When the thought of buying your first property comes to your mind, either one of these applies to you:
- You and your partner are getting married and ready to purchase your first property
- You are single and is at least 35 years old
The next question that pops up is: “Should I buy a HDB flat as my first property?”
Or, is there any other option that you can explore?
Before we move further, perhaps it will be a good idea for you to understand what you are getting into.
Asset Progression.
Maybe you have heard from your friends who are the real estate industry or from other friends who share this idea briefly with you.
Without knowingly, you are embarking on your asset progression journey where you begin on your wealth acquisition through property investment.
Below is a framework that I have created to help you understand better on what exactly is asset progression and how you can progress from one stage to the next.
Everyone will age and come to a point that you need to stop working or to retire.
The point is: “Are you able to retire comfortably?”
“Are you able to leave a legacy for your children?”
Understanding at which stage you are at in your asset progression journey allows you to make decisions that enable you to move you to the next stage.
Coming back to this question:
“Should I buy a HDB flat first or Condo?”
Whether or not is it feasible for you buy a HDB or Condo largely depends on two key factors:
- Your age
- Your financial capability
Honestly, age and financial capability play an important role to determine whether you can use property effectively for wealth acquisition and accumulation.
Fundamentally, your age is your biggest asset when comes to getting a loan. The younger you are, the longer period that your loan can stretch and this helps to lower the monthly mortgage payable on your property.
However, your age can be a hindrance to getting the kind of property that you hope to get. Being young, perhaps in your mid-twenties can mean that you are just starting out to work. Your earning power is pretty low, in the $4k-$5K range and with about $40k plus your CPF Ordinary account.
At this point, unless you are able to get some financial help on your first property purchase, your choice of first property is pretty limited.
Below is the list of property type that is available in Singapore that you can explore:
- Build to Order (BTO)
- Resale HDB
- New Condominium Launch
- Resale Condominium
- New Executive Condominium
- Resale Executive Condominium
Build to Order (BTO)
As a married couple in your early to mid-twenties: BTO is subsidized new flat from HDB. As a couple looking to get married in a few years’ time, this can be a good choice if you are in mid-twenties range. It takes about five years for BTO to complete so by the time you get the key, you will be around thirty years old. With Minimum Occupation Period (MOP) of five years, you are eligible to sell your BTO by around mid-thirties.
BTO is ideal for young couple who lack the financial means to fork out considerable downpayment. Especially now with the new cooling measures introduced on 30 September 2022, with an 80% loan-to-value on HDB loan and the remaining 20% covered by CPF and CPF housing grants (if eligible), it will affect the final loan amount granted. Entry price for BTO is much lower compared to resale market. BTOs in different locations command different prices.
For instance, purchase of HDB BTO is much more affordable in a non-matured estate like Woodlands. A 3-room BTO can be as low as $188,000. For 5-room in Choa Chu Kang, it cost around $390,000. In matured estate like Tampines, the cost will be slightly higher and will be around $381,000 for a 4-room BTO. The purchase price is before factoring in any CPF grants that you are eligible for. Which means, the actual cost of purchase of a BTO will essentially be lower.
What is good for BTO is that when you are eligible to sell, you tend to be able to make some decent profit after paying back any outstanding HDB loan and CPF usage. Also, by then, three things will have happened:
- Your income level increases
- Your CPF Ordinary Account has increased
- You have earned some profit from the sale of your HDB
With the ability to get higher loan and putting down larger downpayment, your choice of next property is more as compared to when you just started out.
As a single: You can only buy 2-room flexi BTO flat in non-matured estate with an income no more than $7,000. This is not a good idea to buy this type of flat from HDB because such flat can’t be sold in the open market and needs to be returned to HDB if you no longer need it. HDB will refund the value of the remaining lease of the flat.
At age 35 and above, your current financial capability should enable you to explore other property options like resale HDB and even private property.
Prime Location Public Housing (PLH)
A new type of BTO from HDB located at prime locations in Singapore.
Before you jump to buying a BTO under PLH, it is good to understand what Prime Location Public Housing is all about as it comes with its set of rules and restriction.
As a couple: As a married couple going for PLH, you have to weigh the pros and cons of buying one. All restrictions to current HDB BTOs apply with additional ones such as:
- There must be at least one Singapore Citizen
- Income ceiling no more than $14,000
- MOP has extended to 10 years
- No renting out of whole unit, except rooms after MOP
- Subsidy recovery upon resale
Effectively, from the point of purchase a PLH under construction to being eligible to sell it, it takes approximately 15 years. Imagine if you and your spouse is in mid-thirties buying PLH, by then when you sell this property, you will be in your fifties. While holding onto this PLH during those fifteen years, you have somehow lost some opportunity to accumulate more wealth through property investment.
Thinking through, is it really worth to buy such BTO located at prime location?
As a single: You are not allowed to buy PLH under single or joint single unless you apply together with your parents.
So, PLH is not an option for you.
HDB Resale
As a couple: Not all couples will prefer to marry young. Especially the newer generation who prefer more lifestyle living than having family commitment. They tend to marry later, perhaps when they are in the thirties. Marry later comes with some advantages:
- You are more financially stable
- Your income level is higher
- You have accumulated much more in your CPF Ordinary Account
At this point, it may not be a good idea for you to apply for BTO unless you have financial issue in buying a resale HDB. Reason is simple. You are going to waste more time in waiting to get the BTO (unless you go for balance flats) and going through the MOP. By the time you are able to sell your HDB, you will be in your forties and your loan tenure for your next property will be shortened as well. Estimated 20 years left to borrow for your next property. Shorter loan tenure will result in higher monthly mortgage.
Time is always an essence when come to asset progression.
Go for resale HDB. The only waiting time is getting your HDB MOP. After holding for five years, you have the option either to sell if it can make a nice profit to upgrade or to continue to hold this property while one of you move on to buy another property. Take note that there is ABSD for buying second property onwards.
As a Single: There is more options over here for you. You can purchase resale HDB up to 5-room flat if you want to apply for CPF grants. However, you are not eligible to buy 3-Gen flats. Income ceiling only applies if you want to get the CPF grants. It is definitely a good choice for you to go into resale HDB as you have more choices to choose from. Buying resale HDB can be a good stepping stone for you to move up after MOP.
New Condominium Launch
As a couple: If you and your partner are in the thirties, don’t prefer to buy a HDB and can afford to wait for a few years for the development to TOP, this can be a choice to go for. New launch can be a good option because:
- Payment is made progressively and hence monthly mortgage increases progressively too
- Holding period is 3 years from the date of exercising the Sale and Purchase Agreement
- Buying from developer allows you to reap some profit when you sell to the next buyer.
After 3 years of holding period, you are eligible to sell in the open resale market. One thing to note now is that if you decide to go back to resale HDB after selling your private property (if you are less than 55 years old), you need to wait for 15 months.
As a Single: The abovementioned applies to Singles too. Just that, you don’t have to wait till 35 years old to buy a private property. The legal age to buy one is 21 years old.
The initial downpayment for private property is much higher compared to buying an HDB. Like mentioned earlier, unless you have some financial help from your family for the initial downpayment, it is not easy to own one especially when you are still in your mid-twenties and just started working.
However, HDB can be your stepping stone to your next stage of asset progression when the profit earned from the sale of your HDB be used on purchasing a private property.
Resale Condominium
As a couple/single: Currently the prices for this category are definitely lower compared to new condo launch. There is still a price gap. When buying a HDB is not part of your consideration, buying resale condo can be an option for you if you need the property within the next couple of months. Factoring in about 2 months of renovation needed to do up the place, in around 5 months’ time, you are ready to move in or rent out this property.
Resale private property can be a good option if you have the financial ability to purchase one and prefer to go for lifestyle living. These days, because of the higher entry price point for private property, you will need to hold for a longer period of time, say around eight to ten years before you can really see some capital appreciation on your property. Take note that by the time your property can be sold for a decent profit, you may already be in your forties. Unless your property is not appreciating, you should think of selling this property and use the profit to upgrade to next property which can potentially generate higher return in future.
One of the main advantages of buying private property is that you can buy under a single name even when you are married. This will help you not to incur any Additional Buyer’s Stamp Duty when your partner will like to purchase another property under his/her name later on.
New Executive Condominium
As a couple: This type of property can be a good option for you if you like to stay in a property that comes with facilities yet at a much cheaper prices than private property. An essential guide to understanding executive condo will be good before you dive into this option. At a quick glance, household income cannot exceed $16,000 and there is a MOP of five years that you need to fulfill. There are still HDB rules that you need to follow if you buy directly from developer. After five years, you can only sell to locals and permanent residents. After ten years, the property will privatize and will be treated like private property where it can be sold to foreigners.
As a Single: You are only allowed to buy new executive condo with at least another single which is above 35 years old under the joint single scheme. All singles need to be Singapore Citizen.
Resale Executive Condominium
As a couple/Single: You are only allowed to buy resale executive condo after the property has reached its MOP provided you are Singapore Citizen or permanent residents.
Once the executive condo reaches its MOP, the subsequent buyers will not be affected by any HDB restrictions. You are allowed to buy one when:
- You are at least 21 years old
- Your current HDB has reached its MOP (if you are holding to one now)
Once the resale executive condo has reached its 10 years mark and on its 11th year, it will be privatized and be treated like any other private property.
Conclusion – Should You Still Buy HDB as Your First Property?
Is HDB a good investment?
I will say, yes, if you are in your mid-twenties and doesn’t have much financial capability. HDB, especially BTO is a good start for you guys. BTO is a good stepping stone in your Asset Progression journey. BTOs is bought at a subsidized price from HDB and normally, it allows you to earn some decent profit when you decide to sell it after MOP. The profit earned should be used to upgrade to a new property which can provide you with potentially higher return.
By the time you have reached another stage of your asset progression journey where you begin to accumulate wealth, high chance that you are still in your thirties where you can still maximize your loan tenure, hence bringing down your monthly mortgage.
As a single with limited financial means can go for resale HDB as your first property. You have more options to choose from and with a holding period of five years and selling thereafter. With higher ABSD for buying second property right now, it will be wiser to sell your first property if it is making some profit to move on to the next one. By then, you should have hit your forties, loan tenure will reduce as you age.
As I mention before, in asset progression, age and financial ability play an important role. Financial ability can be built over the years as you work. But if you start young in acquiring your first property, you have more time in accumulating your wealth through property investment.
If you think through, in a lifetime, your earning power begins to accelerate in your 30s, picking up the pace and reaching its peak in your 40s. When you reach your 50s, like it or not, your market value begins to go down and you don’t expect to earn as much as you hit your 60s.
One question to you: How do you see yourself as you hit 60s? Are you able to retire well and enjoy your golden years comfortably? Or, are you able to leave a legacy for your next generation?
So, starting young to begin wealth acquisition and accumulation through property investment is meant for one single purpose – Retirement.
Never look back your life with regrets.
