There’s a flurry of real estate ads that advocates the purchase of landed property and condominiums these days, all with the promise of being able to purchase or upgrade to such units for “little to no money”. The hidden condition for this purchase is that you have to leverage on mortgage from the bank.
But as bank rates start rising, purchasers of these assets will eventually start to feel the pinch. That does not mean though that having a private property is a bad idea. But there may be a smarter purchase alternative to a private property that does not get talked about often: Jumbo flats.
History of Jumbo Flats
Before Build-to-Order (BTO) flats are introduced, flats are constructed first BEFORE they were put up for sale in the open market.
Following the official opening of Changi Airport (29 December 1981), Singaporeans flocked towards HDB flats in the east of Singapore. In an effort to shift the population concentration away from the east, HDB built up more HDB 3-room and 4-room flats in Woodlands and Yishun between the late 1980s and early 1990s, with pockets of these flats found in other parts of Singapore: Jurong East, Clementi, Bedok, Ang Mo Kio, Pasir Ris and Tampines. However, the take up rate was not forthcoming as demand for smaller HDB flats has dropped and due to location of these flats being away from city centre and the airport. This, inadvertently, caused an oversupply.
The Straits Times, 25 February 1989, Page 12
HDB then responded by taking the unprecedented step of combining the many unsold 3-room and 4-room units and classified them as “Executive Apartments”. The sizes for these apartments range from between 1,442 to over 2,000 square feet (sqft). This move effectively halved the number of unsold flats. Housing agents then started to coin the marketing term “Jumbo flats” given the sheer size of these flats. The term “Jumbo flats” has stuck on till today.
Benefits of Jumbo Flats
The benefits of Jumbo flats as a potential asset is numerous:
1. Space vs Price
The prices of Jumbo flats depends on location, condition of unit and maturity of the estate. For example,
|Size||Above 2000 sqft||Above 2000 sqft|
|Asking Prices||$700,000 to $900,000||$950,000 to $1,000,000|
|Average $ per sqft||$380 per sqft||$450 per sqft|
|Remaining Lease||70-79 years||60-69 years|
If we were to find similar floor area of private condominium units, they would easily cost double or more.
For a potential buyer with a $700,000 to $1,000,000 budget, you would probably only be able to get a 1-bedroom condominium or 3-bedroom condominium. Oh, and we don’t even have to compare the sizes of the newer condominiums, their sizes are much smaller and the floor plan layouts are not as flexible.
Thus, Jumbo flats present a unique alternative to going “private”. If you plan well, you can use an HDB loan rather than taking on a private bank loan since these are HDB properties. That means you can get up to 90% financing, at a more stable interest rates.
2. Suitable for large families
The Jumbo flats offer a large enough space to house extended families especially 3 generations under one roof (as compared to regular-sized 5-room HDB flats and executive apartments).
Instead of asking our ageing parents to sell their current HDB (to unlock their CPF monies and related accrued interest) and buy 2-room Flexi flats or to sell their remaining lease (lease buy-back scheme), young couples could consider sharing the cost of the Jumbo flat with their parents.
Granted, HDB re-introduced 3-Gen flats (multi-generation living) in November 2013 but their sizes still pales in comparison to the sizes of the Jumbo flats. Furthermore, there are conditions to fulfill i.e. that only multi-generational families comprising at least a married or courting couple and the parents of either spouse can apply for these Three-Generation flats. Should you decide to sell the 3-Gen flat later on, your pool of potential buyers also shrinks significantly as you will only be allowed to sell to other multi-generational families.
On the other hand, Jumbo flats are considered as part of the resale HDB market. So as long as you can meet HDB criteria of a family nucleus (Husband and wife with no kids are already considered a family nucleus), you could already potentially buy a Jumbo flat. Even singles above 35 years who enjoy large space and hosting friends and families, can potentially buy a Jumbo flat.
3. Flexibility in design and space planning
This is the best part of Jumbo flats.
If you understand floor plans and layouts, most Jumbo flats allow great flexibility in terms of meeting your desired themes for the different rooms (Check out our feature project where each room is themed differently.)
You could have separate living and dining rooms, wet and dry kitchens, the husband can create his own man-cave and the wife can have her dream walk-in wardrobe.
Some layouts even have existing configurations which already allow you to create two access doors similar to dual-key private condominium units.
The re-introduced 3Gen flats layouts do not have such flexibility suggesting HDB’s intent to guard against attracting buyers intending to rent out part of their flat.
4. Potential rental income and higher value
As the Jumbo flats were originally 3-room and 4-room flat combined, there is a unique opportunity to build up the wall or door (which can be locked both ways) between the two adjoining units (HDB knocked the wall down when they first introduced it) and market one of the units as a “whole-unit” rental.
- Purchase Price of unit: $650,000
- Rental income for 3-room side: $1,500 per month
- Rental income in 1 year: $1,500 x 12 months = $18,000
- Rental income yield in 1 year: $18,000/$650,000 x 100% = 2.76% per annum
You would have easily matched the rental yield for most private condominiums.
This arrangement allows you to earn rental income while still staying in the premises and without sacrificing your privacy. Think about it: One main door. Two separate lives.
In addition, if you had invested in the renovation phase (when you first bought it) and designed the Jumbo flat tastefully and maintained your unit proper, there could be potential upside to the value of the Jumbo flat. Lower supply and scarcity of Jumbo flats could possibly give them some resistance to property downturns and potentially qualify as one of the transacted million dollar HDB flats which we have already seen in 2018.
Please note that the above conditions are subject to prevailing HDB rental regulations.
There’s no doubt in our mind that Jumbo flats offers and exciting potential for home owners. However, there may still be some hesitancy to what could be a significant life change.
Hence, our in-house research team is here to filter through the various property listing platforms to find the most suitable floor plan and layout for your needs. We understand the costs involved in acquiring and renovating your unit thus our “Holistic Mortgage Strategy” approach ensures that you do not take unnecessary risks in the long run. You can send your enquiry here.
About The Author
Shamir has more than 8 years of banking experience across various areas in Retail, Corporate and Private banking (including Islamic finance) for one of the largest banks in Southeast Asia. In Corporate Banking, he was involved in structuring loan transactions for real estate developers and REITs. He also worked with private bankers to provide credit solutions to their high net worth clients.