Is a resale flat better than a new flat for first timers?

May 04, 2017 01.00PM |
 

by Sharanya Pillai

WHEN it comes to building their love nest, it seems like young Singaporean couples prefer the tried and tested – even if it is more expensive.

Last year, one in five first-time HDB buyers opted for resale flats over new Build-To-Order (BTO) flats, The Straits Times reported yesterday (May 3).  This is nearly twice the number of buyers who did so in 2012.

Thus far, HDB has reserved 95 per cent of BTO flats for first-time buyers. Heavily subsidised, these flats are often considered the most financially prudent option for first timers, especially since they come with a fresh 99-year lease, experts told The Middle Ground.

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But a desire for familiarity and a shorter waiting time are driving more young Singaporeans to the resale market, noted OrangeTee’s head of research and consultancy Wong Xian Yang.

This trend is set to continue, with stable prices in the resale market and more subsidies from the G, Mr Wong added. This year’s Budget, for instance, raised the CPF Housing Grant for resale flats for first timer couples, allowing them to enjoy up to $110,000 in total subsidies. Meanwhile, the supply of potential resale flats in 2016 was also 80 per cent more than the previous year.

“Since 2013, HDB resale prices have come down by about 10 per cent. People are more confident that the prices [have] stabilised and should not correct further. And so with more grants, many feel that resale prices are at affordable levels at the market rate,” he said.

Seems straightforward enough – why spend three years waiting for a BTO, when you might be able to move into a furnished flat with less hassle and more subsidies?

But there are more trade-offs to mull over. If you want to know what’s in this for you, here are the key factors to consider:

1. Do you want a ‘forever’ home or a stepping stone?

BTO flats come with 99-year leases, meaning that the flat can last a lifetime. But that hasn’t stopped young couples from paying more for resale flats with shorter leases, even at the risk of outliving their homes.

This trend prompted Minister for National Development Lawrence Wong to warn against assuming that all old flats will be covered by Selective En Bloc Redevelopment Scheme (Sers) – which allows owners to move to a new home with a fresh 99-year lease, along with monetary benefits.

Those who purchase old resale flats may also face difficulties trying to sell it off in future, reckons ERA Senior Division Director Alex Lim. “The demand pool for these flats among the next group of potential buyers is smaller, because younger buyers are already eliminated. So that is something to bear in mind,” he said.

OrangeTee’s Mr Wong agreed that the move has its risks: “Some couples may speculate that the value of an old flat will keep going up. But of course, there are always uncertainties.”

Ultimately, it depends on buyers’ long-term plans for the flat – whether they see it as more of a place to settle in for a few generations, as an investment to earn good returns on, or just to live in it before moving into more high-end property.

2. Postcode envy: Are some locations better than others?

Photo By Shawn Danker. Shared Copyright.
Units at the Pinnacle@Duxton became eligible for resale last year
Source: Photo by Shaun Danker

If location is a priority, the resale market offers more options than others. This is probably one of the biggest draws for young couples, who often want to live near good schools, and sometimes even upmarket locations, said PropNex Key Executive Officer Lim Yong Hock.

Units at the Pinnacle@Duxton, which just became eligible for resale last year, is especially popular among couples with higher income.

For the majority of young families that are “just starting out in life”, living close to their parents is a key consideration, Mr Lim added. Filial piety aside, first-timers are also drawn by a $20,000 Proximity Housing Grant (PHG) for buying a resale flat near their parents. The scheme, implemented in 2015, could be another “pull factor” towards the resale market, he said.

But the locations of new BTO projects may bring back some first-timers, Mr Wong noted. While earlier projects were in far-flung, newer estates like Punggol, the latest batch of BTO flats are in mature estates, like Kallang, Bedok and the Bidadari development in Toa Payoh. With more of these developments, demand trends could change again.

ERA’s Mr Lim sees more young clients attracted to BTO flats because of lifestyle factors: “The millennials go for BTOs because the flats are new and the community is new. Everyone is of the same age group. They’re looking for something brand new and affordable, and that’s the ultimate appeal of BTOs.”

3. Money over matter

Ultimately, for those starting out in life, finances are front and centre. While BTOs are generally the cheaper option, due to zero Cash Over Valuation, resale flats are becoming just as affordable thanks to the latest slew of G grants.

Effective from Feb 2017, the cap for CPF housing grants for resale flats was raised from $30,000 to $50,000 for first-time families buying four-room or smaller flats, and to $40,000 for those buying flats with five rooms or more. Other existing incentives include the Additional Housing Grant, which provides up to $40,000, and the $20,000 PHG. With these perks, the price gap between BTO and resale flats has narrowed.

But this is not necessarily the case in popular mature estates, like Bishan, Queenstown and Clementi. Resale prices there remain steep, such as those in Clementi, which have crossed the million-dollar mark. While it is easy to be swayed by news reports of price trends, Mr Wong advises young Singaporeans to do their homework and monitor the data for themselves closely.

A 2015 survey by the MND, for instance found that Singaporeans tend to overestimate the price of BTO flats. “The younger generation of buyers is very tech-savvy, so they can easily check out the HDB website to know the latest prices, and avoid these mistakes,” he said.

Meanwhile, PropNex’ Mr Lim thinks that families on a tight budget would generally be better off opting for a BTO instead. “My advice for any young couple would still be go back to the affordability. You may find a very good location, but at the end of the day, you have to slog your life away to pay the instalments.”

“Is it necessary? In life, there are also other important things, like making sure you can start your family.”

 

Featured image by Flickr user Erwin SooCC BY 2.0.

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