Reaching retirement age is often seen as the last milestone of one’s life journey. It is also when capital preservation takes on a bigger emphasis than capital appreciation, which could lead to some Singaporean seniors forgoing their special privilege.
All Singaporean households can acquire two subsidised build-to-order (BTO) flats directly from the Housing Development Board (HDB). However, for a few of us, our first BTO flat could be our first and last property purchase. Whether it’s for financial reasons or a personal preference, staying put may seem like good financial sense to most people; even more so, if you are reaching your retirement or golden age.
But does that always hold true? While it may seem like an unconventional thought, buying your second subsidised flat near to your retirement age could just be more beneficial than most realise.
Most seniors are open to right-sizing to 2-room Flexi flats that have a shorter lease term of between 15 and 45 years. But these Flexi flats do not allow you to rent out the whole flat, limiting your options to monetize your flat in your later years. This is why a second subsidised flat that is at least 3-rooms or larger, may benefit these seniors.
Not Every Senior Is Eligible To Buy A BTO Flat Larger Than The 2-Room Flexi Flat
Before we dive into the reasons why it could make financial sense for seniors to consider buying a BTO flat, let’s be clear that this may not apply to everyone. This may work for you if you are able to fulfill the following conditions before making your second property purchase at your retirement age:-
- You must not have bought an HDB flat directly from HDB more than once;
- You must be able to form an eligible family unit, which maybe comprised of a married couple, or a single person with parents, or a parent with children; and,
- You must be able to fully fund your next BTO flat purchase without any financing (or depending on how much you can borrow), including accounting for the resale levy payable and the renovation and other miscellaneous expenses.
If you can meet the above conditions, then the benefits that you stand to gain by purchasing a new BTO flat include:
#1 A Fresh 99-Lease That Comes With Better Upside Potential
Most seniors who are in their 50s to early 60s might be living in HDB flats that have already aged at least 25 years.
Due to the 99-year leasehold tenure of HDB flats, the older the flat becomes, the lower the value might be due to lease decay. This could also be attributed to how most Singaporeans use their CPF savings to buy their residential properties (i.e. HDBs). The percentage of CPF savings that can be used by young homebuyers to finance the purchase of older HDB flats becomes smaller as the remaining lease becomes shorter.
For example, a 25-year-old couple can only use 60% of their CPF savings if they were to buy a flat with a remaining lease of 50 years. And, it should be noted that you cannot use any portion of your CPF savings to finance a property if the remaining lease is 20 years or less.
Maximum Amount Of CPF Savings That Can Be Used For Property Purchase
Source: CPF
That being said, there could be exceptions to the premium commanded by certain older flats that are located in prime locations. But in general, the longer the remaining lease of the flat, the better the upside or retention of value.
Read Also: 5 Things You Need To Know Before Buying An Older HDB Flat With A Lease Of Less Than 50 Years
#2 Better Housing Facilities
Moving to a new BTO flat will not only bring about a change of surroundings, but will also come with better housing facilities compared to the older flat.
Some of these new and improved housing facilities may include smart power sockets and high-tech distribution boards that can transform the flats into smart homes. Some newer BTO flats also come with modern fittings such as large tiles, concealed floor traps, and scratch-resistant laminated timber main doors. These flats are also designed with an open-kitchen concept and have layouts that push the structural walls and beams to the side, allowing for a more open play layout.
Furthermore, some of the upcoming BTO estates will be designed with unique themes, like the Farrer Park development that will be integrated with sports facilities and other estates in Tengah that will have eco-friendly communal parks and facilities.
#3 Able To Pass Down An Appreciating Asset To Beneficiaries As Part Of Legacy Planning
For most seniors, their HDB flats could be their single largest investment. As such, it may form part of one of the assets that they may wish to bequeath to their children or beneficiaries after their passing.
By switching to a BTO flat, seniors would be passing down an asset that could have better upsides in the long term compared to their current aging flat.
This could also be part of legacy planning, in which the surviving child(ren) or beneficiaries would be able to stay in a larger sized flat (i.e., 4-room or larger) for a longer period of time, which they would otherwise be ineligible to apply for due to a variety of factors, including the inability to form a family nucleus.
Read Also: Retire Well Or Leave A Legacy? Why You Don’t Need To Choose One Over The Other
#4 Potential For A Big Lump-Sum Payout Or Better Rentability Of Flat
Seniors can use their second chance of buying a subsidised flat to cash out upon serving their minimum occupation period (MOP). It is well accepted that BTO flats largely generate the best gains after reaching the 5-year MOP. This is largely due to the subsidies given to direct flat buyers and to the higher demand for newer lease flats on the resale market.
This cash out method could be beneficial for seniors who may wish to live with their children, live abroad in their latter part of retirement age, or have other accommodation plans.
Seniors can also choose to monetise their BTO flat by renting out individual rooms or the entire flat after completing the MOP. A newer flat with newer and modern facilities may be more rentable than an older flat with antiquated facilities.
Read Also: How Big Of A “Windfall” Is A Prime Region HDB Flat?
Conventional Thought May Not Always Be Beneficial
It is understandable that most homeowners may experience both emotional and financial pain when moving to a new place of residence. However, that should not stop us from being overly conservative and losing good opportunities to make capital gains, even in our golden years. As Singaporeans, we are given the privileged opportunity to buy two subsidised HDB flats. If we are eligible, we should consider using both of our chances even as we near our retirement age. It may just become that extra layer of financial safety net that we may eventually need or leave behind for our beneficiaries.
The post Why It Could Make Financial Sense For Seniors To Buy A BTO Flat During Their Retirement Years appeared first on DollarsAndSense.sg.
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