A lot of Singaporeans think of their house as a retirement plan. Come the age of 65, when we walk out of the office for the last time, we’ll need some sort of income. If the plan is to look at the house, then it’s logical to ponder which type is the real money maker. Not everyone can get a condo. So should you look at BTO, EC, or resale flat for the most profit?
A key consideration: Location
For the purpose of the argument, assume that the following pertains to units in the same general location. Otherwise, location is a more significant determinant of flat values, when compared to the type of flat in question.
#1: BTO flats
How much: Around S$300,000 for a four-room flat in a non-mature estate
Pros:
- High potential appreciation/profit margin
- Typically cheaper to renovate, compared to resale flats
- Unit layout more aligned to modern lifestyles compared to older flats
Cons:
- Long wait for completion (can consider Sale of Balance Flats, which are closer to completion/already completed)
- Limited choice of location
- Fewer grants available, compared to resale flats
- Low chances of successful balloting for popular projects
The main advantage of HDB BTO flats is that it’s always sold at a discount to market value, even though BTO prices have been creeping up steadily. Despite gripes about BTO prices, the reason why Singaporean first-time homebuyers still flock to them is simply because a BTO flat will always be worth way more than the initial price once it hits its five-year Minimum Occupation Period (MOP).
Here’s a recent case-in-point: four-room flats in Sembawang‘s Montreal Ville cost S$255,000 to S$310,000 when they were launched in April 2011. Since hitting its MOP in 2019, these flats have been sold between S$322,000 to S$510,000. Profits for sellers can be as high as S$200k, making this BTO project a surer and more profitable bet than most things you can put your money on.
Price-wise, BTO flats in non-mature estates are sold at a higher discount. Combined with upside from future developments, the BTO flats here could see higher potential appreciation, percentage-wise, than pricier BTO flats in mature estates, at times even exceeding Pinnacle @ Duxton.
On top of that, we now have the Prime Location Public Housing (PLH) model for BTOs near the city centre. With restrictions such as a 10-year MOP and subsidy clawback, resale gains for these flats are expected to be lower.
Alas, the difficulty of balloting for a BTO flat means not every Singaporean first-time homebuyer can get one, especially if they can’t wait four to five years for a home to call their own.
For those looking to make a profit, be warned that oversupply of new flats in estates such as Punggol (and the upcoming Tengah and Tampines North) will also make it more challenging for flat owners to sell flats upon MOP. The supply may also result in downward price pressure, and owners could find themselves in danger of selling below valuation even though there’s a mathematical profit. Such sellers could fall into the trap of making a negative sale, with dire financial consequences.
So, it’s worth being open to options when BTO owners have reached the five-year MOP period. Even for owners who want to upgrade, it’s important to consider the option of retaining your HDB flat for rental yield, even if doing so will entail having to pay ABSD for buying a second property. Even though this may take you a few years more to save up to upgrade, it could be a better long-term asset progression strategy than selling your BTO flat.
#2: Resale flats
How much: From around S$350,000 for a four-room flat in a non-mature estate
Pros:
- Very wide selection; can choose any location you want
- The additional resale grants available for buyers of resale flats can make them even cheaper than BTO
- Some unit configurations may be larger than BTO flats
Cons:
- Not a fresh 99-year lease
- Higher renovation cost if hacking/disposal is needed
- Older flats could mean maintenance issues down the road
- Newer resale flats are expensive
To be blunt, buying a resale flat will probably net you the lowest profit when you sell it again. This is because resale flats are primarily bought for reasons beyond profitability.
What’s certain is that buyers of million-dollar resale flats such as this can’t expect to make huge profits. Given the large sum they paid for their resale units, it’s unlikely that the value will appreciate in 10 or 15 years. The value of the flat could even depreciate due to lease decay.
One reason buyers tolerate the higher price is that the flat is already completed and ready to move in. There’s no construction wait time, and it is one way to immediately get a flat in a mature area, or in the exact location you want. Also, the government offers a greater variety of housing grants and a higher total grant amount (up to S$160,000) for buyers of resale flats, versus BTO flats. This is a huge incentive.
Furthermore, some buyers, such as families with only Permanent Residents, can only buy resale flats.
Despite higher prices, rental yields of resale flats still average around 7%. So factor this into your asset progression strategy, or adopt a diversified investment approach rather than relying on your flat’s value as a nest egg.
Some owners just treat their nicely renovated resale flat as a liability (i.e. an expense) rather than an asset, and that isn’t a bad option if you have a sound long-term financial plan in place and all you want is just a decent roof over your head.
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#3: Executive Condominiums
How much: From around S$900,000 for a three-bedroom unit
Pros:
- Cheaper than a comparable new launch condo
- Units are more spacious than a comparable new launch condo
- Some grants available
- Full condo facilities
- Minimal renovation required upon moving in
- Can be sold to PRs after a five-year MOP period, and sold to foreigners after 10 years
- Nearly guaranteed appreciation upon MOP
Cons:
- Price is out of reach for most first-time buyers, unless their combined income exceeds S$13,000
- 25% downpayment needed, 5% of which must be in cash
- Income ceiling of S$16,000
- Limited locations, mostly inaccessible
- Rising prices mean that some resale condos are cheaper than ECs
- Lower rental yield than HDB flats and some condos
- Though leasehold, the condo value is less resistant to the effects of lease decay. They can also undergo en bloc
- Buyers must sell their existing HDB flat
Like BTO flats, Executive Condos also promise stellar price appreciation upon MOP.
Let’s compare an EC (Prive) and non-EC (Parc Centros) launched in roughly the same location in Punggol less than one year apart in December 2011 and July 2012 respectively. Prive’s three-bedder prices were around S$695 per square foot (median figure) in the first three months of its launch versus S$920 psf for three-bedroom units at Parc Centros.
In 2020, such units at Parc Centros transacted at a median of S$1,147 psf, whereas similar units at Prive transacted at a median of S$978 psf.
This translates to a 24.7% profit for Parc Centros three-bedder units, and an eye-popping 40.7% for Prive’s three-bedder units.
Over the next few years, as Prive becomes fully privatised, prices will be closer to that of resale condos, potentially netting even more profit for sellers.
That being said, developers are raising the prices of ECs. The latest EC to hit the market, Parc Greenwich, had an average price psf of S$1,200 during its launch weekend.
While EC prices are getting higher, it’s reasonable to argue that buyers can still get a healthy profit upon MOP, especially if the location of the EC carries upside from future developments.
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Undoubtedly, there will be a group of buyers in the mid-high income bracket weighing between buying a new resale HDB flat (that just hit MOP) in a mature estate, and a new launch EC in a suburb. They’ll be wondering which is the better purchase for own-stay, and which will fit better into a plan for asset progression.
If an EC feels like a bit of a stretch for you right now, in terms of finances, then securing an HDB resale flat in a good location could be your best bet to kick start your asset progression journey.
The money you save by buying a resale flat can be used to grow in investments to prepare you for your private property purchase five to 10 years down the road. Thereafter, you get to rent out your resale flat at a high rental yield, or sell the flat to fund an upgrade to a private home (if you’re averse to paying Additional Buyer’s Stamp Duty).
And the takeaway here is, don’t be too fixated on getting that BTO flat. If you’re unsuccessful too many times, it could be time to give resale or an EC (if you can afford it) a go.
Which property type is a good move for investment? Let us know in the comments section below or on our Facebook post.
If you found this article useful, check out Million-dollar HDB flats are hiding a worrying resale price trend. Here’s proof. and Here’s why you may not want to get the PLH flat if you’re thinking of upgrading in future.
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