I'm a single mum making $100k per year: Should I wait to buy a BTO or resale HDB?

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 eight to nine years ago.

Since I am able to purchase a resale flat soon, I’m contemplating the following options:

1. To wait for another 15 months (total of 30 months) to apply for a BTO instead.
2. Buy a resale flat at a central location to rent it out for four years until my child goes for tertiary education and we move into the resale flat.
3. Continue staying with my parents with or without buying my own place based on the above two 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!

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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.

Affordability

*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 four-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 three to four years before the second loan assessment, the loan tenure will be reduced.

Presuming the construction takes four 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 five years.

Cost incurred

Description	Amount
BSD	$14,100
Interest expense (Assuming a 15-year tenure and three per cent 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, four-room flats in mature estates exhibited an average gain of 65.87 per cent, while non-mature estates showed an average gain of 71.56 per cent for units sold within two years after the MOP. 

To err on the side of caution, we will consider a conservative estimate of a 50 per cent 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 Five	$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 five-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 four-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 two bedrooms at $900 each, for four years. 

Description	Amount
BSD	$20,400
Interest expense (Assuming a 21-year tenure and three per cent 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 two 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)	Per cent Change
2013-Q4	145.8	–
2014-Q4	137	-6.04 per cent
2015-Q4	134.8	-1.61 per cent
2016-Q4	134.6	-0.15 per cent
2017-Q4	132.6	-1.49 per cent
2018-Q4	131.4	-0.90 per cent
2019-Q4	131.5	0.08 per cent
2020-Q4	138.1	5.02 per cent
2021-Q4	155.7	12.74 per cent
2022-Q4	171.9	10.40 per cent
2023-Q4 (Flash Estimate)	180.2	4.83 per cent
Average	–	2.29 per cent

Potential gains

Time period	Price	Gains
Starting point	$860,000	$0
Year One	$879,694	$19,694
Year Two	$899,839	$39,839
Year Three	$920,445	$60,445
Year Four	$941,524	$81,524
Year Five	$963,084	$103,084
Year Six	$985,139	$125,139
Year Seven	$1,007,699	$147,699
Year Eight	$1,030,775	$170,775
Year Nine	$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 One	$471,500	$11,500
Year Two	$483,288	$23,288
Year Three	$495,370	$35,370
Year Four	$507,754	$47,754
Year Five	$520,448	$60,448
Year Six	$533,459	$73,459
Year Seven	$546,795	$86,795
Year Eight	$560,465	$100,465
Year Nine	$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 per cent 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 four 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 three per cent 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 two bedrooms at $900 each provides an extra cash flow of $733 per month.

Over four 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.

ALSO READ: The downside of buying a BTO flat in Singapore: 4 lesser-known challenges of the 5-year MOP

This article was first published in Stackedhomes.