HOUSING MATTERS
Things You Should Know About BTO Vs Resale: Part 1
The common dilemma by most couples when choosing your first home. But then again some couples would know which one they would prefer even way before their wedding.
The debate about which is a better option whether between a Build-To-Order (BTO) or a resale has ever been circulating and actually, there will never be an answer. There is no wrong answer; it is just how the answer will affect your life.
As a result, we have come out with several reasons why each option is more favourable than the other. We will also break down the figures on purchasing a BTO and a resale so you are able to compare from a financial perspective as well.
Why buy a Resale?
The favourable location of a resale is one top reason why a couple would opt for a resale. Most resale flats are surrounded with public transportation, shopping malls and schools.
By being near to such amenities, most people will think that they are saving on day-to-day expenses. But is that really true? Or is it just an assumption that most people making?
Waiting time is also another factor to why resale is more favourable. You can get the keys to a resale flat within weeks after paying the downpayment, although that does depend on other administrative processes as well.
But for a BTO, you will have to wait at least 3 – 5 years in order for you to get the keys to your flat. If both of you are not willing to wait that long, hence buying a resale is definitely a no-brainer.
And finally, one factor that is quite debatable. The size of the flat. As word on the street goes, current BTOs are extremely small. Nevertheless, this stereotype might not be entirely true, it may differ in certain situations.
Size of the flat does matter especially when you plan to have more children or maybe when you have your parents staying with you. Therefore, resale might be more favourable.
Then, why buy a BTO?
Simple answer, it is cheaper. For young couples, who just started their career and just got married, money might be an issue when buying their first home. Thus the price of the flat does matter.
Even though the waiting time is about 3 – 5 years that just means that you have 3 – 5 years worth of time to earn money and accumulate a good amount for the downpayment. By paying a larger downpayment, you will have a smaller amount to borrow. That translates to smaller monthly loan repayment amount and an overall smaller interest payable.
Most of you would know that the lease for a brand new flat in Singapore is 99 years. The lease does actually matter when you buy a house. If you buy a house with a lease of 30 years left, you will only have 30 years to live in that house. And then you have to eventually buy a new house.
It will be better if you have a brand new lease when you buy your house. You are able to stay at your home from when you are young adult till you are a senior citizen without even worrying about your lease.
It will also enable you to have options in the future. You can stay there for few decades or maybe you have an option to sell it off. Having options is important, as that will at least give you a chance to alter your life at a certain time of your life.
Financing the house
Lets put both scenarios into calculations; this might help you see the picture as a whole. We will be comparing the difference of paying for BTO & a Resale.
Assumptions for both scenarios:
Property price:
$400,000 (same for both)
Combined Annual salary:
$72,000
Combined CPF Ordinary Account balance:
$40,000
Loan type:
HDB Loan
Loan tenure:
25 Years
Loan Interest Rate:
2.6% per annum
NOTE: This illustration is to only compare the figures for financing the purchase of a house and it will ignore the aspect of timing in getting the house.
Resale
Required Downpayment (10% of Flat price):
$40,000
Downpayment:
$40,000
Loan Amount:
$360,000
BTO
Required Downpayment (10% of Flat price):
$40,000
- For a BTO, you can pay your downpayment in 2 installments. First 5% is on the second appointment and the other 5% on the third appointment, which is when you collect your keys.
*This does not apply to everyone; do check with HDB on your own downpayment arrangement (This example called a staggered downpayment scheme)
- For example, if your second appointment is in 2018, your third appointment will be in 2023. Hence there is a waiting time of 5 years.
- After 5 years of waiting for the house, you would have contributed more into your CPF account. Eventually having a larger amount of downpayment.
First Downpayment (5% of Flat Price):
$20,000
Second Downpayment (5% of Flat price or all of OA, whichever is more):
$109,121
The amount is derived from the interest of 2.5% from CPFOA and also the annual contribution from their salary.
Loan Amount:
$270,879
Summary:
As displayed above, you will be paying more for a Resale in almost every single aspect except for the downpayment. With everything combined and after paying off everything, you will pay an extra $32,173 if you decided to purchase a Resale house.
It is amazing that even though they cost the same amount, eventually one is more expensive than the other. To conclude, buying a BTO is cheaper than buying a Resale.
Money matters
We have summarized for you the difference in financing the purchase of a BTO and a resale. From this perspective, you will know which option is better if you want to save yourself a few thousand dollars.
Patience is the key, you might need to wait a few years but at the same time, you will save yourself a good sum of money. Yes, it might only be your CPF monies but nevertheless, that money could be used for your retirement. Therefore the choice is yours.
Stay tuned for the next part of this article, Things You Should Know About BTO vs Resale Part 2.
Hope this article was useful. Do share with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
