what should you buy for your first home?

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.

BTO flats are in very high demand and are way oversubscribed. You have to be lucky to get a unit of your preferred location, level and facing. (Source: Straits Times)

Despite the government’s best effort to churn out more BTO flats at the rate of more than 20,000 flats a year, it still cannot meet the demand of Singaporeans. Those in the matured estates are especially highly sought-after.

During the recent BTO launches, there was an overwhelming response for flats in Telok Blangah, Geylang, Woodlands and even as far as Tengah. The overall rate is 4.3 applicants to each flat.

The waiting time for the completion of BTO flats in Telok Blangah is estimated to be more than five years! The question is, are you able to wait for that long?

Waiting for five years is less than ideal for a couple starting their new marital journey.

And what if you miss the boat? It means more waiting time for the next BTO exercise.

For those who are lucky enough to secure a BTO flat, do not forget on top of the five years waiting time, there is another five-year Minimum Occupation Period (MOP) before they can sell and upgrade.

good-150x150
bad about bto flat

  • 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.
  • Minimal renovation required.
  • 4 – 5+ years waiting period.
  • Coupled with the MOP period upon taking over home, almost a decade before owners can sell and upgrade.
  • Smaller sizes than older resale flats.
  • Limited supply, luck of draw
  • Might not be available at your timing.

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.

sale of balance flats SBF
Balance flats at Clementi NorthArc, while still under construction, were offered for sale during the November 2019 SBF sales launch.

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.

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bad about bto flat

  • 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. The grants are $40,000 to $50,000 for first-timers, $20,000 to $30,000 for staying near or with parents, and up to $80,000 Enhanced Housing Grant for lower-income families.

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.

Read: What Is Driving The Red-Hot HDB Resale Market

Prices of resale HDB flats have been on the rise despite Covid-19 due to increase demand (Source: The Straits Times)

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.

good-150x150
bad about bto flat

  • 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.
  • Might be subjected to CPF usage and loan restrictions if the flat is more than 40 years old.
  • Concern about lease decay.
  • Dated design, amenities and common areas.
  • Usually requires more renovation.

tip for buying resale flat

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.

piermont grand
Piermont Grand EC in Punggol, launched in 2019, was the first EC to cross the $1,000psf. However, even with the new record price level for EC, it is still about 20% cheaper than the private condos in the same area.

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 $1,000 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.

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bad about bto flat

  • 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)
comparison between ec and condo in pasir ris
The cluster of EC and condos at Pasir Ris Drive 3 have all appreciated in prices.

Resale EC Watercolours and Sea Horizon are below $1,000 psf. The other three resale condos average between $1,050 to 1,100psf. So the price difference between resale EC and condos is about 10%.

By looking purely at the price level, if all other factors are equal, it may make sense to save 10% to buy a resale EC. The only factor is you can’t sell the resale EC to foreigners till it reaches the 10-year mark.

good-150x150
bad about bto flat

  • 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%.

tip for buying resale flat

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.

first mover advantage
One key advantage of buying new launched project is first mover advantage

Read: 6 Reasons Why New Launch Is A Better Investment Property Than Resale

good-150x150
bad about bto flat

  • 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.
  • 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.

Older condos like Maplewoods have seen a surge in interest and prices because of their location, size, layout and freehold status. Recent prices of Maplewoods have even surpassed their newer counterpart, Floridian.

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.

good-150x150
bad about bto flat

  • 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.


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