Should You Wait For BTO or Buy Resales?
Now that you have been dating for many years, it is time to settle down before your biological clock starts ticking away!!!
What’s next? You need a place to stay.
Find out what are your option as you weigh the factors before owning your first home.
So, what do your choices? BTO? Resale?
Let’s explore and weight the pros and cons between the two before you decide the best option.
BTO – What Are The Advantages?
In February 1960, the Housing and Development Board (HDB) was established to develop public housing and improve the quality of the living environment for its residents.
In 1964, the Home Ownership Scheme was also introduced to help citizens to buy instead of renting their flats.
Government and HDB commitment is to ensure that the Singaporean dream of home ownership is always kept alive. Hence, BTO are heavily subsidised to ensure all Singaporeans are able to own a flat. That means that when comparing HDB BTO and Resale prices, BTO is always going to be cheaper.
Take for example, a 4-rm BTO flat in Tampines would cost between $299,000 to $347,000, a resale 4-rm in the vicinity would cost between $397,000 to $467,000. And this would allow room for some profits after it reaches MOP.
A lower purchased price would mean lower downpayment as well. BTO offers staggered downpayment scheme, pay 5% (cash/CPF) upon signing the agreement and another 5% upon collecting your keys which is easily a few years later, makes it a lot easier to afford.
Young adults, who just started working, would also mean little CPF savings. This gives you time to save that amount and of course, cash for renovation
Full 99 Year Lease
Yes, the best part of it! This gives you so much time to think about what you want to do. You could stay in this flat for many good years to build sweet memories and not worried about lease decay, and probably still be able to sell with some profits after staying for a while more.
The track record for BTO’s capital growth is significantly superior to a Resale flat. Indeed, by being subsidised in the first place, BTO are already in a good stead to command a higher capital value once the Minimum Occupation Period is over.
Who have heard of Punggol and Sengkang back then? They have fewer amenities compared to Bedok or Queenstown, public transportation is minimal. HDB needs people to grow the amenities, so to attract buyers, BTO in these areas were priced low between $138,000 to $178,000 between 2003 to 2005, and what happens 10 years later? They were sold between $373,000 to $575,000 in 2015!
Now, what are the disadvantages?
BTO are normally located in non-mature estates were amenities are limited. You will need to grow with the estate for these amenities to grow. So, it will also mean a longer distance to work, lesser choice for food nearby.
New flat are generally smaller in size, which a 4-rm is about 90sqm, an older 4-rm would easily about 100sqm.
BTO comes in ‘bare’ condition. So you really have to renovate everything from scratch, like air con, wardrobe, kitchen cabinet, etc.
Let’s see what the resale flats advantages are like
Suddenly you are spoiled for choice. Tiong Bahru, opp MRT or Marine Parade, near the beach.
You choose, you decide. There is much more flexibility, you get to choose where you want to be, low floor, high floor, west sun, morning sun, the list goes on (Of course, depending on what are the units available for sale) But you do have a lot more flexibility vs BTO which the queue number decides what are the choices you have.
Staying Near Parents
What beats homecooked food! Or someone to help to look after your little ones when they are not well or you are still stucked in office, or easier for you to take care of your aged parents, the list of benefits goes on and on. (I had personally benefitted this, my sister’s and my kid’s grew up together and are close to each other, I have breakfast with my siblings every weekend!, I reached home in 2 minutes after my mahjong at 2am on weekends!)
Probably the longest and tedious process in buying resale is viewing and shortlisting the ideal unit that you want. Otherwise, the legal process take only about 3 months upon placing your Option money (deposit).
A 4-rm would be about 100sqm in an older flat and normally had a more efficient layout with no air con ledge space for example.
Wow! The best part in resale is grants! This helps to offset the ‘cheaper BTO’ though, so it makes the resale prices easier to stomach.
If your household income is $5000 for example, you are entitled to family grant of $50,000 for 4-rm and below or $40,000 for 5 rm and above
Enhanced CPF housing grant based on your mthly household income will be $40,000
If the flat you are buying is near your parents grant, within 4km, will be $20,000. (Don’t forget your parents will have to be staying in the 4km radius for 5 years as well if they have plans to sell their current flat)
In all, you get the following grant
4-rm and below – $50,000 (family grant) + $40,000 (enhanced CPF housing grant) + $20,000 (near parents proximity grant) = $110,000
5-rm and above – $40,000 (family grant) + $40,000 (enhanced CPF housing grant) + $20,000 (near parents proximity grant) = $100,000
These grant will be credited into your CPF acct to pay offset the purchase price
Does this makes resale flat a lot more attractive now, right?
Back to this scenario, the most expensive resale of 4-rm of $460,000 would now cost $350,000 after the grants, which is not bad at all!
Or 5-rm of $618,000 would now cost $518,000!
But what are the disadvantages?
What is lease decay?
This refers to both the process, and effect, of a property that’s running down its lease. For example, a Hdb flat with just 30 years left on its 99-year lease will be suffering the advanced effects of lease decay.
Unless you are buying the ‘just MOP-ed’ flats which would have 94 years left and this is the longest lease remaining lease you can get in a resale flat, otherwise most resale flats are old n some could even be more than 40 years especially in those mature estate. Meaning to say, it will be harder for you to sell when you decide to sell after MOP.
Depending on the unit you have chosen, if luck is on your side, you might have bought a unit that requires little or no renovation at all, then you will have to expect the owners to sell at a high price for it.
Well, you had bought a flat that the first owner had bought at subsidized price. And you bought the resale flat in mind for convenience, or space, etc, there are reasons beyond profitability.
You may sell for profits eventually, but it is a home now!!!!
With the above points, I hoped I have summarized it to something you are able to relate to!
So you will have to decide, your HDB flat is a home or an investment?
There is no which is better, but something that suits what you need!
You want to buy a HDB that allows to build that memories, or it is a unit for you stay, and sell when the opportunity comes so you could upgrade easily!
Maybe this example would make It easier to relate.
I was recently asked to give some advice to a good friend’s daughter, both girlfriend and boyfriend are 25 years, with about $30,000 in aCPF account and household income about $5000. They had tried BTO for 2 years and still has not been successful in securing a unit. What should they do?
With the huge amount of grants given in the resale category, I advised them to buy a ‘just Mop-ed’ resale flat near their parents. They get a total of $110,000 for a 4-rm flat in grant, the flat they had in mind was $410,000 in Bukit Panjang, so they paid $300,000 for a 5 year old flat!
If they were to continue balloting for a BTO, and say they could eventually get a unit in 2 years, it needs 3 years of construction, and another 5 years for MOP, in all they may to wait for 9 years for this BTO to mature!
Now, they will only need 5 years for their resale flat to be ‘MOP-ed’ which they will be able to upgrade faster if they have reach that financial ability.
Still confused? Call us, we will be more than happy to sit down to clear your doubts over a cup of coffee.
And in case, you are not aware, if you happened to have cash in hand for investment, do you know you can invest in commercial property without waiting for 5 years for MOP and best of it, no need to pay for ABSD. Check out our other article about commercial properties.