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Home buyer’s poser: BTO or resale flat?

·9-min read

Home buyers looking for an HDB flat need to gauge their affordability, urgency to move in, location preferences and investment goals before starting on their real estate path, says Chng (Picture: Samuel Isaac Chua/The Edge Singapore)

SINGAPORE (EDGEPROP) - A recurring dilemma that most home buyers who enter the public housing market face is the choice between new Build-To-Order (BTO) flats and the myriad of HDB resale flats available on the secondary market.

Read also: HDB prices spike 12.5% y-o-y in 2021, first double-digit growth in 10 years

“BTO or resale flat? This is a common question that is usually posed to most property agents, especially by first-time buyers,” says Stuart Chng, executive group district director at Huttons Asia.

Chng addressed this topic during a webinar hosted by EdgeProp Singapore on Jan 22. During his presentation segment, titled “BTOs versus resale HDBs: Which is the better option?”, he shared some of the benefits and limitations that each choice presents to home buyers.

Public housing options

There are four common HDB flat options available to home buyers. Besides BTO flats and resale flats, the public housing market also offers Prime Location Public Housing (PLH) flats and Sale of Balance (SBF) flats.

In general, BTO developments tend to be located in the Outside Central Region. The majority of new BTO developments over the past few years have been in the Punggol and Sengkang area, while the bulk of upcoming BTO supply is concentrated in the Tengah area.

The PLH scheme was announced by the government in October last year. This housing model sets out a framework for HDB to develop and sell new HDB flats in prime, central locations such as Rochor and the future Greater Southern Waterfront vicinity.

According to Chng, a possible future location where the PLH model could be introduced is the Bayshore area in East Coast.

The Bayshore area (shown above) is a possible location for future PLH flats, says Chng. (Source: URA)

Next are SBF flats which comprise remaining unsold units from earlier BTO sales launches, surplus Selective Enbloc Redevelopment Scheme replacement flats, or repurchased flats. “These flats are usually found throughout a range of locations such as Sembawang, Yishun and Woodlands. Occasionally, they can also be found in mature neighbourhoods like Tampines,” says Chng.

Finally, resale flats constitute a bigger proportion of HDB transactions each year. There were 29,182 resale flats transacted for the whole of 2021, compared to 17,109 new BTO flats launched by HDB in the same period. (Find HDB flats for rent or sale with our Singapore HDB directory)

BTOs for younger buyers

The BTO scheme was introduced by HDB in 2001 as the primary means of selling new HDB flats. “Thus, newly launched BTO flats tend to offer the lowest property prices among all the available public housing options,” says Chng.

Newly launched BTO flats are heavily subsidised, and this makes them one of the most attractive options for young, first-time buyers. This is because younger buyers may be unsure about taking out a large property loan to finance their first real estate purchase, he says.

“It is also important to note that the market dynamics of a new BTO project tend to mirror the upward price movements of most private new-launch projects,” says Chng. He adds that this means BTO projects tend to enjoy the highest capital appreciation potential among newer HDB flats.

An artist’s impression of Parc Glen @ Tengah, one of the new BTO projects launched during the November 2021 HDB sales exercise. (Picture: HDB)

New BTO developments and the surrounding estate also boast modern amenities and common spaces. “HDB neighbourhoods like Punggol come to mind as an example of a new HDB town with modern facilities and amenities,” says Chng.

The upcoming HDB estate in Tengah is expected to feature many car-lite facilities and infrastructure, as well as sustainable features.

However, as BTO projects are not completed when sold, buyers usually have a relatively lengthy waiting period of about four to five years before they can collect the keys to their new homes. In 2020 and 2021, as the pandemic disrupted labour and construction supply chains, several new BTO projects faced delays of about a year.

In its November 2021 BTO sales launch, HDB says that projects launched during this sales period will have a waiting time of between three and five years, with a median waiting time of about 4.4 years.

If buyers plan to upgrade to a bigger-sized property or a private property, they must consider the Minimum Occupation Period (MOP) of five years. Coupled with the waiting time for the project to be completed, this means that it could be about 10 years before owners can consider selling or upgrading their property, says Chng.

“This means that a newly married couple in their 30s might have to wait until their 40s before they can consider upgrading,” he adds.

This is a factor that couples should take into consideration, especially if they plan to start a family during this time. “BTO units tend to be smaller compared to some older resale flats as space efficiency in unit layout design has advanced significantly, with fewer wasted spaces like long corridors,” says Chng.

On the other hand, a plus-point of relatively smaller unit sizes is the lower absolute price for each unit, he says.

Long holding period for prime housing

PLH is the newest public housing scheme introduced by HDB. PLH projects share many of the benefits offered by most BTO projects in addition to their highly desirable central location, says Chng. “It is also heavily subsidised, and the developments boast modern amenities and designs, and the potential capital appreciation is among the highest in the HDB market.”

But PLH projects are limited by a waiting period that is similar to new BTO projects and a longer MOP of 10 years. This translates to a 15-year period before owners can realise the value of their property. Owners are also not allowed to rent out the entire flat, and have to wait until after the 10-year MOP before they can put some of the bedrooms up for rental.

PLH flats, such as River Peaks I and II, will continue to be attractive, despite the subsidy clawback, as the potential profits can be substantial. (Picture: HDB)

The popularity of such projects also means that they will be heavily oversubscribed. The close of the sales launch of the first PLH development, River Peaks I and II, saw more than 2,100 applicants vying for just 680 four-room units.

Meanwhile, the PLH scheme introduced a 6% subsidy clawback imposed on the resale price or valuation, whichever is higher, which owners have to pay to HDB when they sell their homes on the resale market for the first time.

However, Chng believes this will not put off most owners. “In my opinion, after considering the scope of the clawback and the potential price appreciation of the property, I feel that the clawback would not hinder most owners as they are likely to enjoy a substantial profit. They just have to take into account the holding period,” he says.

Most limitations with Sale of Balance flats

Another type of flats sold by HDB are SBF flats, which Chng typically does not recommend.

Most SBF flats are already completed and offer the possibility of moving in within three to four months after a short renovation.

“However, the limitations of this type of flat are quite severe,” says Chng. Firstly, they are typically sold at higher prices compared to similar BTO flats because HDB has to account for the holding costs of these leftover units.

The price of the unit also more closely reflects the prevailing market price rather than the new launch price. Thus, owners could take a longer time to turn a profit compared to early buyers in the same block.

These units also tend to have a less-than-desirable location compared to other units in the development. For example, they could be the furthest from the MRT station and surrounding amenities, or come with a blocked view and poor ventilation, he says.

“In general, I do not advocate this option for most buyers unless they urgently need a new home in a relatively short period of time,” says Chng.

The worst of the construction delays that were prominent in 2021 seems to be over. Most upcoming BTO projects have completion periods of three to five years. (Picture: Samuel Isaac Chua/The Edge Singapore)

Flexibility of resale flats

The majority of HDB transactions each year are in the resale market. The wide range of available flats means that buyers can pick and choose a home in their desired location, with suitable amenities and proximity to other family members. This is unlike BTO projects, where the location is predetermined by HDB.

Most older resale flats also feature larger unit layouts compared to newer flats, and potential buyers can view the unit to gauge factors such as brightness of the unit during the day, the views, ventilation throughout the unit, and overall condition of the flat. These are more difficult to gauge in uncompleted developments.

Owners are also able to sell the flat after the five-year MOP, but they should keep in mind that they may not rake in as much profit as the tenure of the flat diminishes, says Chng.

“If you are the third or fourth owner of the flat, it is very likely that the property is very close to the end of the potential capital appreciation over its lifetime. Typically, leasehold properties exhibit three different stages of price movements — the growth stage, the stagnation stage and the declining stage,” he says.

A shorter remaining land tenure also means it would be subject to CPF usage and loan restrictions due to the remaining tenure. “In general, government policy at the moment encourages most homeowners to outlive their homes. This means that your age plus the remaining tenure has to be greater than 95 years. Otherwise, loan and CPF usage restrictions apply,” says Chng.

Stuart Chng, executive group district director at Huttons Asia. (Picture: Huttons Asia)

Gauge your needs

Summing up, Chng says that buyers in the HDB market need to check that the price of the flat is within their means. But he recommends buyers to get a bigger-sized unit if they can afford it instead of being overly cautious and buying a smaller flat.

“If you are younger, perhaps be open to taking more risk, as larger properties tend to appreciate faster and this could help you finance your next home,” he says.

The type of flat to purchase also depends on the urgency of moving in, locational preferences in relation to the workplace and other family members, as well as the investment return potential and exit strategy.

“In general, newer flats are more ideal in terms of the upside potential of investment return, but if you would prefer resale, try to go for a newer property. A good rule of thumb is a property that is less than 10 years old, but you could stretch that to less than 15 years,” says Chng.

Check out the latest listings near Parc Glen @ Tengah

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