Hello,
I’ve been following stackedhomes for sometime now and find your posts both informative, interesting and enlightening!
Would you be able to provide me with some advice or different perspectives for my housing plans?
I am a 44-year old single mother of a 13-year old child with a gross salary of 100k, inclusive of bonuses. Currently, we are living with my parents because I am still going through the 15-month cooling period due to a private property which I disposed off 14 months ago.
I have about $460k in my ordinary account and minimal cash savings of 30k as I only went back to full-time employment after my divorce 8-9 years ago.
Since I am able to purchase a resale flat soon, I’m contemplating the following options:
- To wait for another 15 months (total of 30 months) to apply for a BTO instead.
- Buy a resale flat at a central location to rent it out for 4 years until my child goes for tertiary education and we move into the resale flat.
- Continue staying with my parents with or without buying my own place based on the above 2 scenarios.
Greatly appreciate your advice on this as I am not very sure if I will make a sound decision from a financial perspective.
Thank you!
Hello,
Thank you for writing in and we’re happy to hear that our content has been beneficial for you.
When deciding between purchasing a BTO and a resale flat, several factors should be taken into account. Apart from the variation in waiting periods, there may also be a difference in potential gains. Since you have time and alternative housing options, both choices are viable for you.
Let's begin by assessing your affordability before delving into more specific details about the possible pathways.
The challenge for many buyers today isn't access to information.
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Over time, that's also why we decided to work with agents who shared the same data-driven and advisory-led approach behind our editorial, consultants who could help readers think through decisions more objectively, rather than simply push transactions.
Today, the team has worked with more than 2,000 clients across over $5B in property transactions.
Affordability
| Description | Amount |
| Maximum loan based on a monthly income of $8,300 at age 44, with a 4.6% interest | $465,121 (21-year tenure) |
| CPF | $460,000 |
| Cash | $30,000 |
| Total loan + CPF + cash | $955,121 |
| BSD based on $955,121 | $23,253 |
| Estimated affordability | $931,868 |
*This is assuming you take up an HDB loan
With a budget of almost $932,000, you definitely can afford to buy a BTO or a resale 4-room flat in the Central Region.
To better determine which option makes more sense financially, we will consider the possible costs and profits for each.
Potential pathways
Option 1. Buy a BTO
Based on what you have mentioned, it appears that there is no immediate need to move out of your parent's place for the next four years until your son commences tertiary education. Many individuals view the opportunity to acquire a BTO as a privilege for Singaporeans and rightfully so, given the guaranteed returns. Considering that you won't be incurring rental expenses during the waiting period (which could accumulate to a considerable amount) opting for a BTO is a viable choice.
However, a potential drawback lies in the uncertainty of securing a unit, as the queue allocation is based on a balloting system that involves an element of luck. Additionally, the available locations are confined to where the launches occur.
Also, if your preference is for a unit in the Central Region, it is likely to fall under the Prime Location Public Housing (PLH) category. This will be subjected to conditions such as a 10-year Minimum Occupation Period (MOP), a subsidy clawback upon selling, and restrictions on renting out the entire unit even after the MOP.
Now, let's delve into the associated costs. For calculation sake, we will consider a 10-year timeframe starting from now, assuming you secure a unit on your first attempt at a purchase price of $650,000. Given your substantial CPF funds, we will reserve your cash savings as emergency funds.
| Description | Amount |
| Purchase price | $650,000 |
| BSD | $14,100 |
| CPF | $460,000 |
| Loan required | $204,100 |
As you will have to wait another 15 months before you can purchase the flat, and another 3 - 4 years before the second loan assessment, the loan tenure will be reduced. Presuming the construction takes 4 years, you will be 50 years old then and the loan tenure will go down to 15 years. Considering a 10-year timeline, you will be holding the HDB for 5 years.
Cost incurred
| Description | Amount |
| BSD | $14,100 |
| Interest expense (Assuming a 15-year tenure and 3% interest) | $26,437 |
| Town council service & conservancy fees (Assuming $80/month) | $4,800 |
| Property tax | $2,300 |
| Total costs | $47,637 |
In a earlier analysis, we examined the profitability of BTO flats. According to the data from BTOs launched in 2012, 4-room flats in mature estates exhibited an average gain of 65.87%, while non-mature estates showed an average gain of 71.56% for units sold within 2 years after the MOP.
To err on the side of caution, we will consider a conservative estimate of a 50% gain for a simple projection. It's important to note that these figures are intended as a rough guide, and actual numbers may vary, especially considering that you will be purchasing at a later date.
| Time period | Price | Gains |
| Starting point | $650,000 | $0 |
| Year 5 | $975,000 | $325,000 |
Total gains if you were to buy a BTO: $325,000 - $47,637 = $277,363
Just to add in the mix, if you are open to the idea of renting out a bedroom, the potential gains will be higher. Let’s say you were to rent out a common room for $900/month, over a 5-year period that will be an additional $51,084 after deducting agency fees.
Option 2. Buy a resale flat and rent it out
Do note that if you opt for a resale flat, you are not allowed to rent out the entire unit during the MOP. The regulations stipulate that you must reside in the flat during this period, and only the spare bedrooms can be rented out.
If you haven't previously acquired a subsidised property, you may be eligible for CPF Housing Grants. However, since we lack information on whether you have previously bought a subsidised property, we will not factor in the grants in our calculations. Purchasing a resale flat with grants can substantially reduce the purchase price, with the grants essentially serving as gains from the get-go.
As before, we will consider a 10-year timeframe and assume the median price of a 4-room flat in Bukit Merah for Q3 2023 at $860,000 as the purchase price.
| Description | Amount |
| Purchase price | $860,000 |
| BSD | $20,400 |
| CPF | $460,000 |
| Loan required | $420,400 |
Cost incurred
We will presume you rent out 2 bedrooms at $900 each, for 4 years.
| Description | Amount |
| BSD | $20,400 |
| Interest expense (Assuming a 21-year tenure and 3% interest) | $102,438 |
| Town council service & conservancy fees (Assuming $80/month) | $9,600 |
| Property tax | $7,120 |
| Rental income | $86,400 |
| Agency fees (Payable once every 2 years) | $3,888 |
| Total costs | $57,046 |
Next, we will use the average growth rate of all HDBs over the last 10 years to do a simple projection.
| Year | Resale Price Index (RPI) | % Change |
| 2013-Q4 | 145.8 | - |
| 2014-Q4 | 137 | -6.04% |
| 2015-Q4 | 134.8 | -1.61% |
| 2016-Q4 | 134.6 | -0.15% |
| 2017-Q4 | 132.6 | -1.49% |
| 2018-Q4 | 131.4 | -0.90% |
| 2019-Q4 | 131.5 | 0.08% |
| 2020-Q4 | 138.1 | 5.02% |
| 2021-Q4 | 155.7 | 12.74% |
| 2022-Q4 | 171.9 | 10.40% |
| 2023-Q4 (Flash Estimate) | 180.2 | 4.83% |
| Average | - | 2.29% |
Potential gains
| Time period | Price | Gains |
| Starting point | $860,000 | $0 |
| Year 1 | $879,694 | $19,694 |
| Year 2 | $899,839 | $39,839 |
| Year 3 | $920,445 | $60,445 |
| Year 4 | $941,524 | $81,524 |
| Year 5 | $963,084 | $103,084 |
| Year 6 | $985,139 | $125,139 |
| Year 7 | $1,007,699 | $147,699 |
| Year 8 | $1,030,775 | $170,775 |
| Year 9 | $1,054,380 | $194,380 |
| Year 10 | $1,078,525 | $218,525 |
Total gains if you were to buy a resale flat: $218,525 - $57,046 = $161,479
Option 3. Do nothing
Let’s look at the potential interest earned with your CPF funds should you choose not to make any purchase and continue living with your parents.
| Time period | CPF funds | Interest earned |
| Starting point | $460,000 | $0 |
| Year 1 | $471,500 | $11,500 |
| Year 2 | $483,288 | $23,288 |
| Year 3 | $495,370 | $35,370 |
| Year 4 | $507,754 | $47,754 |
| Year 5 | $520,448 | $60,448 |
| Year 6 | $533,459 | $73,459 |
| Year 7 | $546,795 | $86,795 |
| Year 8 | $560,465 | $100,465 |
| Year 9 | $574,477 | $114,477 |
| Year 10 | $588,839 | $128,839 |
As you have a substantial amount of CPF funds, the interest earned over a 10-year period even at 2.5% is rather considerable.
Comparing the options
While passively earning gains through CPF interest is an option, acquiring a property offers a sense of security and provides an alternative in case you decide to move out of your parent's place. Renting out the unit can also help with the monthly repayments if you choose not to reside there.
The calculations above highlight a substantial difference in potential gains between a BTO and a resale flat. The BTO's longer waiting time results in a shorter holding period, reducing incurred expenses, while offering higher appreciation.
However, if you wish to buy a unit in the Central Region, there will be more restrictions which may or may not affect your future plans. Furthermore, BTOs moving forward would have the Standard, Plus and Prime classifications, affecting even flats outside of the central region that have good connectivity/amenities. Plus and Prime flats would come with their own restrictions, such as a longer MOP and subsidy clawbacks upon selling which should be carefully considered.
The locations are also determined by the launches so they may or may not be your preferred choice, and there is also the uncertainty of getting a unit on your first try.
Opting for a resale flat offers greater flexibility for an earlier move if you so wish, and you are unaffected by the restrictions that apply to new PLH flats. However, as the holding period is longer and you are limited to only renting out the spare bedrooms for the duration of the MOP, the cost incurred is higher even with the rental income.
Finally, let’s analyse the monthly cash flow for the 4 years while renting out the bedrooms if you had bought a resale flat.
With a loan quantum of $420,400, a 21-year tenure, and 3% interest, the monthly repayment is approximately $2,251. Including town council service & conservancy fees and property tax, the total is $2,390 per month. With a monthly income of $8,300 and a monthly CPF OA contribution of around $1,323 at age 44, renting out 2 bedrooms at $900 each provides an extra cash flow of $733 per month. Over 4 years, this amounts to $35,184, which would be the opportunity cost lost if you were to purchase a BTO.
While this may seem substantial, the potential gains of a BTO outweigh this amount. The BTO is a cheaper option, allowing you to pay a lower interest expense too.
Considering these factors, opting for a Build-To-Order (BTO) flat seems to be the more financially prudent option. It eliminates the need to handle tenant-related issues. Nevertheless, the final decision hinges on your assessment of the uncertainties and constraints linked to purchasing a BTO, particularly a Prime Location Housing (PLH) flat. If the Minimum Occupation Period (MOP) of 10 years, in addition to construction time, is acceptable to you, then acquiring a PLH flat could be a wise choice. In the future, you might consider downsizing to a smaller flat, which could release an amount of capital, potentially contributing to a comfortable retirement fund.
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If you'd like to discuss how this applies to your own circumstances, you can reach out for a one-to-one consultation here.
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