Congratulations on deciding to buy a home! You have officially taken the first step towards becoming a homeowner. Because let’s be honest, it takes years of deliberating, doesn’t it? There are so many factors to consider, with your financial standing being the most important.
Or so you thought.
The truth is, there is so much more to buying a home than just being able to afford one.
So, let’s break down the entire decision process involved in deciding to buy a home and see if you should get a BTO flat, a resale flat, or an executive condo. But first, let’s understand what exactly these terms mean.
What Is a BTO Flat?
Build-To-Order flats or BTO flats are Housing and Development Board (HDB) flats whose construction begins only if around 65% to 70% of the flats have been booked. In general, you probably have to wait around three to four years from the date of construction to gain possession of the flat.
So, how are BTO flats different from other HDB flats?
Well, with a BTO you need to first apply to a ballot to get a chance to choose from proposed sites. Only if there is sufficient interest does the construction proceed. Besides, BTOs are heavily subsidised and there are different grants and schemes you can take advantage of if you decide to purchase one. And since the flat is new, you start off with a 99-year lease.
What Is a Resale Flat?
A resale flat, as the name suggests, is an HDB flat that you can buy from the current owner. Unlike BTO flats, resale flats tend to be more expensive due to the fact that the remaining lease on them is less than 99 years. But more importantly, because you receive immediate possession of the flat and don’t have to wait for a few years before occupying it.
Then, there is the added convenience of being able to choose the location of the flat as well as the floor you wish to reside on (a choice that isn't available for BTO flat owners). And of course, the flats are generally bigger, there may be little to no renovations required, and prices are often negotiable.
What Is an Executive Condo?
Executive Condominiums or ECs are a form of housing that is popular among Singaporeans who earn more than the income ceiling for HDB flats and not enough to purchase a private condominium. As such, they are sandwiched between the two.
ECs are a good option for people stuck in the middle. ECs are bound by HDB rules but are developed and sold by private developers. You also get to enjoy facilities that usually come with private condos, such as a swimming pool and exercise area.
The biggest benefit that comes with an EC is that post the 10 years minimum occupation period (MOP), the property officially becomes private property, so you can sell it to foreigners and corporates. If that waiting period is too long, you don’t need to worry, since after 5 years minimum occupation, you can sell the property to Singaporeans or Permanent Residents (PRs).
The downside is that the MOP is 5 years and they are more expensive than the other two types of housing available in Singapore.
Now that you know a little more about each type of flat, let’s see which one you should get, based on various parameters that you should be keeping in mind.
1. Income Ceilings
As mentioned earlier, ECs emerged as a result of people earning more than the income ceiling for HDB flats.So, your first consideration should be the income you earn and what type of housing you are eligible for.
Average Gross Monthly Household Income Up to S$12,000: Consider a BTO Flat
If your household income (this includes your income as well as that of other earning members in the household) is within this range, you can buy the following BTO flats:
- 2-room Flexi flat with a lease up to 99 years: S$6,000 income ceiling.
- Short-lease 2-room Flexi flat with a lease up to 45 years: S$12,000 income ceiling.
- 3-room flat: Depending on the maturity of the estate, the income ceiling is anywhere from S$6,000 to S$12,000.
- 3-room flat: Income ceiling for BTO flats in mature estates is S$12,000.
- 4-room flat or bigger: S$12,000 income ceiling.
- 4-room flat or bigger (purchasing along with extended family or multi-generation family): The combined monthly income of all earning member of the household cannot exceed S$18,000.
Average Gross Monthly Household Income Up to S$12,000: Consider a Resale Flat
While resale flats may be more expensive than BTO flats, the benefits more than compensate for the cost.
- The income ceiling applicable on resale flats with the CPF Housing Grant is S$12,000.
- The housing grant is only applicable for first time eligible families and is S$30,000 for monthly income up to S$12,000.
Average Gross Monthly Household Income Up to S$14,000: Consider an EC
If your income falls between S$12,000 and S$14,000, you could consider saving up for a private condominium or consider purchasing an executive condominium.
In fact, depending on your gross monthly household income, you will also be eligible for a CPF Housing Grant if you decide to purchase a new EC. Here’s the grant that you receive:
- Household income less than S$8,000 per month: S$30,000
- Household income between S$8,001 and S$10,000: S$30,000
- Household income between S$10,001 and S$11,000: S$20,000
- Household income between S$11,001 and S$12,000: S$10,000
2. Source of Money
Probably the biggest concern you may have while planning to buy a home is where you are going to get the money from to buy your house. Sure, you can dip into your savings, but houses tend to cost way more than what you can save and invest.
Which is why you borrow money. There are 3 sources of money:
- An HDB loan
- CPF Ordinary Account savings
- Home loan from a bank
Based on your source of money, here is the type of flat you should consider purchasing:
HDB Loan: BTO Flat or Resale Flat
Since HDB loans can only be taken for HDB flats, you could consider getting one if you are purchasing a BTO flat or a resale flat for the first time. HDB loans have a fixed rate of interest which is currently 2.6% p.a. Bank loans, on the other hand, have interest rates which generally range from 1.65% p.a. to 3.25% p.a.
Keep the following in mind, though:
- At least one buyer must be a Singaporean citizen.
- You must meet the gross household monthly income criterion.
- You and any other buyer purchasing the property along with you must not own a private residence in Singapore or overseas.
- You should have not more than two previous HDB home loans.
- You should have sold your private residential property at least 30 months before applying for the loan.
- If you do own commercial property, it can only be a maximum of 1 market hawker stall or 1 commercial or industrial property.
Benefits of an HDB Loan
- The 10% down payment amount can be completely paid for using your CPF savings. With a bank loan, you need to pay 25% as the down-payment amount, of which only 20% can be paid for with your CPF savings. The remaining 5% needs to be paid in cash.
- You don’t incur any penalties such as an early repayment fee for closing your loan before the completion of its tenure.
You can take a bank loan to finance your purchase as well. Here is what you should know.
Bank Loan vs HDB Loan for BTO and Resale Flats
- Bank loans tend to have lower interest rates and longer repayment tenures.
- While interest rates for HDB loans are fixed, for bank loan they are fixed only for a few years, post which they are pegged to SIBOR or SOR rates.
- The down-payment for bank loans is higher at 20-25%.
- Bank loans cover only up to 80% of the value of the property, while HDB loans cover up to 90%.
- Bank loans are subject to Mortgage Service Ratio (MSR) which states that you can use only up to 30% of your monthly income to make mortgage payments.
- Unlike bank loans, there is no early repayment fee that you need to pay for paying your loan before the completion of its tenure.
- Late payment fees also follow a similar pattern. HDB loans are more lenient and you are charged around 7.5% per year for late payments. But with bank loans, the late payment fee is around S$50 per payment missed.
It is important to keep in mind that no matter what type of loan you do end up taking, you should have sufficient cash kept aside for payments related to fire insurance, mortgage insurance, conservancy charges, and utility bill payments, among others.
Bank Loan: EC, BTO Flat, or Resale Flat
Unlike a BTO flat or a resale flat, you will have to apply for a home loan from a bank if you plan on buying an executive condo. While you are eligible for a housing grant from CPF, the amount will have to be supplemented by a bank loan.
With bank loans for ECs, you have the choice of opting for a Normal Payment Scheme (NPS) – also known as Progressive Payment, or a Deferred Payment Scheme (DPS).
With a DPS, you can defer up to 80% of the payments until your EC is ready to move in. With an NPS, you pay 5% to 10% of the amount at the time of booking, and progressively pay 5% to 25% at various stages of construction. However, if you do opt for the DPS scheme, you will end up paying around 3% more than what you would have paid if you had opted for the NPS scheme.
Since you can’t get an HDB loan for an EC purchase, make sure you get an In-Principle Approval (IPA) from the bank before you decide to go ahead and book an EC. An IPA assures you that you are indeed eligible for a home loan. This way you won’t face the problem of having paid the booking amount on an EC, only to have to forfeit it later on if you don’t qualify for a loan.
As mentioned earlier, a bank loan can also be used to purchase a BTO flat or a resale flat. So, make sure you go through the pros and cons of taking a bank loan or an HDB loan before deciding on either one.
3. Willingness to Commute
Singapore has a great public transport system for sure. But to make the best use of it, you need to live close to train stations and bus stops. If not, you probably will end up spending a long time commuting from one place to another. Do keep in mind, though, that flats in mature estates are, in some cases, priced 10% to 15% higher than similar flats in non-mature estates.
Short Commute Time: Resale Flat and a Few BTOs
One of the best parts about buying a resale flat is that you have a choice when it comes to the location. So, you can choose a flat in a mature estate that is close to your place of work and close to your children’s school. So, if time is of the essence, consider getting a resale flat. You could get a BTO, but the problem is that you don’t really know if you will be invited to book a flat, since bookings depend on your position in the ballot queue. Moreover, there aren’t too many mature estates that have space for new flats to be constructed. As a result, whenever a BTO is constructed in a mature location, the number of people who apply for it increases. This means that you could apply for a BTO in a location of your choice but not get it. Unless you are willing to wait it out, you should consider purchasing other types of housing.
Longer Commute Time or Own a Car: ECs and BTOs
ECs are like private condominiums with multiple amenities. So, it should come as no surprise that they occupy more space than flats. Which is why you are likely to find most ECs in non-mature estates. These locations may not be close to business districts, so you may have a long commute or you could use your own car. BTOs, as discussed earlier, are generally built in non-mature estates. So they may also be far from your workplace.
4. Resale Value
One can’t say with certainty that one property type has a better resale value than another, since the resale value of a home is based on multiple factors such as the location and amenities, among others. In general, BTO and HDB flats in mature estates and sought-after locations have a better resale value than ECs. So, if you do own a flat in one of these estates, you are bound to get a decent amount if and when you do sell it. To put things into perspective about the resale value of HDB flats, according to the data collected by the Singapore government, a 4-room flat which is around 20 minutes to the Raffles Place MRT has a resale value of around S$800,000. Of course, this value is subject to change.
While ECs are still a relatively new property type, the debate about its resale value, however, has already begun. Some people believe that the resale value of ECs will be similar to that of private condos since they are, after all, constructed by private developers and have the same amenities as private condos. Others, however, are of the view that despite the fact that ECs are similar to private condos, in the minds of the people, it will still be a building that was subsidised in the beginning. An EC would thus be one step below a condo and would not command the same price.
While both are valid arguments, only time will tell in whose favour the argument swings. All in all, though, the resale value of the home you intend to buy is an important consideration. As your family size and household income increases, it makes sense to see your current home and look for a bigger place. Buying a home is an important and expensive decision, one that is not to be taken lightly. So, whether you end up buying a BTO flat, as resale flat, or an executive condo, remember to do your research and take into consideration the factors we mentioned. After all, in the words of Dorothy from ‘The Wizard of Oz’, “There’s no place like home”!