Because of the price and potential Cash Over Valuation, resale HDB flats are not for everyone.
It’s a common conundrum for Singaporeans. Should you buy a resale HDB flat (pricier than most BTO flats), or a mass market condo instead? Or should you just opt to be prudent and buy new?
In this article, we look at the key considerations when making this decision.
Why Buy a Resale HDB Flat?
Ever since Budget 2017 was announced, resale flats have grown in popularity. The CPF grant for resale flats now provides an additional S$20,000 (up to S$50,000) for the purchase of resale units.
Depending on the location, however, this may not make resale cheaper than a new flat. Resale flats are more expensive, by dint of potential Cash Over Valuation (COV), and their general location in more mature estates. In fact, some resale flats can hit the S$600,000 to S$700,000 mark (a rare few even hit S$1 million), which makes many people wonder if they shouldn’t just get a condo.
Fortunately for Singaporeans, Budget 2017 announced an increased CPF Housing Grant for first-time resale flat buyers. You can get around S$50,000 for a 4-room or smaller flat, and S$40,000 for a 5-room or smaller flat.
Who Should Buy a Resale Flat?
Because of the price, HDB resale flats are not for everyone. In general, you’ll want a resale flat if:
- There are no Singapore citizens in your Nuclear Family
- Wait time is an issue
- You are prepared to deal with COV
- You need to live near specific amenities
1. There Are No Singapore Citizens in Your Nuclear Family
In this situation, you cannot buy a Built-to-Order (BTO) flat. This leaves some Permanent Residents (PRs) to choose between resale flats and private housing.
2. Wait Time Is an Issue
One of the main appeals of resale flats is that they are already built. Most BTO units take two to three years, for construction to be finished. If you need to move into your own place immediately (e.g. your parents’ homes have no room, or your spouse is eager to move out), then resale might be worth any added costs.
3. You Are Prepared to Deal With COV
Once you have agreed upon the price of the resale flat, you will know the flat’s actual valuation. The price above the valuation is the Cash Over Valuation (COV). For example:
Say you agree to a price of S$600,000 for a resale flat. Later, the valuation states that the flat is worth S$580,000. The remaining S$20,000 cannot be covered by your bank or HDB loan, and you must have the funds to pay for it yourself.
You will not know the COV of the flat until the price is already agreed upon. This is why it's important to have some cash savings before you buy your first flat.
4. You Need to Live Near Specific Amenities
If you have elderly parents and must live near the hospital, or no one cooks and you need to be near the hawker centre, then look for mature estates. Most mature (old) estates have several of these built up over the years.
As mature estates are quite packed however, there is seldom room for BTO flats in these places. This means that your only means of accessing them are through buying a resale flat, which is already there.
This may be worth the cost, if you need access to specific and important amenities (e.g. a school that is nearby for your children, so they don’t need hour-long commutes).