BTO vs Resale Condo

[frankiefearless]

Hello, I am 30 yr old this year and I have a high floor 4-room Bishan BTO waiting to be ready in 2027. Im in a dilemma where I can afford a resale 2+1 condo (under a single name) now and I’m planning to move out this year. Should I forgo the BTO or rent a temporary place till my hdb is ready? Feel very sayang to be letting go of such a good location BTO but then again the wait is very long and I’m not sure if it’s worth it to rent say 5-6 years while waiting. Need some advice, thanks in advance!

 

[iceblendedchoc]

Hello, I am 30 yr old this year and I have a high floor 4-room Bishan BTO waiting to be ready in 2027. Im in a dilemma where I can afford a resale 2+1 condo (under a single name) now and I’m planning to move out this year. Should I forgo the BTO or rent a temporary place till my hdb is ready? Feel very sayang to be letting go of such a good location BTO but then again the wait is very long and I’m not sure if it’s worth it to rent say 5-6 years while waiting. Need some advice, thanks in advance!

Speak to your partner first since obviously you cannot buy a bto without a family nucleus. She may be piss if you give up

just remember any asset which you both share after marriage are divisible if it end in divorce but not applicable to assets obtained before marriage.

If renting give you some happiness than having your family members, just do it than save the rental.

 

[BBCWatcher]

As an extremely rough estimate, you could compare 5 years of rent at $2,000/month (let's suppose, i.e. $120,000) to the BTO discount you'd get 5 years from now (let's suppose $200,000) with a fresh 99 year leasehold. So pay $120K, in monthly installments (not up front), to win a $200K discount on a flat. That's a very good deal, and really no further math is required to know that it's a good deal.(*) If the math is broadly similar to what I've just outlined then I think from a pure financial point of view waiting for the BTO makes logical sense.

(*) Further math would probably be even more favorable. During the 5 year wait you don't have to pay S&CCs, property tax, home maintenance costs, or Home Protection Scheme premiums, as examples. Your leasehold is not decaying, and presumably your down payment is earning 2.5% CPF Ordinary Account interest for 5 more years — at least that/something like that.

 

[wlcling]

Hello, I am 30 yr old this year and I have a high floor 4-room Bishan BTO waiting to be ready in 2027. Im in a dilemma where I can afford a resale 2+1 condo (under a single name) now and I’m planning to move out this year. Should I forgo the BTO or rent a temporary place till my hdb is ready? Feel very sayang to be letting go of such a good location BTO but then again the wait is very long and I’m not sure if it’s worth it to rent say 5-6 years while waiting. Need some advice, thanks in advance!

Depends what you want lo

Rent unit & wait BTO
Pros
- This BTO likely can flip in future. Your resale condo, not necessarily. You can research more
- Better size if intend to have family?
- may save more (lower maintenance fees), not much reno needed
- If maths work out, you could save up for a bigger condo/landed in future (single or dualname) if that's your end game for living standards

Resale condo
Pros
- Immediate (although you could also get a resale HDB right lol)
- Condo (better living standards, security? facilities etc if it matters to you)

 

[frankiefearless]

As an extremely rough estimate, you could compare 5 years of rent at $2,000/month (let's suppose, i.e. $120,000) to the BTO discount you'd get 5 years from now (let's suppose $200,000) with a fresh 99 year leasehold. So pay $120K, in monthly installments (not up front), to win a $200K discount on a flat. That's a very good deal, and really no further math is required to know that it's a good deal.(*) If the math is broadly similar to what I've just outlined then I think from a pure financial point of view waiting for the BTO makes logical sense.

(*) Further math would probably be even more favorable. During the 5 year wait you don't have to pay S&CCs, property tax, home maintenance costs, or Home Protection Scheme premiums, as examples. Your leasehold is not decaying, and presumably your down payment is earning 2.5% CPF Ordinary Account interest for 5 more years — at least that/something like that.

Thank you for your advice. What if in the next year or two I can afford another condo which can be bought under my wife’s name and collect rental. And after 3 years I flip the existing condo for a profit and I can do that at least 2 times as compared to being stuck with the hdb. Does this make sense?

 

[BBCWatcher]

Thank you for your advice. What if in the next year or two I can afford another condo which can be bought under my wife’s name and collect rental. And after 3 years I flip the existing condo for a profit and I can do that at least 2 times as compared to being stuck with the hdb. Does this make sense?

Not really, not much. You can already invest in real estate via REITs or really anything else you like (stocks, bonds, etc.) And you can do all that in tiny, much better diversified increments with a few clicks or taps rather than one gigantic, high effort lump. HDB doesn't stop you from doing any/all of that click/tap investing.

 

[iceblendedchoc]

Thank you for your advice. What if in the next year or two I can afford another condo which can be bought under my wife’s name and collect rental. And after 3 years I flip the existing condo for a profit and I can do that at least 2 times as compared to being stuck with the hdb. Does this make sense?

so you are thinking of using bank loan to make money? Firstly, You have to be comfortable with this financially. Interest rate will surely go up this year unless some major event happen again and affect interest rate once again.

personally i have one and my wife also has one. We stay in one ourselves and rent the other unit out.

 

[Romeo007]

Frankly speaking making money off BTO is not as easy as before. In addition to paying rental u also have opportunity cost to consider. 5 years waiting for your bto and another 5 years mop before you can buy. But resale condo prices are also at the all time high but that being said they can continue to go up. Why pay rent for 5 years when u can buy resale hdb or condo. After you buy resale condo if property prices go down at least you won't feel so much pain coz u saved on the rental.

 

[Romeo007]

Talk to as many people as you can before you make a decision.

 

[reddevil0728]

Talk to as many people as you can before you make a decision.

how does it matter?

 

[BBCWatcher]

Wait a minute... Prices at record highs, but they can continue to go up? Well, OK, if that's your forecast then...HDB flat prices at MOP will continue to go up, too!

Why rent for 5 years awaiting a BTO? I just illustrated the math! The math typically works quite well with reasonable assumptions. And in the meantime if you want to invest in real estate specifically, no one is stopping you. That's what REITs are for. I don't recommend you do that. I think more diversified investments are better. But you could.

 

[wolfenlim]

Thank you for your advice. What if in the next year or two I can afford another condo which can be bought under my wife’s name and collect rental. And after 3 years I flip the existing condo for a profit and I can do that at least 2 times as compared to being stuck with the hdb. Does this make sense?

Sharing my personal experiences.

Back in 2017, my partner and i decided to purchase a private apartment each under our names, instead of going for a resale HDB. 3 years later, we sold them off for a tidy profit and bought another condo under her name. At present, that condo got enbloc and we also made some gains in the stock market with the profits we made earlier on.

Things will be different if we were to stick to a resale HDB. Both of our names would be stuck and ROE will be far lower.

Hence, you will need to evaluate carefully the lost opportunity as you and your partner will need to hold a BTO HDB for 10 years. No doubt you can sell at a profit after that, but will that still be higher if you have done otherwise.

Some people here have advocated buying REITs instead of investing in properties. The point they missed out is that the latter is a leveraged investment, that is to say you can easily have a 50% gain on top of your downpayment after 3 years of holding. The current yield for REITs is about 5%. Note that rising interest rates is a headwind to both REITs and property.

Some caveats you need to note if you are buying property. Always search for undervalued properties, never overpay for them. Aim for capital gains instead of relying on rental gains. REITs is better than the latter, that’s for sure.

Hope this helps in a different perspective.

 

[BBCWatcher]

Some people here have advocated buying REITs instead of investing in properties. The point they missed out is that the latter is a leveraged investment, that is to say you can easily have a 50% gain on top of your downpayment after 3 years of holding. The current yield for REITs is about 5%. Note that rising interest rates is a headwind to both REITs and property.

I was wondering when someone would make this argument. It's not correct.

First of all, no one I've seen in this thread is necessarily advocating buying REITs or anything else. You could buy REITs, and therefore it's a choice to evaluate, but whether you should is a separate question.

Second, REITs employ leverage, quite a lot actually. REITs borrow. Whatever the benefits of leverage, they accrue to the REIT's shareholders. You personally are not assuming debt when you buy REIT shares with cash, but that's a good thing. It means you're not held personally liable for those debts, unlike a mortgage. And being personally responsible for less debt reduces your risks. A REIT's debt might be called "backside debt."

Third, you could buy REITs with "frontside" leverage. That's called margin, and brokers routinely extend margin to their clients. So you could "double up" on leverage, frontside and backside. Whether you should is a separate question.

It's never good enough to claim that you can (or probably will) make some dollars with a particular investment. That's not exciting. Buying a Singapore Government Security will do that. You should always compare a potential investment to next best alternatives. If there are better alternatives, then those should win.

By the way, in Singapore residential real estate fell in nominal value by an average of about 45% peak to trough during the late 1990s and rather rapidly, within just a couple years. Capital losses, even big ones, are VERY possible in real estate. Especially over short to medium time horizons. Of course there are also lease decay effects, but even with freeholds there's some depreciation.

 

[wolfenlim]

I was wondering when someone would make this argument. It's not correct.

First of all, no one I've seen in this thread is necessarily advocating buying REITs or anything else. You could buy REITs, and therefore it's a choice to evaluate, but whether you should is a separate question.

Second, REITs employ leverage, quite a lot actually. REITs borrow. Whatever the benefits of leverage, they accrue to the REIT's shareholders. You personally are not assuming debt when you buy REIT shares with cash, but that's a good thing. It means you're not held personally liable for those debts, unlike a mortgage. And being personally responsible for less debt reduces your risks. A REIT's debt might be called "backside debt."

Third, you could buy REITs with "frontside" leverage. That's called margin, and brokers routinely extend margin to their clients. So you could "double up" on leverage, frontside and backside. Whether you should is a separate question.

It's never good enough to claim that you can (or probably will) make some dollars with a particular investment. That's not exciting. Buying a Singapore Government Security will do that. You should always compare a potential investment to next best alternatives. If there are better alternatives, then those should win.

By the way, in Singapore residential real estate fell in nominal value by an average of about 45% peak to trough during the late 1990s and rather rapidly, within just a couple years. Capital losses, even big ones, are VERY possible in real estate. Especially over short to medium time horizons. Of course there are also lease decay effects, but even with freeholds there's some depreciation.

Appreciate your sharing and clarifications.

The leverage i mentioned earlier is precisely your point on margin. Without utilising margin, it is hard to have a yield of more than 5-8%. Margin calls are more prevalent than banks repossession

It is always possible pluck a timeline off a historical chart to argue any side of a coin. More importantly, one has to find an investment philosophy that suits him. I am no guru in REITs, so I may be wrong in my earlier statements.

Going back to what TS had asked, my sharing still stands and is relevant to his question.

Once again, there are many assumptions behind any argument, I will leave it to TS to decide what suits him better.

 

[BBCWatcher]

The leverage i mentioned earlier is precisely your point on margin. Without utilising margin, it is hard to have a yield of more than 5-8%. Margin calls are more prevalent than banks repossession

I think you're missing the point. Both direct and indirect real estate investing involve leverage. With direct it's a mortgage that you personally guarantee, and with REITs it still a mortgage (actually multiple mortgages) that the trust guarantees. But both involve leverage; only the entity on the loan agreement varies. They aren't any different that way. Whatever benefits there are with leverage, you enjoy them. That's how a REIT can turn a ~2% rental yield into a ~5% dividend yield, oversimplifying only slightly. (Neither guaranteed, of course. None of these vehicles are guaranteed.)

You could add even more leverage with a REIT (or REIT fund) if you buy its shares on margin. Could is not the same word as should, for any of this.

What is very different about REITs (and other investments that do not involve direct residential real estate purchases) is that they are not disqualifying for purposes of HDB flat acquisitions. So you may be able to have your cake and eat it too, if you wish.

 

[wlcling]

Thank you for your advice. What if in the next year or two I can afford another condo which can be bought under my wife’s name and collect rental. And after 3 years I flip the existing condo for a profit and I can do that at least 2 times as compared to being stuck with the hdb. Does this make sense?

so if you continue bto now, have to dual name right, then if buy property next time got absd. Possibility the absd also eat into your bto profits.

So if you can buy one condo now under your name, few years later in your wifes name... then maybe next time:-
a) collect more properties... buy under trust for your kids (but full payment)
b) Sell any of the 2 condos, for upgrades

.. sounds like a nice plan lol for a high earner trying to build a "relatively" safe asset base.. It's not exactly liquid compared to other investment opportunities, but much better than the BTO plan then.

 

[BBCWatcher]

so if you continue bto now, have to dual name right, then if buy property next time got absd.

No, that's not a given. A BTO flat can still be purchased under one name (one spouse for example) with the other person (spouse) as essential occupier. And that's easier to do with HDB BTO pricing.

There's no ABSD on REITs. If you really want to invest in property anywhere, REITs and REIT funds let you do that with a click or tap, and in basically any increment you want.

 

[wolfenlim]

I think you're missing the point. Both direct and indirect real estate investing involve leverage. With direct it's a mortgage that you personally guarantee, and with REITs it still a mortgage (actually multiple mortgages) that the trust guarantees. But both involve leverage; only the entity on the loan agreement varies. They aren't any different that way. Whatever benefits there are with leverage, you enjoy them. That's how a REIT can turn a ~2% rental yield into a ~5% dividend yield, oversimplifying only slightly. (Neither guaranteed, of course. None of these vehicles are guaranteed.)

You could add even more leverage with a REIT (or REIT fund) if you buy its shares on margin. Could is not the same word as should, for any of this.

What is very different about REITs (and other investments that do not involve direct residential real estate purchases) is that they are not disqualifying for purposes of HDB flat acquisitions. So you may be able to have your cake and eat it too, if you wish.

You missed my point as well.

Companies took on debts to expand their business. For REITs, they use it to acquire commercial entities for rental income. Accretive acquisitive will increase dividends back to stakeholders. I’m not arguing on this point. This is the nature of all businesses.

For my own experience, I utilised bank loans not for rental income, but for capital appreciation after 3 years. The cycle repeats.

Yes HDB may be attractive in the past, but not now given the long construction time and MOP. Coupled with the need to use 2 names (there are ways to use one) and also incur ABSD for a second property, it is definitely not the way to go for mid-to-high income earners.
This is inline with what wlcling had mentioned earlier on.

 

[wolfenlim]

No, that's not a given. A BTO flat can still be purchased under one name (one spouse for example) with the other person (spouse) as essential occupier. And that's easier to do with HDB BTO pricing.

There's no ABSD on REITs. If you really want to invest in property anywhere, REITs and REIT funds let you do that with a click or tap, and in basically any increment you want.

likewise, if you buy a private property with one name each, there’s no ABSD.

Private home prices rose by 10% in 2021. Given that one only need to fork out 25% for down payment, the returns are magnified to by 4x ( simplified for the sake of argument) on average solely based on your initial outlay.

Just to avoid confusion. I’m not advocating buying of private homes. It depends on the financial standing of the person, and the need to study the market well before making a purchase. With all investments, it is definitely not as easy as it sounds.

To be able to afford a 2+1 apartment at the age of 30, TS will be better off with taking the private home route. Opportunity costs matter.

 

[wlcling]

Ok im corrected on bto being able to put 1 name only then.. See what TS wants lol

If stick with bto plan.. wait 10 yrs high chance is a good % flip (relatively safe assumption) but mean time have to troublesome abit and rent... good thibg is lesser cash outlay (?) so in a few years easier to pay for second prop.

Start immediately with resale pvt property, can stay in and more liquid than the bto. May not be a better % flip although in absolute capital appreciation maybe can beat... not guaranteed tho