, there may be cost savings on renovations for things like rewiring and piping works if the flat was recently refurbished.

Nevertheless, this is a general guideline, and the performance of properties can vary depending on their location. We will now jump into that!

Performance of 4-room HDBs in the city fringe

Let’s start by looking at the performance of four-room flats built in the 1970s-1980s in the city fringe. We will compare it against slightly newer flats that were completed between 1990-2000 and also the overall HDB market. And to keep things more relevant, we only included HDBs under Bukit Merah and Queenstown.

Based on the graph, it is evident that HDB prices experienced a decline in 2014. This dip can be attributed to the cooling measures implemented the previous year, along with a change in the HDB resale procedure where the flat's valuation was conducted after the issuance of the Option to Purchase (OTP) instead of before. These factors resulted in a period of stagnation in HDB prices, which persisted until the onset of the pandemic.

The chart clearly illustrates that, during this stagnant period, the prices of flats completed between 1970 and 1989 declined further compared to their newer counterparts and the overall HDB market. We can also see that there is a noticeable discrepancy in prices between the older and newer flats.

Let's take a look at some recent transactions in Bukit Merah and Queenstown to have a clearer picture of this price disparity.

Four-room flats in Bukit Merah completed between 1979-1989:

In the last three months, there were 22 transactions with an average price of $547,686. These are some of the latest ones.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
129	Kim Tian Rd	10 to 12	88 Improved	1976	51 years 8 months	$548,000	May 2023
27	Telok Blangah Way	04 to 06	82 Improved	1976	52 years	$455,000	May 2023
109	Bt Purmei Rd	10 to 12	104 Model A	1984	60 years 4 months	$650,000	May 2023
48	Lengkok Bahru	04 to 06	103 Model A	1986	62 years 3 months	$588,000	May 2023
62	Telok Blangah Hts	10 to 12	98 New Generation	1976	52 years 6 months	$584,000	Apr 2023
27	Telok Blangah Way	13 to 15	82 Improved	1976	52 years 1 month	$487,000	Apr 2023
34	Telok Blangah Way	10 to 12	82 Improved	1976	52 years 1 month	$520,000	Apr 2023
101	Bt Purmei Rd	04 to 06	93 New Generation	1983	59 years 5 months	$545,000	Apr 2023

Four-room flats in Bukit Merah completed between 1990-2000:

In the last three months, there were just three transactions with an average price of $757,333.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
13	Jln Bt Merah	10 to 12	100 Model A	1996	72 years 7 months	$722,000	May 2023
13	Jln Bt Merah	07 to 09	106 Model A	1996	72 years 7 months	$750,000	May 2023
40	Jln Rumah Tinggi	16 to 18	99 Model A	1997	73 years 2 months	$800,000	May 2023

On average, there was a price disparity of $209,647 between the older and newer flats in Bukit Merah.

Four-room flats in Queenstown completed between 1979-1989:

In the last three months, there were 7 transactions with an average price of $587,686.

Block	Street	Level	Unit size and type (sqm)	Lease start date	Remaining lease	Sale price	Date
6	Holland Cl	22 to 24	86 Improved	1974	50 years	$596,000	May 2023
10	Holland Ave	07 to 09	88 Improved	1975	50 years 9 months	$550,000	May 2023
9	Holland Ave	19 to 21	86 Improved	1974	50 years 2 months	$650,000	Apr 2023
13	Holland Dr	10 to 12	88 Improved	1975	50 years 10 months	$616,800	Apr 2023
8	Holland Ave	07 to 09	82 Improved	1974	50 years 3 months	$551,000	Mar 2023
10	Holland Ave	07 to 09	88 Improved	1975	50 years 10 months	$580,000	Mar 2023
15	Ghim Moh Rd	07 to 09	82 Improved	1977	52 years 11 months	$570,000	Mar 2023

Four-room flats in Queenstown completed between 1990-2000:

In the last three months, there were just three transactions with an average price of $818,333.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
58	Strathmore Ave	07 to 09	96 Model A	2000	76 years 5 months	$775,000	May 2023
129	Clarence Lane	16 to 18	104 Model A	1996	72 years 6 months	$890,000	Mar 2023
59	Strathmore Ave	16 to 18	96 Model A	2000	76 years 7 months	$790,000	Mar 2023

On average, there was a price disparity of $230,647 between the older and newer flats in Queenstown.

Naturally, the extent of the price difference will differ depending on the specific blocks being compared but in general, the gap is relatively significant.

Another thing we can notice from the above tables is that the older flats in Bukit Merah and Queenstown that were built in the 1970s are mostly smaller. A "4-Improved" or "4-Standard" model comes with one bathroom, a separate WC and no store room. Here is an example of what that may look like.

Performance of 4-room HDBs in the West - city fringe region

Let's now take a look at the performance of four-room flats built in the same time periods in the West to city fringe region. We only included HDBs under Clementi and Jurong East.

Year	West – city fringe 4-room (1970 – 1989)	YoY	West – city fringe 4-room (1990 – 2000)	YoY	All 4-room HDB	YoY
2002	$215		$235		$211
2003	$223	3.72per cent	$244	3.83per cent	$219	3.79per cent
2004	233	4.48per cent	246	0.82per cent	$227	3.65per cent
2005	$227	-2.58per cent	$240	-2.44per cent	$223	-1.76per cent
2006	$231	1.76per cent	$250	4.17per cent	$229	2.69per cent
2007	$260	12.55per cent	$264	5.60per cent	$254	10.92per cent
2008	$322	23.85per cent	$320	21.21per cent	$303	19.29per cent
2009	$340	5.59per cent	$353	10.31per cent	$326	7.59per cent
2010	$380	11.76per cent	$389	10.20per cent	$367	12.58per cent
2011	$429	12.89per cent	$426	9.51per cent	$417	13.62per cent
2012	$459	6.99per cent	$445	4.46per cent	$444	6.47per cent
2013	$470	2.40per cent	$481	8.09per cent	$467	5.18per cent
2014	$460	-2.13per cent	$450	-6.44per cent	$435	-6.85per cent
2015	$448	-2.61per cent	$454	0.89per cent	$422	-2.99per cent
2016	$444	-0.89per cent	$430	-5.29per cent	$423	0.24per cent
2017	$435	-2.03per cent	$447	3.95per cent	$426	0.71per cent
2018	$418	-3.91per cent	$432	-3.36per cent	$422	-0.94per cent
2019	$399	-4.55per cent	$421	-2.55per cent	$423	0.24per cent
2020	$399	0.00per cent	$426	1.19per cent	$443	4.73per cent
2021	$432	8.27per cent	$453	6.34per cent	$499	12.64per cent
2022	$471	9.03per cent	$479	5.74per cent	$540	8.22per cent
Annualised		4.00per cent		3.62per cent		4.81per cent

Looking at the graph, it is evident that the price trends of both older and newer four-room flats in Clementi and Jurong East closely align with the overall HDB market. Also, the difference in prices is not as notable compared to those in the city fringe.

Similarly, we will take a look at some recent transactions in Clementi and Jurong East to have a clearer picture of this price disparity.

Four-room flats in Clementi completed between 1979-1989:

In the last three months, there were 26 transactions with an average price of $542,880. These are some of the latest ones.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
358	Clementi Ave 2	04 to 06	92 New Generation	1978	53 years 10 months	$525,000	May 2023
512	West Coast Dr	10 to 12	91 New Generation	1978	53 years 9 months	$488,000	May 2023
305	Clementi Ave 4	10 to 12	92 New Generation	1979	54 years 11 months	$595,000	May 2023
347	Clementi Ave 5	07 to 09	92 New Generation	1979	54 years 9 months	$525,000	May 2023
347	Clementi Ave 5	07 to 09	92 New Generation	1979	54 years 8 months	$538,000	May 2023
376	Clementi Ave 4	10 to 12	91 New Generation	1980	56 years 6 months	$588,888	May 2023
373	Clementi Ave 4	04 to 06	91 New Generation	1981	57 years 4 months	$545,000	May 2023
374	Clementi Ave 4	07 to 09	93 New Generation	1981	57 years 5 months	$550,000	May 2023
610	Clementi West St 1	04 to 06	104 Model A	1983	59 years 4 months	$520,000	May 2023
611	Clementi West St 1	01 to 03	111 Model A	1983	59 years 5 months	$553,000	May 2023

As there were no flats in Clementi completed between 1990-2000, we took those that were completed in 2002:

In the last three months, there were four transactions with an average price of $713,750.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
460	Clementi Ave 3	04 to 06	86 Model A	2002	78 years 8 months	$658,000	Apr 2023
455	Clementi Ave 3	07 to 09	86 Model A	2002	78 years 9 months	$725,000	Mar 2023
457	Clementi Ave 3	22 to 24	91 Model A	2002	78 years 10 months	$730,000	Mar 2023
460	Clementi Ave 3	16 to 18	90 Model A	2002	78 years 9 months	$742,000	Mar 2023

On average, there was a price disparity of $170,870 between the older and newer flats in Clementi.

Four-room flats in Jurong East completed between 1979-1989:

In the last three months, there were 30 transactions with an average price of $467,338. These are some of the latest ones.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
113	Jurong East St 13	07 to 09	90 New Generation	1981	57 years 1 month	$470,000	May 2023
257	Jurong East St 24	10 to 12	96 New Generation	1983	58 years 8 months	$453,000	May 2023
263	Jurong East St 24	10 to 12	98 New Generation	1983	58 years 9 months	$450,000	May 2023
224	Jurong East St 21	07 to 09	91 New Generation	1984	60 years 6 months	$493,000	May 2023
317	Jurong East St 31	07 to 09	105 Model A	1984	60 years 1 month	$494,000	May 2023
316	Jurong East St 32	07 to 09	104 Model A	1984	60 years 4 months	$465,000	May 2023
316	Jurong East St 32	10 to 12	105 Model A	1984	60 years 3 months	$528,000	May 2023
316	Jurong East St 32	07 to 09	112 Model A	1984	60 years 4 months	$566,000	May 2023
52	Teban Gdns Rd	07 to 09	83 Simplified	1987	62 years 11 months	$410,000	May 2023

Four-room flats in Jurong East completed between 1990-2000:

In the last three months, there were just two transactions with an average price of $529,000.

Block	Street	Level	Size and unit type (sqm)	Lease start date	Remaining lease	Sale price	Date
268	Toh Guan Rd	01 to 03	101 Model A	1999	74 years 10 months	$508,000	May 2023
265	Toh Guan Rd	04 to 06	101 Model A	1998	74 years 7 months	$550,000	Mar 2023

On average, there was a price disparity of $61,662 between the older and newer flats in Jurong East.

In the case of Clementi, where no flats were constructed between 1990 and 2000, there is a significant price disparity when comparing older flats built between 1970 and 1989 with those constructed in 2002. However, when examining Jurong East, the difference in prices between the older and newer flats is not as substantial.

You'll also notice that on average, the older flats in Clementi cost approximately $75,000 more than those in Jurong East which is quite a jump considering the two estates are side by side. Its pricing is actually comparable to the older flats in Bukit Merah and Queenstown. This suggests a potentially higher demand for flats in Clementi, which could be due to its status as a mature estate and its close proximity to several prominent educational institutions.

Additionally, it is worth mentioning that the older flats in Clementi and Jurong East predominantly consist of larger unit types such as "4 New Generation" and "4 Model A", both of which come with two bathrooms and a store.

What does this mean?

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The data suggests that the rate of depreciation for flats located in the outskirts is comparatively slower than those situated in the city fringe. It's important to note that this observation is based on the analysis of these specific locations and two construction periods: 1970-1989 and 1990-2000 — it may not be the case moving forward. However, what can explain this pricing behaviour?

It's likely that flats in the outskirts experienced a slower depreciation rate as they are more affordable. As prices of homes in Singapore go up, these older flats in the outskirts will seem increasingly attractive.

It's the same with the private market where flats in the Outside of Central Region saw the sharpest growth over the past years. In other words, having lower prices results in more room to grow.

Another reason why lower-priced flats could see better support is due to the availability of CPF housing grants. These grants are of a fixed amount, so for a lower-priced HDB, the proportion of the grant to the housing price is greater than if the HDB was priced higher.

As previously mentioned, determining the most suitable option depends on the intended holding period. If you anticipate a relatively short duration of stay, you can consider an older unit in the city fringe. The potential depreciation over a short timeframe is unlikely to have a significant impact, and especially if the location offers added convenience to your lifestyle, it could be worth the tradeoff.

However, if your plan is for a long-term stay, it is advisable to explore newer flats in the outskirts. These properties tend to experience less significant price depreciation over time. Additionally, the outskirts often offer larger unit types, providing a more spacious and comfortable living environment.

More pointers to take note of

More cash/ CPF outlay and reduced buyer pool for older flats

HDB has implemented a rule requiring the combined age of the youngest buyer and the remaining lease of the flat to reach 95 for buyers to qualify for the full loan amount, CPF housing grants, and the ability to fully utilise their CPF funds up to 120 per cent of the Valuation Limit (VL).

In situations where the sum falls below 95, the loan quantum, CPF housing grants, and CPF withdrawal limit will be proportionally adjusted. This requirement may discourage younger buyers from purchasing such flats, as they would need to contribute more cash or CPF funds if they do not meet the eligibility criteria. This consideration also applies to your situation as a buyer in your late 20s.

To illustrate, let's consider a flat with a remaining lease of 50 years. In order to be eligible for the full loan and CPF housing grants, the youngest buyer must be at least 45 years old.

Assuming you're 28 and were to purchase this flat. We used the CPF housing usage calculator to estimate the figures based on a flat with 50 years of remaining lease, buyers aged 28, and a unit valued at $600,000. The maximum CPF withdrawal amount is capped at $384,000, which corresponds to approximately 64per cent of the valuation. This means that once you have utilised $384,000 of CPF funds for the downpayment and/or monthly loan repayments, the remaining monthly loan repayments will need to be paid in cash.

It is important to note that the withdrawal limit will vary depending on the age of the buyer and the remaining lease of the flat.

Check on whether the flat has undergone the Home Improvement Programme (HIP)

There are two reasons for this. Firstly, if the flat has undergone the HIP, there may be reduced maintenance work required, leading to potential savings on renovation costs. Secondly, HDB does not immediately bill homeowners after the completion of the HIP. Instead, the billing process occurs when the works for the entire precinct are finalized, which can take some time. If you purchase the property before the HIP is billed, you will be responsible for paying the bill once it arrives.

For Singaporeans, this may not be a significant concern as the HIP is subsidised, and they typically only need to pay a portion of the cost, ranging from five per cent to 12.5 per cent. This amount is usually less than $1,500 and can be paid through CPF funds. However, for Permanent Residents (PRs), the HIP is not subsidised, and they are required to pay the full amount, which can reach up to $10,000. We just wanted to put this out there for the sake of completeness.

Older flats may have higher renovation costs

Following on the previous point, older flats tend to have more wear and tear issues (naturally) that you may need to fix. Cracked tiles, sagging doors choked pipes — you may find yourself in a situation of having to do a complete makeover. It may even be the case that certain problems, such as leakages in the home, may be coming from the neighbour's unit and not yours which could be harder to co-ordinate.

To conclude

The initial consideration is to determine the duration of your intended stay in the property. Since you are purchasing an older flat, it is unlikely that you will experience significant price appreciation, unless there are market conditions that lead to a surge in demand, such as the housing supply shortage observed during and after the pandemic when older flats were quickly snapped up.

Nevertheless, most homeowners aim to avoid substantial losses when selling their homes. To mitigate this risk, it is advisable to explore properties with a slower depreciation rate, particularly if you plan to reside there for an extended period.

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Perhaps to put things in a different context, how much do you really value your time? As they say, time is the most valuable asset that anyone has.

Let's say buying an older flat in a much better, convenient location might lose $100,000 in value over the next 10 years.

Whereas a newer flat in a less convenient location might appreciate by $100,000 over the next 10 years. The difference to you? $200,000.

But consider this. If you both have to travel an hour extra to work each day because of the location (260 work days), that's 520 hours saved a year. In 10 years, that's 5,200 hours that is time you could have saved. Essentially, that costs you $38 per hour — so in the worst-case scenario, how much is that additional time worth to you?

Also, since this property will be your first home, don't overlook the little factors beyond price that can impact your lifestyle. For instance, evaluate whether residing in a smaller flat with only one bathroom would be comfortable for you. Assess whether living in the city fringe would offer greater convenience in certain aspects of your life. Contemplate how residing in the outskirts could affect your commute time to work.

Walking further to the MRT station on a breezy day may not seem so bad, but do it daily and the inconvenience may start to set in.

ALSO READ: May 2023 HDB BTO review: Tengah (Plantation Verge and Parc Meadow @ Tengah)

This article was first published in Stackedhomes.