Resale HDB Flats and BTO: Which One to Pick?
1. In the past, Singaporeans used to flock to ‘Build-To-Order’ (BTO) flats mainly because they are cheaper than HDB resale flats. Although the waiting time is agonizingly long, which can be between 3 and 4 years of waiting time, Singaporeans have no other options, but to wait.
2. Fast-forward to 2019. With a slew of cooling measures, a resale HDB flat has not only become affordable. in fact, it can potentially become cheaper than a BTO flat. So, is ‘cheap’ good or bad? Here are our observations:
3. HDB has recently launched a BTO project in February 2019 in Sengkang called Fernvale Vines, which is located along Fernvale Road. The cheapest 4-room BTO flat in Fernvale Vines costs $223,000 (see Fig. 1). This price has factored in the maximum housing grants a couple can receive. However, there are some drawbacks:
Fig 1: February 2019 BTO Prices extracted from esales.hdb.gov.sg
a) This flat is located quite a distance away from Seletar Mall and Fernvale LRT (see Fig. 2).
Fig 2: Map of Fernvale Vales extracted from esales.hdb.gov.sg
b) The waiting time is 40 to 42 months. That is almost equivalent to 3 years and 6 months of waiting time for newlyweds. (see Fig. 3)
Fig 3: Screenshot of Estimated Completed Date and Waiting Time extracted from esales.hdb.gov.sg
4. Now let’s look at a recent HDB resale transaction.
5. In August 2018, a resale HDB flat located at Block 435B Fernvale Road, has been transacted at $343,000. It is located at the lower floor of 1st Storey to 3rd Storey . The remaining lease is 93 years, and it is a premium apartment under HDB classification (see Fig 4.)
6. The location is clearly better than Fernvale Vines. It is within distance from the same carpark of Seletar Mall, Fernvale LRT and the upcoming Fernvale Community Club; not to mention it is a premium apartment.
Fig 4: August 2018 HDB Resale Transaction Price extracted from services2.hdb.gov.sg
7. Now, let’s say the same couple could get the maximum grants for buying a resale flat, which amounts up to $120,000 (see Fig. 5).
8. We take $343,000-$120,000=$223,000
Fig 5: Screenshot on Housing Grants for Resale Flats extracted from www.hdb.gov.sg
9. At $223,000, it is the same price as the BTO flat with maximum grant and location on a lower floor. Even if the couple engages a property agent to find a resale HDB flat for them, the commission they pay is almost negligible. According to a new player who shared in homeseller.sg, property agents charge only $1999 in commission to help buyers find their dream home.
10. Now, let’s make this comparison more obvious.
11. A BTO flat costs $223,000 with maximum grant; its waiting time is 3 years and 6 months; it is not a premium apartment; it is further away from Fernvale LRT and Seletar Mall; and its flat owners need to do some renovation that would cost them more money.
12. On the other hand, a resale flat at Block 435B Fernvale Road is only 7 years old; still fairly new; it is a premium apartment; located within stone throw to Fernvale LRT, Seletar Mall and the future Fernvale Community Club. All these factors will only increase the value of the flat.
13. Let’s go deeper for the waiting time of 3 years and 6 months. If the couple had bought the resale HDB, they could rent it out during the 3 years period after their Minimum Occupation Period (MOP) (which is equivalent to their waiting time for a BTO) , and factoring the rental is only $1800 per month, their annual income is $21,600. We multiple it by 3 years, that would give the couple an additional saving of $64,800. The cost of finding a tenant via homeseller.sg is only a mere $599, which gives the couple huge savings.
14. And if we take the purchase price of $223,000 minus the rental yield of $64,800, the actual purchase price of the resale HDB is only $158,200 for a 4-room flat. It is within the same time frame to wait for a BTO flat, and then reach the MOP period.
15. Let’s say the couple intends to sell after their MOP. If they had bought the resale flat at Blk 435B Fernvale Road, and compare it to selling the BTO flat at Fernvale Vines, which unit would fetch a better resale price in the open market?
16. Being only 7 years apart in term of age of flat, the flat at Blk 435B Fernvale Road would have a better resale value at any given time comparing to Fernvale Vines because of the proximity to all the amenities. And selling has been made so much transparent and affordable, as homeseller.sg only charges $1,999 to sell a 4-room HDB flat comparing to the usual 2% commission, which could set the couple back by as much as $8,000 in commission. This leads to a huge saving of $6,000.
So, is now the time to buy a BTO flat, or a resale HDB flat? The choice is pretty obvious.