Why You Should Always Buy A BTO Flat – Part 1

Unless you are ready to observe some pent-up anger being released, it’s better not to broach the topic of housing prices to the young Singaporean (in their 20s and 30s) who hasn’t yet owned a property. No wonder, since a quick look at the Resale Price Index shows that HDB flat prices have doubled over the past decade. Since it’s quite obvious that median starting salaries have not doubled over the same period, many who have just started out feel that they have missed the Affordable Housing Boat and are left to drown from the high cost of living.

If you mix this topic together with the recollection of the National Service experience during the same conversation, you’re just building a volcano of fuming fire in the stomach. (I can imagine the young Singaporean male reader’s desire to smash his laptop screen already.)

Calm down, because in this article, I am going to reassure you that as Singapore citizens, we can still have a bite at Singapore’s prosperity pie and an opportunity is still available to purchase affordable housing (although even the government has to admit it’s not as affordable as before).

Our BTO Story

Personally, I crossed the Non-owner/Owner divide recently. We moved into our new 5-room BTO less than a year ago (for the benefit of foreign readers and out-of-touch high flyers, there’s just 3 instead of 5 bedrooms). BTO stands for Build-To-Order which literally means that the flats will only be built if there were enough orders. So, it was a wait of about 3 years for us before we received the keys to our unit.

It wasn’t supposed to be this way. A resale flat was actually on the cards in 2008/09. I had anticipated a drop in home prices during the aftermath of the Great Recession but was left disappointed (a huge understatement). While private home prices dived almost 20%, the HDB market proved to be resilient and prices even picked up. After performing some basic calculations. we proceeded to look elsewhere and subscribed to the Government’s advice to buy a BTO flat.

The Math Behind the Purchase

On hindisght, it’s really a no-brainer when you’re just looking at the numbers. A new BTO flat is really significantly subsidised. Our low-floor Punggol unit costs $340,000 whereas a comparable flat in the resale market would likely set us back by almost $500,000 back in late 2009 and $600,000 if we buy it now. Even after taking into account the $30,000 of Resale CPF grant, it’s still a massive price difference of $220,000, savings made just by planing early.

So if you have been dating your boyfriend/girlfriend for two years already and would like to marry and have your own place in about 3-4 years’ time, you should show this article to your other half. However, there’s the nagging thought that you aren’t really sure if he/she’s the one (or sad to say, it might be the other way round).

Firstly, you can never be 100% sure if he/she is the one 3-4 years down the road. I wasn’t (sorry, my dear wife) but I was pretty confident. So it’s really a personal call. In any case, even if you have second thoughts regarding the relationship some years down the road, you will be forfeiting at most 5% of the purchase price (please double check information with relevant authorities), which is almost certainly lower than the $220,000 in savings we calculated earlier based on my home-buying experience.

“But our situation is different. We just got married/have young kids/need our own personal space and we can’t afford to wait another 3 years like you. There’s no financial sense renting a flat and the resale flat is our only option”

Ok, I hear you, and you’re right that I wasn’t doing an apple-to-apple comparison since my wife and I had the privilege of staying with our families for 3 years before our flat was ready. Moreover, nobody (hello, we are here) plans way ahead at the age of 23. But before you start writing the cheque (and borrow from your parents) to pay for the monstrous COV, let’s take a closer look at the alternative of renting a place for 3 years.

We have been inculcated that renting is a needless expense whereas owning your own place constitutes an astute investment in an asset. That’s pretty sound advice in my opinion. Assuming that my wife and I were in the same unique situation as this imaginary reader, we would have rented an entire 5 room flat in Punggol for $2500 a month (it’s likely to be much lower than that looking at the Median Subletting Stats for the past 3 years). This would amount to a total cost of $90,000 over the entire waiting period. Even from this conservative example, we would still be saving $30,000 by choosing a BTO flat over a comparable resale unit in 2009. This is not an amount to be sniffed at, easily a year of my wife’s take home pay then!

So What’s Next

So if you’re planning to buy a Resale flat and somehow stumbled onto my blog, I hope this article will encourage you to think twice. Of course, everyone is in their own unique situation and staying in the same block as your parents could easily be more valuable than the $30,000 saved from that BTO flat. On the other hand, if you’re dating but is already thinking of the names of your grandchildren, do check out the latest BTO launch.

My point is, the house is probably the most costly purchase you will ever make in your life. So you should really spend some time thinking about doing it right especially since It could easily set you up for a smoother and faster path towards the dream of a 15 Hour Work Week.


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5 thoughts on “Why You Should Always Buy A BTO Flat – Part 1

  1. Michelle

    Hi there, new reader but experienced with the art of frugality.

    Wanted to ask what you thought about the 99 year leasehold issue and that hdb is essentially worth 0 at expiry of lease. Of course we will probably be dead but some of us (me, and my mother) always believed in freehold properties probably also for passing onto children. May be a notion that’s not too good but I would certainly like to pass some things on.

    Of course you would have to be able to afford the freehold in the first place so my family is very, very lucky in this regard (my mum owns around 6 properties!!!! Most of which are going to my daughter I suppose haha)

    I’m living in a small condo unit right next to paya lebar (great location) with 80y left. My quibble with btos are that they are super ulu – no jurong or punggol for me!!!! (I was in sengkang most of my youth and paya lebar is amazing in comparison.)

    1. My 15 HWW Post author

      Hi Michelle,

      The worst-case scenario for HDBs would be the flat becoming worthless at the expiry of the lease. Since that’s the worst-case scenario, one could get lucky by receiving an En-bloc offer and it also remains to be seen what the government of the day would do then. (Taking the flats back in bulk is likely to be seen as a very insensitive move by the public.)

      But of course, if you’re a multi-millionaire, it does make good sense to buy freehold properties that will keep their value (providing Singapore remains similar to what it is today).

      In terms of location, I guess it’s relative. I stayed in an ulu part of Bukit Panjang so Punggol is an improvement, especially considering that I stay close to an MRT station now. Nonetheless, there are HDB flats that are conveniently located (Tiong Bahru, Queenstown, Boon Keng etc).

      Popped by at your budding blog and let’s just say that I am looking forward to more posts from you. I still find it quite amazing that with your family and husband’s wealth, you’re aspiring to live up to MMM’s values.

      Especially would like to hear in detail why and how you find hawker food expensive. =p

      1. Michelle

        Yes, I am waiting to see how the government solves huge chunks of expired flats without pissing too many people off… Haha. Did not think about tioing bahru, etc, especially boon keng would be super convenient. Hawker food is expensive. I never eat out if I can :p

  2. Ryhandle

    Hi 15HHW

    Sorry if this comment is wayy down but i was reading and if i may i would like to ask how did you get from 0 views to the amount of views you had now?

    Mind sharing some tips for an aspiring blogger or were you already popular to begin with on social media?

    1. My 15 HWW Post author

      Hi Ryhandle,

      I really don’t know. I guess I just kept writing and a few posts went a little viral. I think the articles being published on thefinance.sg helps alot.