Looking for your first home? Wondering if you should go for a BTO because it is THE cheaper option that your friends and family have been talking about? But is that really the case? In this article, we will address the popular question first-time homeowners have, “Are BTOs really cheaper than resale?”
The general impression that BTOs are way cheaper than resale HDB flats stem from the fact that BTOs are highly subsidized public housing. And that is absolutely right! But there are many more factors that could affect the eventual price tag you pay for the property. And that is what we are here to address today:
- The Gap Between Actual BTO & Resale Flat Price – Looking at Real Numbers
- HDB Grants for BTOs Vs. Resale Flats
- The Other Pros & Cons – Lease Remaining on Flat, Floor Space, Renovation Costs and more
The Gap Between BTO Vs Resale Flat Prices – Looking at Real Numbers
Our step of putting the hypothesis of whether “BTOs are really cheaper than resale flats?” to the test involve numbers. Yes, we will be looking at the cold hard numbers to validate our assumptions.
BTO Flat Prices
For an indication of how much a BTO flat costs these days, we take a look at the recently completed Aug 2020 BTO launch. These are a range of prices before grants for 4 room flats (the most common flat type in Singapore) in the launch:
|Mature / Non-Mature||Estates||Launch Prices (Before Grants)|
|Non-Mature||Choa Chu Kang||$253,000|
|Mature||Ang Mo Kio||$423,000|
HDB Resale Flat Prices in Same Estates
For an indication of how much corresponding HDB resale flats go for in the market, we used the HDB Resale Flat platform. On the website, we can easily see the transacted prices of resales flat in the past. For this purpose, we picked the lowest price for 4-room flats in the past 6 months in the same estates for a better comparison.
|Mature / Non-Mature||Estates||Launch Prices (Before Grants)||Resale Prices|
|Non- Mature||Choa Chu Kang||$253,000||$280,000 (56 years left)|
|Woodlands||$276,000||$218,000 (54 years left)|
|Mature||Ang Mo Kio||$423,000||$295,000 (58 years left)|
|Bishan||$484,000||$355,000 (52 years left)|
|Geylang||$523,000||$330,000 (64 years left)|
|Pasir Ris||$374,000||$342,000 (75 years left)|
|Tampines||$311,000||$345,000 (72years left)|
Now that you have some numbers before you, does the hypothesis still stand?
Not really right?
In some estates, especially in the mature estates, we see that resale flats can be $32,000 to $193,000 cheaper than their BTO counterparts.
How can that be? Then what is the point of getting a BTO? Isn’t it supposed to be way cheaper?
The key here is the remaining lease value. Back in 2014 in addressing the value of HDB flats, MP Khaw Boon Wan noted that “Like all leasehold properties, all HDB flats will revert to HDB, upon expiry of their leases.”
As such, the market has corrected to reflect depreciating values of older HDB resale flats. As you can see, many of the cheaper resale flats have approximately 50 -72 years left on the 99-year lease.
While BTO prices are pretty set in stone, you can expect to negotiate on prices for resale properties. Depending on the seller’s urgency and your needs, you might be able to knock off thousands of dollars off the selling price if you are lucky.
Implication for first-time home buyer: Well, if you do not mind a slightly older flat to stay in, you can get resale flats at similar or even cheaper prices than BTOs. If you are looking for a property with resale value down the road, then this is probably not a good option for you.
HDB Grants for BTOs Vs. Resale Flats
HDB grants are a great way of reducing your overall financial outlay on housing in Singapore – trust us, we have been there! Did you know that HDB grants are not only for BTO purchases, but also apply for HDB resale flats too? Hurray!
Here are some of the relevant grants that you can factor into reducing your total price for your dream home:
|HDB Grant Type||Income Ceiling||Grant Amount (BTO Flats)||Grant Amount (Resale Flats)|
|Family Grant||$14,000 or $21,000 if purchasing with extended family||Up to $25,000 (singles) and $50,000 (families)|
|Enhanced CPF Housing Grant||$9,000||$5,000 – $80,000||$5,000 – $80,000|
|Proximity Housing Grant (live within 4km of parents or with parents)||Not applicable||Up to $15,000 (singles) and $30,000 (families|
Doesn’t it seem like there are a lot more grants available for resale flats rather than BTOs?
Additionally, the BTO grant requirements tend to be a lot more stringent compared to that for resale – just look at the income ceilings.
In fact, if you have a low gross household income, you can get up to $160,000 worth of grants for your resale flat compared to a maximum of $80,000 for BTOs. That is more than enough to make up for any potential difference between a BTO and resale in the same estate!
Implication for first-time home buyer: Check to see if you are eligible for the grants for the resale flats. If you are, consider that in your comparisons of the prices between BTO and resale options – you may get a pleasant surprise where your resale option ends up much cheaper after the grants.
Weighing the Other Pros & Cons
Based on the quantitative factors, it does seem like we have overturned the original hypothesis that BTOs are always cheaper than HDB resale flats.
However, there are other factors you might want to consider when deciding between the two:
Resale flats tend to be larger and more spacious than BTO flats of the same category. If you consider that, then your price per square feet cost might be cheaper for a resale than a BTO too. If you value a large unit, then resale flats are likely a better option for you.
Remaining lease & Subsequent resale value:
Ask yourself this question. Is this your forever home? If so, does it have enough remaining lease as a resale flat to last till you are 95 years of age and older?
If you are planning to use your CPF to pay your mortgage, do check the maximum amount you are able to use for your resale flat with less than 60 years of remaining lease.
If you are planning to eventually sell off this property, will there be enough value left in the lease as it depreciates further in the future? These are all real and important questions to consider when choosing between the two.
The total expense of a home does not simply stop at the purchase of the property. Another practical cost concern is renovation expenses. And that can add up significantly.
For older resale flats, if you are lucky and find something already furnished to your liking, you may not have to spend much upfront. However, maintenance costs might creep up in the future due to longer wear and tear. If you do not like the existing décor and set up, you might need to incur much larger costs to tear down and rebuild to your liking.
Comparatively, HDB BTOs tend to come as a blank slate. So, it is usually cheaper to build from scratch. Also, there will be lesser maintenance costs since it is a new flat.
Ready to Pick Between A BTO or Resale Flat?
We hope our detailed breakdown of important quantitative and qualitative factors between BTOs and resale flats have been helpful in your decision-making process.