HOUSING MATTERS
Here Is Why A Resale Flat Might Be A Regret
Buying your first home might be an equally exciting and stressful experience. Most of us have to choose between buying a BTO (Build-To-Order) or a Resale Flat. Nonetheless, some of you, fortunately, may have no problem making a decision.
This article, however, will address something that may let you be aware of the disadvantage of buying a resale. Without typing any further, let’s start.
The Meaning of A Resale
Both a BTO and Resale have one thing in common, they both start with a 99-year lease. Which means that they can only exist for 99 years. After that period of 99 years, the land will be returned to the landlord.
In that sense, since you will be buying a flat from another person that means that it will no longer be a lease of 99 years given to you.
If the previous owner had stayed there for 25 years, thus you will have a remaining lease of 74 years.
READ ALSO: Things You Should Know About BTO Vs Resale: Part 1
The Money Involved
Before looking at the graphics, here are a few assumptions.
In both the BTO and Resale examples:
Property Price: $500,000
Downpayment: $50,000
Loan Amount: $450,000
Loan Interest: 2.6%
Loan Tenure: 25 years
Build-To-Order (BTO)
Resale
As you can see from the Resale graphic above, you will realize that you have 74 years left to be living in the house. With the same amount of money (including interest payable), you only get to live and enjoy your property for 74 years.
Lets put it in another perspective. Imagine you need to buy batteries. There are 2 options. Battery A can last up to 24 hours while Battery B can only last up to 12 hours. Both cost the same. Which one will you buy?
Well, if you want value for money and one that can last long, that will Battery A. You can also pick Battery B, but just make sure you are made known that it will “die” after 12 hours.
READ ALSO: What Does It Mean By Leaving $20,000 In Your CPFOA When You Buy A House?
Will you really save on renovation?
It is quite common that you heard that you would save a lot on renovation cost if you buy a Resale. Well logically, the fundamentals of flooring, lighting and even painting aspect might already be ready for you.
However, is it to your liking? Is that the type of cabinet that you want? Do you really like the arrangement of the furniture?
You might love the location, the nearby amenities and even get the right floor. But looking inside the home, you know that you need to do a full renovation on the flat. Hence, that will be a huge expense on your list of other expenses and debt obligations.
That is subjective but nonetheless; do not expect you will totally not spend on renovation. You would definitely need to spend some cash to make the flat into your liking and preference.
However, if you can make do with what you have temporarily, you can plan your renovation properly and spread the timeline.
First-year could be allocated for the paint job. Fifth-year could be to give the bathroom a facelift. And maybe in the eighth year, replace the kitchen cabinets.
I am definitely not an interior designer but this is just some tip so you can plan your cash flow better. With savings, you can allocate your money better.
Apart from financing your home, you would need to finance your retirement as well. You can be too focused on funding the renovation but you forget to fund for our own future.
READ ALSO: The Real Reason For The Hike Of HDB Flat Prices
Timeline to sell
This part will apply to people who do not wish to stay at your flat long and plan to sell it. Even if you do not plan to sell it, down the road you might unexpectedly change your mind.
As you can refer to the graphic above, there are limitations to how much someone can use their CPF monies to fund the purchase of a HDB flat.
Thus, there might be a lack of interest of buyers if your flat has reached that lease. Therefore, it might be better if you can sell it before that.
For a BTO, you do have a good few decades before reaching that deadline. You can still enjoy the home and figure out when you want to sell off your property years later. Your potential buyer would still be able to buy the flat with their CPF monies fully.
It is different from a resale. You have a shorter timeline. You may not even have time to ‘enjoy’ your home. And if you missed that ‘deadline’, you may find it hard to sell off your property in the future.
If you and your family intend to stay at that flat forever, then this part would not be an issue. Nonetheless, everyone wants to improve, dream bigger and have high goals, thus if you have that flexibility in your timeline and a longer lease, you will have more options at the end of the day.
READ ALSO: The “Must-be” Reasons Why Resale Flats Are More Expensive Than A BTO
Time is money
What has been shared has been around the factors of time and money. And very well indeed both are quite equal to each other.
You can lose out on selling your home at a good. You might incur more on expenses on the renovation. And does paying for convenience and size of a resale flat really compensate for everything now or would it be something that will haunt you in the future?
There is no need for panic if you already own a resale flat or already perhaps exercise your OTP to buy one. At the end of the day, everyone needs a roof on top of his or her head. It all comes to your decision about what kind of roof you will get.
Before deciding on whether buying a BTO or a resale, do a list of pros and cons. Compare in numbers as well. The cost, potential expenses etc. That will help you in making a decision.
That is the end of the article and hope the information is useful. Do share it with your friends and families. 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.
