What Should You Buy For Your First Home?
Singapore has one of the highest home ownership rates globally, standing at more than 90 per cent of its population.
Every Singaporean aspires to own their own home, be it newlywed couples buying their marital home or singles their bachelor pad. Others purchase for retirement and investment.
Since buying a property is possibly the most significant investment of our lives, it requires much thought and proper financial planning.
Take, for instance, Jonathan and Judy. Both of them just returned from overseas after spending several years pursuing their education and acquiring some work experience. They decided to come back to Singapore, get married and start a new home.
Inevitably, one of the most immediate needs is to sort out their housing needs. They could have stayed with their parents but felt that it would be ideal to have their own private space as a newlywed couple.
So what are their choices based on their needs and budget?
Option 1: Build-to-Order (BTO) HDB Flat
BTO flat is, by default, the number one choice of many Singaporeans.
Buying a BTO flat has many advantages.
Since heavily subsidised by the government, they are cheaper than resale flats. This means it will likely enjoy capital appreciation potential. Those who are lucky enough to secure a BTO flat is akin to striking a lottery. At the end of the five-year minimum occupation period (MOP), many would sell their flats for a tidy profit. It is not uncommon to enjoy 30 per cent gain or more.
My clients, Ali and Fatimah (not their real names), paid $240,000 for their 3-room BTO flat in Marsiling. After staying for five years, they sold it for $320,000. That translated to a 33.3 per cent gain!
Most home buyers prefer BTO flats to resale flats also because they come with a fresh 99-year lease, attractive design, aesthetic appeal and modern amenities.
The inclusion of flooring and wall tiles in some parts of the flat helps to save some renovation costs. Furthermore, if you opt for the Optional Component Scheme (OCS), you can enjoy more savings since the additional cost is part of the total flat price.
During the recent National Day Rally, PM Lee Hsien Loong unveiled a future change in public housing policies to reduce the ‘lottery effect,’ especially in prime locations.
With the next change which will be implemented from the second half of 2024, BTO flats will be categorised into Standard, Plus and Prime flat types.
The Plus type BTO flats are those in choice locations, and the Prime type in the choicest and most central locations.
These two types of flats are the most sought-after because of their resale values upon meeting the Minimum Occupation Period (M.O.P.).
However, the MOP period for these flats will be increased from 5 years to 10 years.
Furthermore, when selling on the open market, the government will claw back the subsidies given for the flats.
For the Prime type, other conditions include an income ceiling and 10-year MOP for the buyers of such resale flats.
With these changes, it might no longer be attractive to those who intend to buy BTO flats with the intention of reaping a huge profit when selling on the open market.
10 years is a long time to wait.
Having the subsidies clawed back by the government will eat into any potential profit.
And it will be harder to find buyers who need to meet the income ceiling because their buying power will be capped.
If you are buying a BTO flat with the pure intention of long-term staying, then it will be a good option.
- Lowest price among all options.
- Heavily Subsidised.
- Brand New flats with the modern amenities and common spaces.
- Fresh 99 years lease.
- Capital appreciation potential is the highest among HDB flats, at least for the time being.
- Minimal renovation required.
- 4 – 5+ years waiting period.
- Coupled with the 5 to 10 years MOP period upon taking over the home, the opportunity cost is very high.
- Smaller sizes than older resale flats.
- Limited supply.
- Luck of draw.
Option 2: Sale of Balanced Flats (SBF)
If you die die must own a brand new flat but miss out during BTO flat launches, you can try your luck at Sale of Balanced Flats.
HDB SBF launches occur twice a year, usually in May and November. These are unsold flats or flats given up by successful applicants from previous BTO launches, which may have already completed or still under construction.
These flats pooled together by HDB, can be found both in mature and non-mature estates.
In May 2021, HDB launched 2,494 SBF in mature and non-mature estates such as Jurong East, Yishun, Marine Parade, Queenstown and Clementi. About 28 per cent of them are ready to move in, while the rest are still under construction.
A friend of mine was fortunate enough to secure a 4-room flat at Clementi NorthArc. The mid-floor 93 sqm flat costs $536,000, though more expensive than the original BTO price but cheaper than a resale flat. Recent transactions of MOP resale flats in the same estate are more than $800,000. Even 15-year-old 4-room resale flats in Clementi are above $700,000.
One main advantage of SBF is the shorter waiting time compared to BTO flats since they are ready for moving in or are under construction.
Whilst there may be choices of estates to choose from, the number of units is limited. And usually, the level and facing are less than ideal.
Do take note ethnic integration policy applies to SBF.
- Brand New flats with short or no waiting period.
- Cheaper than resale flats though higher than BTO flats
- More options for locations
- Limited choices of units
- The level and facing of the balanced units generally not very good
- Limited supply
Option 3: Resale HDB Flat
Since not everyone has the luxury of waiting for a BTO flat, there is a spike in demand for resale flats.
If you need to move into your new home FAST (about 3-4 months vs 3-5 years for BTO flats), you should consider a resale flat.
While resale flats may not be as ‘profitable’ as a BTO flat, the government gives generous housing grants to eligible buyers, making it an attractive proposition.
As of Feb 2023, the grants have increased from $50,000 to $80,000 for 2 to 4-room flats for first-timers (families), and from $40,000 to $50,000 for 5-room or larger flats.
Furthermore, those who are eligible can enjoy up to another $80,000 Enhanced CPF Housing Grant (EHG) and $30,000 Proximity Housing Grant (PHG).
With BTO flat prices hitting above $600,000, the housing grants for resale flats help narrow the price gaps.
The key difference is resale flats do not come with a fresh 99-year lease.
On the other hand, resale flats appeal to those who want to live near their parents or preferred primary school for their children. They can afford to pick and choose the unit in terms of location, level, facing and condition. If you want massive space, you can even look for jumbo flats or executive flats that HDB has stopped building.
On the flip side, resale flats have an issue with lease decay, especially with older flats. If they are more than 40 years old, there may be a cap on the usage of CPF.
As opposed to a BTO flat, you only have to wait for the five-year MOP before you can sell and upgrade.
- Ready to move in within 3-4 months.
- You can choose the location, size, level, facing, etc.
- Unit sizes may be much larger.
- Slimmer chance of capital appreciation.
- Will be subjected to CPF usage and loan restrictions if the remaining tenure of the flat and the age of the buyer is less than 95 years.
- Concern about lease decay.
- Dated design, amenities and common areas.
- Usually requires more renovation.
A couple can opt to buy an HDB flat using one name as owner and another as ‘essential occupier’. Upon fulfilling the five-year MOP, the couple can choose to keep the HDB flat, and the ‘essential occupier’ can buy a private property for own stay or investment. However, the catch is that both husband and wife must be able to bear each of their respective housing loans.
Option 4: Brand New Executive Condo (EC)
Like BTO flats, Executive Condos (EC) are subsidised by the government. While they look exactly like any private condo built by private developers with a full suite of condo facilities, the eligibility criteria are set by HDB.
Because they are subsidised, the capital appreciation potential is high.
Minimal renovations are required for a brand new EC, just like a private condo, unless you want to turn it into a palace.
If you meet the eligibility criteria and the prices match your budget, you should seriously consider a brand new EC.
So, is new EC for everyone?
When I was doing financial planning for some clients, I found out it is not feasible for many of them.
Part of the reason is that the prices of EC have risen considerably over the last few years. Current price level averages slightly above $1,300 psf.
As a result, new ECs are now smaller than older ones to bring down the quantum prices.
The main setback for potential buyers is the loan issue. Buyers of new EC are subject to Mortgage Servicing Ratio (MSR) instead of Total Debt Servicing Ratio (TDSR) as in private condo. With the same income, you can borrow twice as much for a private condo than an EC.
The double whammy is while you can take up to 90% for an HDB loan, the maximum Loan-To-Value (LTV) for EC is 75%. The 25% downpayment is very challenging for young couples since they have yet to accumulate sufficient savings and CPF.
Another disadvantage of buying an EC is that you are also bound by the five-year MOP before you can sell or lease out.
- Condominium lifestyle facilities and security without the full price tag of a private condo
- Enjoy first-mover advantage since you are buying at the lowest possible price.
- Enjoy high capital appreciation potential upon MOP & privatisation.
- Wide choice of units.
- Longer lease tenure than resale since buying new.
- Minimal renovation required since it comes with finishings
- Latest designs and facilities.
- 3-4 years waiting period followed by five years of MOP before you can rent out or sell
- Smaller in size compared to HDB flats and older ECs.
- Subject to MSR so less affordable than resale ECs.
- Maximum Loan-To-Value (LTV) is 75%.
- Can only take bank loans with no 90% loans available from HDB, thus a higher initial downpayment.
Option 5: Resale Executive Condo (EC)
Like buying a resale HDB flat, a resale EC gives you the benefit of choices on the secondary market. And there is no need to wait for years for the construction period.
A resale EC is actually more affordable than a brand new one despite the higher price. This is because your loan now comes under TDSR instead of MSR. You can borrow twice as much with the same income.
Let’s zoom into the cluster of EC and private condos at Pasir Ris Drive 3 to make a bit of comparison:
- Watercolours (EC TOP 2014)
- Sea Horizon (EC TOP 2016)
- Seastrand (Condo TOP 2014)
- Ripple Bay (Condo TOP 2015)
- Sea Esta (Condo TOP 2015)
Resale EC Watercolours and Sea Horizon are between $1,134 to $1,252psf. The other three resale condos average between $1,206 to 1,325psf. So the price difference between resale EC and condos is quite minimal though slightly lower.
By looking purely at the price level, if all other factors are equal, it may make sense to have a small saving to buy a resale EC. It still boils down to the preferred project and unit. The only factor is you can’t sell the resale EC to foreigners till it reaches the 10-year mark.
- Ready to move in within 3-4 months.
- No MOP, so can rent out immediately.
- May have upside potential upon privatisation at the 10th year mark.
- Good length of remaining tenure.
- More choices in terms of location, level, size, facing and conditions.
- Subject to TDSR instead of MSR, hence higher affordability than brand new ECs
- Units usually require some renovations.
- Bank loans only. No 90% loans available from HDB, thus a higher initial downpayment.
- Usually less profitable long run compared to brand new EC.
- Lesser tenure than brand new.
- Maximum Loan-To-Value (LTV) is 75%.
Did you know you can borrow twice as much to buy a condo/resale EC than buying an HDB/new EC?
Mortgage Servicing Ratio (MSR) applies to loans for HDB (new and resale) and new EC, whereas Total Debt Servicing Ratio (TDSR) applies to resale EC and private condos.
Under MSR, you can only use up to only 30 per cent of your gross monthly income to service your mortgage loan. On the other hand, under TSDR, the cap is 60 per cent of your total debt commitments, including mortgage loan, car loan, and credit card instalments.
So if you and your spouse are both 30 years old with a total household monthly income of $8,000 (assuming no other debt commitments), based on a 30-year loan tenure, you can borrow up to:
- $534,466 to buy an HDB or new EC
- $1,068,935 to buy a condo or resale EC
Option 6: New Condos
There are a lot more choices when it comes to buying a private condo than EC. Locations are usually better in terms of proximity to amenities and MRT.
One main advantage of private condos over HDB and new EC is that it is not subjected to the five-year MOP. That means you can rent it out immediately when completed or sell it (subject to Seller Stamp Duty if you sell within three years). So this works best for investors.
Private condo prices are higher than HDB flats and EC. However, you can take a bigger loan, thus making it more affordable.
If you are buying your first home, new launches mean you will have to wait for TOP. Typically, the construction can be anything between three to five years.
For those upgrading from an HDB to a private condo under construction generally means you will have to sell first.
You will have a rent a place for either case or find a temporary home during the interim period.
- Higher capital appreciation potential because of first-mover advantage
- Not subjected to MOP.
- Widest choice of locations.
- Plenty of unit choices for new launches. Can choose the layout, level and facing you like.
- Usually higher quality finishings and nicer facilities.
- Save on renovation costs.
- Enjoy one-year defect warranty.
- Eligible for a higher amount of loans since Total Debt Servicing Ratio (TDSR) applies, as opposed to Mortgage Servicing Ratio (MSR).
- Lower price quantum because new condos are smaller, thus more affordable.
- Progressive payment scheme helps to migitate the current high interest rates.
- Highest price tag compared to HDB and EC.
- New condos are usually smaller than older condos.
- Need to wait 3 to 5 years of construction period.
- HDB upgraders need to sell their flats first to avoid paying ABSD.
Option 7: Resale Private Condo
Buying a new condo under construction is not always feasible when you need to move in immediately.
If space is a priority for you, older condos are more spacious. The average size of a three-bedder used to be about 1,200 sf. These days, it’s less than 1,000 sf, and with more unusable space.
For HDB upgraders, buying a resale condo can be a seamless process with proper timeline planning.
The downside of resale condos, especially for older ones in their original conditions, is the cost of renovations.
Maintenance costs can also be higher with more going towards repairs and sinking funds. Over time, you will have to deal more with pipe leakages, fixtures deteriorating, ceiling concrete spalling, ageing air-conditioners in need of replacements, etc.
If the resale condo tenure is leasehold and is more than 15 years old, the chance of capital appreciation is slimmer. But on the other hand, some very old condos in excellent locations may have high enbloc potential.
- Not subject to MOP.
- Widest choice of locations.
- Eligible for a higher amount of loans since Total Debt Servicing Ratio (TDSR) applies, as opposed to Mortgage Servicing Ratio (MSR).
- Usually larger in sizes than new condos
- Less choice of units in the condo you are interested in. May not have the level and facing you want.
- Usually requires some renovations.
- Possible issue of lease decay for older 99-year leasehold condos.
- Might be subjected to CPF usage and loan restrictions.
- Dated design, facilities and common areas.
- Higher cost of maintenance and repairs.
- Higher price quantum because of bigger sizes.
Factors in Determining Your Choice
There is no right or wrong in any of these choices because everyone’s needs and budgets are different.
What are some of the factors that will affect your final decision?
Affordability
It is prudent to buy within your means.
Start where you are, with what you have.
Have enough reserves that can last you at least six months, or better still, 12 months, in case the unforeseen happens.
Needs
Your needs based on your priorities could be space, number of rooms, workspace for work from home, convenience, facilities, etc.
With your budget, find the type of housing that matches your needs best.
Urgency of Moving In
How soon you need to move into your first home will largely determine your housing choice.
Obviously, if time is not on your side, you will have to take BTO flats, new EC and new condos that are under construction off your list.
If you are in no hurry to move in and would like to see a higher capital appreciation potential, then brand new HDB, EC or condos would be the better choice.
Location
A few factors can affect your preferred location:
- Distance and convenience of travel to your workplace
- Proximity to your parents or in-laws
- Proximity to your children’s schools
- Personal preference: lifestyle, amenities, near sea, near nature, etc
Investment Returns Potential
Different housing choices have different investment returns potential. Since most of us are unlikely to stay in the same house forever, we would like to see our property value appreciates when we are ready to sell.
If you would like to know how the various types of housings perform in the last ten years, drop me a note.
Feel free to contact me for a non-obligatory discussion should you need help in your purchase of your first property.
Danny Han is a licensed property agent since 2005.
As a kampong (village) boy growing up in Holland Village, he has so many fond memories. He grew up with pigsty (yuk!), cemetery, swamp and communal-living (with 10 families under one roof). His childhood games were gasing (spinning top), marbles, kites, spider-fighting and tree-climbing. An open-air cinema was his source of entertainment. 7th-month Hungry Ghost wayang (Chinese opera) and getai (concert) was a once-a-year event that brought the entire village together.
What Danny is passionate about is not just about showing clients properties around Holland Village, but also enjoys sharing anecdotes and nuggets of information that are part of his growing up years.
Danny is an avid hiker and passionate foodie. He has covered most of the nature trails in Singapore, including some that are off the beaten track. Living up to his motto, “walk to eat,” he enjoys going out with his wife, a retired academician, on a food hunt across the island. He also has some foodie kakis who mix work with food. They then share their gastronomic experiences through food blogs. So do watch out, because every time he shows you a property, he will tell you what is the best food nearby!
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