Monday 13 February 2017

First Time Buyer Dilemma — New Executive Condo or HDB BTO [ADVERTORIAL]

Singapore property buyers or investors do not have the luxury of shopping for landed properties especially when those properties are way beyond reach. With that, first-time buyers are leaning towards buying build-to-own (BTO)
HDB flats or executive condominium (EC) in Singapore. A BTO HDB flat might be a more prudent choice but many Singaporeans are aspiring toward an executive condominium. Before jumping on the bandwagon of those buying an Executive condo or believing at face value that the HDB flats are poorly made and are of low quality, you should see the deep features of both.

Executive Condominiums

EC is a hybrid of public and private housing first introduced in 1994. Built by private developers and with high-quality material, subsidized by the government and can only become private after ten years. An EC is a full suite condo that comes with amenities such as pool, gym, barbeque pits and other facilities you would expect of a private development.

Main difference between BTO HDB flats and EC is that ECs become fully privatized after 10 years. Like other forms of private property, they are opened to be sold even to foreigners or organizations.

Built-to-order (BTO) HDB Flats

BTO HDB flats are first introduced in Singapore in 2001. It is a flat allocation system developed by the Housing and Development Board. Compared to other HDB flats, these are flexible in location and timing. You can apply for an apartment depending on your desired location and when you want to start using the house. Construction of BTO only begins once the applicants reach a minimum of 70% in number.

Both BTO flat and EC are considered as affordable public housing but there are some clear differences when it comes to housing plans, loans, resale profit and finishes or facilities.

1. Income ceiling
For BTO, the income limit is $12,000 for most of the units and those applying for 3-Gen flats have an income ceiling of $18,000. That for EC has been recently raised to $14,000 so as to allow more families to own this type of HDB flats.

2. Priority for first-time applicants
First-time buyers get a higher proportion of HDB BTO flats per launch. They get more ballot chances and additional chances for unsuccessful attempts to give everyone a fair chance of owning a home. EC, on the other hand, reserves 70% for the first-time buyers in the one-month period after it has been launched.

3. Eligible resale buyers
These HDB flats are initially sold as public housing, but after ten years, they can be listed as private properties. This opens the field for eligible buyers whenever the homeowner wants to sell. Only Singapore citizens and permanent residents are eligible to buy HDB flats, however, once they attain the ten years mark, they attain the private property status making them available to be sold to foreigners and companies. This, therefore, means the pool of prospective buyers becomes larger than for EC than BTO since the standard of development for the EC is better and more appealing to foreigners and corporations.

4. Resale profit
The resale price for BTO and prices for new BTO are not different substantially according to some housing experts. There is no lucrative business selling off the BTO houses. EC, on the other hand, can be sold at subsidized prices or the homeowner can list it at a price comparable to the private condos within the same area. 

This makes EC a better investment if you want to sell it at a latter date for profit after enjoying the amenities. By the time it reaches the eleventh year, your kid will be old enough, and the money can go into PSLE tuition perfectly. From the sixth to tenth year of the EC unit, it can be sold as regular resale flat only to citizens of Singapore and permanent residents, but from the 11th year, it goes fully private. Buying resale EC after ten years has the disadvantage to buyers in that they are not eligible for housing grants since they are truly private properties then.

5 Facilities
EC are built by private developers meaning they come complete with amenities just like the private condos. These include security, proper landscaping, swimming pools, access to multipurpose rooms, clubhouse and tennis court if available. The BTO, on the other hand, do not come with these amenities except for basics.

6 Finishes
EC have finishing just like those we see in full-fledged private condominiums. These include built-in kitchen cabinets, built-in wardrobes, flooring in the entire unit, bathrooms with vanity top, hood and oven, electrical points and air-conditioning in the whole house. BTO don’t provide as many standard finishing as the EC. They would include basics like tiled bathroom walls, kitchen floor finishes, service yard and household shelter. BTO owners have to spend additional money to renovate their units to bring it to the standard they like, install electrical cabling an air-conditioning system.

7 Grants
In the case of BTO, first time home buyers can apply for special CPF housing grant and additional CPF housing grant. These two grants can offer the buyer $40,000 each based on their household income. First-time buyers on the EC applications can apply for the family grant that can get them up to $30,000 depending on household income.

8 Loans
Other than the housing grants, HDB flats buyers should note that there are many types of loans available for the particular type of housing they want. BTO homebuyers can apply for a bank loan or from the HBD itself. The two credit sources are mutually exclusive. For the case of EC homebuyers, they can only apply for a bank loan. When taking an HDB housing loan, you get a maximum of 90% of the property purchase price with a maximum repayment period of 25 years or till you reach 65 years of age, whichever is shorter. Bank loan covers 80% of the house purchase and can be repaid for a maximum of 30 years. It is worth noting that all bank loans taken to buy new ECs and BTOs are subject to Mortgage Service Ratio mandating that buyers can only use up to 30 % of their gross income to repay the mortgage.

9 Concessionary Loan
A private bank loan covers 80% of the property purchase with up to 15% covered by grants and your CPF. This leaves only 5% down payment in cash. BTO flat buyers have the option of a concessionary loan to cover the remaining 5% meaning you pay 0% cash down payment. For EC, this option is not available.

10 Mature estate locations
Most ECs are not in mature estate locations. They are in far-flung places where public transport is an issue. The developers assume that those who can afford and EC can afford a car. This one inconvenience of buying EC even though it comes with superior amenities over BTO HDB flats. BTO are usually located close to social activities, work, school and other public facilities meaning you don’t have to spend a lot on transport or waste tie commuting daily to and from work.

11 Predictability of resale value
ECs have been around for only a few decades so there is much debate on how predictable their resale value can be at the point of purchase ten years before selling. In theory, ECs should sell at the same price as private condos as soon as they become private after ten years, however, psychologically, people will see ECs as being one level below private condos even though they are developed by the same developers and have similar standards of amenities. Buyers may not accept to buy EC at the same price as real private condos. There are a few more years investors can wait to see where the wind will blow concerning the EC resale prices.
BTO, on the other hand, are in their own class and have been on the market a long time; therefore, their resale value is predictable. The BTO do not have a significant difference in resale price compared to the purchase price, so there is not much fluctuation or uncertainty expected in this type of HDB flats. 

If you are looking to invest in properties in Singapore, perhaps EC will be a better option especially when you can get a better resale value after a decade and the openness of the property widens the
pool of prospective buyers and raises the odds of selling for a profit. BTO, on the other hand, is more of a family housing and cannot be termed as an investment since it appreciates very slightly in value over the decade. This is evidenced by its low resale value that generates insignificant profits for the homeowner.

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