Why do older properties start to depreciate?

For many property buyers, price is the main consideration they have when buying a property.

They would buy older properties because it tend to cost lesser. It might look like a steal to make such a purchase. However, it is not suitable for everyone, especially when you are young and have a full life ahead of you. Below are the few reasons why property prices depreciate when they get older.

1. Land returned to Government

Many properties in Singapore have a 99-year tenure. After the 99-year tenure, the land will be returned to the Government.

While older properties can be en-bloc to rejuvenate the estate, not all properties are applicable for en-bloc. Since 1995, only 77 HDB sites have since completed the Selective En bloc Redevelopment Scheme. A far cry from the tens of thousands of HDB sites we have here in Singapore.

Same goes for private development. Many older developments do not get en bloc mainly because there is no change in the plot ratio, hence, it is not profitable to be bought over. Even when some do have the en bloc potential, it has to go through a voting process, which can be quite tiresome and unfriendly. Many long-staying residents are not motivated by the money and do not want to sell their property as it has a lot of sentimental value. This causes disarray among neighbours and can erupt to disagreements and even to the extent of getting physical with each other.

En blocs are rare and is akin to winning a lottery. Hence, most buyers resign to the fact that older properties will have zero value when the tenure is up. This causes the prices of older properties to fall.

2. Limit on CPF withdrawal

This is a little known fact that there is a limit on the CPF withdrawal on the properties that you buy.

The property lease must cover the youngest buyer till the age of 95.

For example, if the youngest age of you and your partner is 35, the next property should have at least 60 years remaining lease. If not, the use of CPF will be pro-rated based on the extent the remaining lease of the property can cover the youngest buyer to the age of 95.

You can use this CPF calculator to check the limit of the CPF available for use.

For those buying a property with a remaining lease of least 20 years and can cover the youngest buyer until at least the age of 95, you can use up to the Valuation Limit.

Naturally, many buyers do not want to use their cash savings to pay for their home. Hence, they would avoid buying older properties. When demand for such property become lesser, the property price will also be lesser.

3. More maintenance

Older properties need more maintenance, repairs and renovations. This is due to wear and tear from weather and usage. A leakage of the pipe from your unit to your neighbour’s will cost you at least a few thousand dollars.

Astute buyers will use the condition of the property as part of their negotiation to price the property down.

Not all properties will fall in value

While most older properties do depreciate in value, not all will. This will mainly depend on the location of the properties. Traditionally, towns that are close to the CBD area, also known as CCR, or Central Core Region, do not usually see a depreciation in the price. This might be one of the reasons why the Government is starting to decentralise the Central Business District to other parts around Singapore. Soon, we will have Jurong Lake District, Punggol Digital District and many other districts.

This is to stabilise the property market around Singapore rather than have a price disproportion from one place to another.

With this, I hope you can make a more informed decision when making your next property purchase.

If you have any question, give me a call or leave me a text at 94508732.