Tips to Making The Most Out of Your Money on Your BTO Purchase


Tips to Making The Most Out of Your Money on Your BTO Purchase




Tips to Making The Most Out of Your Money on Your BTO Purchase


In Singapore, buying your first Build-To-Order (BTO) flat may be one of the biggest and most important financial decisions that you and your spouse make in your lives. Despite having to adhere to multiple instructions before getting your first HDB BTO, the wait is definitely worth it. And as with most things in life, it is only natural to want the best for ourselves. Most people would ideally want the biggest flat, on the highest floor, the most central location, and preferably, near an MRT station.

Spurred by reports from property websites on how a few HDB flats are being sold for more than a million dollars on the resale market, some homebuyers may adopt a flawed opinion that it may be okay to overspend for their first BTO flat launch because they would always be able to sell it at a higher price in the future. This is definitely not true as we can see many new launches in the market recently but the overall margin made from reselling the property is not as high as expected after deducting relevant expenses and costs related to the acquisition of the property. We should be cautious of seeing HDB flats merely as an investment, and mindful of the risks in over-borrowing and overspending. A HDB flat is first and foremost a home. Most investors make the mistake of being greedy by overspending and speculating about the property market when they are making their first acquisition for the HDB BTO.

      1. A BTO flat is not your only financial goal


Lost in the excitement of making their first acquisition, some young couples forget that there are other financial goals that they also need to work towards. Purchasing a BTO flat that is within your means gives you the financial flexibility to pursue other important financial goals. Most would argue that getting the right property in terms of pricing could offer a huge amount of flexibility for one’s future financial goals. For example, being able to afford to spend top dollars for a HDB BTO new launch does not mean one should do so.

      2. The extra money can help you plan for retirement


For example, if you purchase a less expensive home that requires a $200,000 mortgage, rather than a $300,000 mortgage, you will save an extra $534 each month in mortgage repayment.
If you invest this $534 over the next 20 years at a return of 5 percent per annum, you would have about $210,000 by the end of the 20-year period. That amount could allow you to enjoy a more comfortable and even early retirement if you or your spouse choose to do so. There are arguments on how to manage the flexibility of the purchase of your first HDB BTO such as option for a higher loan to free up cash flow for reinvestments.

      3. The extra money can help with other important short-term financial goals


Younger Singaporeans in particular may find themselves having to “balance their budgets”. These include an emergency fund of at least 6 to 9 months of their monthly income, sufficient insurance coverage and excess cashflow in preparation for their children in the future. It could even include personal aspirations such as furthering your education or starting a business in the future. In some cultures, it would be advisable to have an emergency funds of at least 1 year of your current HDB’s installments before actually committing to the purchase. Basically, purchasing a property should not be causing you to sacrifice too much on life until you could not fulfill your short-term goals.

      4. Taking your time to get your dream home


You may have plans for kids in the future, but this does not mean you need to get a 5-room flat today, in an area within 1-km of a primary school. This is especially if your budget is tight.
Moving to a bigger HDB flat in the future, when you have a bigger family and budget, can also be a goal by itself. You don’t have to squeeze all your future housing needs into your first flat. Being realistic to your budget and repayment capabilities should matter more than blindly purchasing something for the future which may cause unnecessary short term problems financially to yourself.

      5. How much can you afford?


This is a common question that people ask. How much is too much for your first HDB BTO flat?

Firstly, your monthly repayment should not exceed one quarter of your combined gross monthly salary. For example, if you and your spouse are earning a combined $5,000 each month, then you should ensure that your monthly repayment is below $1,250.

BTO flats might be built in standardized sizes but that does not mean prices are similar across the board. In fact, the variation in prices within a similar type of unit (e.g. 4-room flat) can sometimes be quite different across estates. The most important factor is to choose a HDB BTO that is within your expected budget and compromise on several factors which are not very important. Sometimes, settling for a cheaper unit does not mean that the HDB is not good enough for your stay.

      6. Different estate, different price 


As mentioned above, different location for the property would result in different pricing for the said HDB. For example, during the May 2016 HDB BTO launch, a 4-room flat at Ang Mo Kio was selling at an average of $440,000. The same 4-room flat further up north in Sembawang would cost an average of $260,000. The difference between the prices of both properties are rather significant despite being rather similar to each other. A potential buyer could use the difference between the two properties to invest in some options that could yield better returns compared to purchasing the premium HDB instead.

You have a choice of whether you want to spend more for a home in a centralized location, or save up by opting for flats in non-mature estates. Depending on what you are comfortable spending and tolerate, options for your first HDB could be quite a headache.

      7. Opt for a 4-Room (or smaller) flat in a non-mature estate


Last but certainly not least, first-time buyers whose combined monthly household income is less than $8,500 will be eligible for the Special CPF Housing Grant (SHG) of up to $40,000, if they buy a 4-room or smaller flat in a non-mature estate. This would significantly help offset the cost of purchasing their first BTO flat.

Having the extra flexibility in terms of cash flow could actually help younger potential homeowners to afford their own HDB. The grant of up to $40,000 could help the younger homeowners to reduce the financial strain on their life.

In a nutshell, the best way to think about the purchase of your first BTO flat is to consider it as your home, rather than an investment asset. You should place a special emphasis to find a home you can comfortably afford, instead of squeezing yourselves dry to pay for a flat in the hopes that you can always sell it for a profit in the future. In the end, you might end up paying more for a property you do not feel happy with and be saddled with debt instead of being happy with your acquisition.

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iffah hussin
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07 November, 2017 ×

Good info thank sharing

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07 November, 2017 ×

Whoaaa very useful and good information kak efa :D

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Amanda Suria
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07 November, 2017 ×

Nice sharing Efa...info macam ni bagus untuk dikongsi..

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07 November, 2017 ×

Great sharing..will kept in mind about this..tq

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