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First-time buyer: HDB resale or BTO?

The surest way to make money in real estate in the long run is to climb the “property ladder”.

The surest way to make money in real estate in the long run is to climb the “property ladder”.

Here’s how it works. As soon as you can, buy the least expensive property in the best location you can afford. Over time, as your earning power increases, sell your existing home and trade up for a more expensive property. At this higher rung, buy the least expensive property in the best location you can afford. Over time, if you stay focused on climbing the ladder, you should find yourself sitting on a nice retirement fund commensurate with your lifestyle.

The Housing and Development Board (HDB) makes it less expensive for first-time buyers to climb onto the first rung of the property ladder. It subsidises first-time buyers of HDB resale flats and Built-to-Order (BTO) units. Which route — resale or BTO — is better for you? It depends on your circumstances and the BTO project in question. The good news is that you can model your options to help you make a decision. Let us step through two real-life examples to illustrate this.

A young couple with a combined household income of S$5,000 is considering a three-room HDB flat in Toa Payoh. One option is to apply for a unit in the Bidadari BTO estate, Woodleigh district, which is scheduled to be launched next month. While the HDB has not announced its prices, if the Bidadari project launched last February is any indication, the median price should be around S$350,000. Based on this, it is possible to calculate the cash out-of-pocket required to service the couple’s mortgage.

As Table 1 illustrates, the cash payment required to service the mortgage is S$256 per month. This cash outlay translates to a mortgage servicing ratio of 28 per cent.

In contrast, if the young couple buys a resale HDB three-room flat in the same location as a BTO Bidadari unit, the cash outlay is zero with a mortgage servicing ratio of 20 per cent. Given this information, the decision matrix can be seen in Table 2.

Let us look at a second example. Another young couple has a combined income of S$7,000 and would like to buy a four-room HDB flat. The numbers are reflected in Table 3.

The decision matrix for this couple is shown in Table 4. As the matrix suggests, the decision is not straightforward. Yes, it is slightly less expensive to buy a BTO flat in the short run. However, the couple has less flexibility to climb the property ladder. In the case of a BTO flat, the five-year lock-in clock will not start for two to four years. This means the couple has to wait longer to trade up. Also, they risk the possibility that their BTO flat, which is still only a concept on paper, will not appreciate at the same rate as resale units with known track records.

Sounds complicated? Yes, of course. Decisions in real estate always require trade-offs. However, the Government has a wide range of subsidies, so that means you should also model your options. Take the time to explore your options in both the HDB BTO and resale markets and understand the impact of first-time buyer subsidies on each possible purchase. If you do that, you are more likely to find success on the first rung of the property ladder and set yourself up for easier climbs to rungs two and three.

ABOUT THE AUTHOR: Jeremy Lee is co-founder and Chief Technology Officer of SRX Property. Track new and past BTO launches, get BTO price forecasts, and compare BTO with HDB Resale for free at

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