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Things you should know when buying your first home (Part 1)

We all heard of the story of the successful Singaporean who has created his wealth through real estates investment. We might have read it on a newspaper article or through hearing the stories of our friends. It is not difficult to find the common Singaporean who believes owning multiple properties as the right method to plan for their retirement needs. It is even easier to see why they would think in that way. Property is a financial asset that can overcome inflation (In fact it is one of the key drivers of inflation in the first place!). It is a real and tangible asset (You can see for yourself what is it that you own exactly). As a financial instrument, it is also simple to understand how it works. You buy a property and rent it out for passive income. You do not need to be a financial expert to see how straight forward it could be.

If playing the property game seemed pretty simple to you, entering it certainly isn’t going to come cheap. It is no secret to anyone who has been living in Singapore that homes in Singapore are painfully expensive. Based on research findings from, Singapore ranked 5th in terms of residential apartments prices, ahead of cities such as Geneva, Tokyo and New York. Without entering into a lengthy and possibly extensive political debate on the reasons for the high property prices, I think it is fair to say that one of the main factors for the high prices is the simple fact that Singapore is a small country with a rather dense population thus making expensive home the norm rather than the exception.

Bluntly put, the game has gotten harder and more expensive to enter and this trend is likely to continue over the long run.

How to buy your first property and enter the property game 

Let us be clear about it. Even though I term buying property as a “game”, it is by no means an optional “game”. If you are getting married and looking to start a family, you NEED a home regardless of how expensive or overpriced you think Singapore property might be (unless you are intending to stay with your in-laws or looking to migrate overseas). We do however have a choice regarding the kind of 1st home we can purchase and thus it is important to consider carefully the choices available to us. The two main options for homes are mainly public housing and private housing.

For most people in their 20s who have just started out. Private housing such as condominium would be a dream too far for the time being due to the high prices. So unless you are fortunate enough to come from a well to do family, public housing would be the most realistic option for the majority of young people buying their first property.

Public housing in Singapore is more commonly known as HDB (Housing Development Board) Flats. This ranges from flats purchased directly from HDB, resale flats, DBSS (Design build and sell scheme) flats and EC (Executive Condominiums).

Since a new flat from HDB is the most common and ideal way in my opinion to get your first home, lets just focus on it first.

Build-To-Order (BTO) Flats 

Buying a BTO flat is basically buying a new brand new flat directly from HDB. Financially, buying a BTO flat makes the most sense for young couple simply because it is cheaper than buying a resale flat in the same area. BTO flats are priced at a discount to prevailing market prices of the flats in the same area. For example if a 4 room resale flat in Pasir Ris cost $400,000, than a 4 room BTO flat in Pasir Ris would sell at about $320,000 thus giving the buyer a 20% discount off the market value of the unit.

A new BTO flat also comes with a fresh 99-year lease compared to resale flats that would have a shorter lease remaining. There are also hidden value in getting a brand new flat such as having newer finishing and generally having better a better flat layout (No more toilet being located in the kitchen). In terms of renovation cost, it is also cheaper to renovate a brand new flat rather than an older resale flat due to the additional costs that would be incurred with the hacking of the existing infrastructure within the older flat.

In terms of financing, there are also more to consider beyond the actual selling price that makes a BTO more attractive from an affordability point of view. A BTO flat requires only a 10% down payment only while a resale flat would most likely require a further Cash-Over-Valuation (COV) amount to be paid. Assuming a buyer uses a HDB loan.

For example:

Resale Flat BTO Flat
Market Price $400,000 $320,000
Down payment Required $40,000 $32,000
Cash-over-Valuation $20,000 $0
Renovation Cost $40,000 $30,000
Total Required $100,000 $62,000

Simply by looking at the above comparison it is easy to see why a BTO flat appears much more attractive than a resale flat. It is cheaper in terms of the total quantum and also requires a lesser amount to be paid up front as well. There are however quite a few regulations that are important for potential buyers to take note of.

In Part 2 tomorrow, we look in detail the different aspects of  buying a BTO and some HDB policies that are relevant to you!


Original photo by Benjamin Lim. Used with permission. aims to provide interesting, bite-sized and relevant financial articles.

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