Best Investment Opportunity — BTO, EC or Resale HDB

Many Singaporeans aspire to invest on properties, but because most can’t afford to buy a private condo, the only property investment options left locally are Build-to-Order (BTO) Flats, Executive Condominiums (EC) and resale HDB flats.

In this guide, we’ll discuss which has the best potential to earn you the most money. But because the golden rule of property investing is to acquire real estate in the most desirable locations, we’ll assume that all three kinds of houses are located in the same area for comparison’s sake.

Basically, these are brand-new government-subsidized dwellings sold directly by the Housing and Development Board (HDB). As its name implies, BTO flats are off-plan residential units that are sold to Singapore citizen households. Because these are off-plan, these homes are put up for sale prior to their completion. This means buyers need to wait two to four years before they can move in.

Important: Previously, the waiting time for BTO flats range from three to four years. But since March 2018, Minister for National Development Lawrence Wong announced that construction work for some units will start in advance before applications open, reducing the waiting time for some flats to between two and three years.

Despite the long waiting time, the primary investment perk of BTO flats is their affordability. In fact, they are generally cheaper than executive condominiums (ECs) and resale HDB flats.

Moreover, former National Development Minister Khaw Boon Wan said the government has “de-linked” the prices of BTO units from the market price of resale HDB flats since 2011, so even if the price of resale flats rise significantly, it’s unlikely to push up the cost of BTO flats as well.

For instance, prices of three-room to five-room flats in Punggol during HDB’s August 2018 Sales Launch ranged from S$113,000 to S$388,000 (including grants) or S$188,000 to S$393,000 (excluding grants). At the May 2018 Sales Launch, prices of similar BTO flats at Sengkang ranged from S$112,000 to $357,000 (including grants) or S$187,000 to S$362,000 (excluding grants).

In comparison, the median resale prices of such flats in Punggol as of Q2 2018 ranged from S$349,000 to S$441,500, while that in Sengkang are between S$320,000 and S$437,400.

Besides the lower costs, BTO flats also have good upside potential.

For example, prices of BTO flats in Punggol only ranged from S$138,000 to S$178,000 in 2003 to 2005, while that in Sengkang were put up for sale for $129,000 to $202,000. One main reason for the lower selling prices of BTO flats is that Punggol and Sengkang back then were considered as non-mature districts as compared to the mature areas of Queenstown and Bedok, which have seen the emergence of more amenities like shopping centres and eateries.

But by 2015, resale HDB flats in Punggol were snapped up for between S$373,000 and $575,000, while that in Sengkang went for S$356,000 to S$615,000. That means if you bought a BTO flat in Punggol and Sengkang in 2005, then sold it by 2015, you would have enjoyed a capital appreciation of over two-fold during the ten-year period.

Important: When the buyers of a BTO flat fulfill the minimum occupation period (MOP) of five years, these can be resold. By then, it is considered as a HDB resale flat.

However, experts think that BTO flats in Punggol and Sengkang are unlikely to post such substantial capital appreciation in the future as more BTO projects have been launched for sale in both areas. Given that there will be more units available once the buyers of the BTO flats satisfy the five-year MOP, the higher stock is expected to drag down HDB resale prices there.

Notably, buyers of BTO flats have the potential to record significant windfall as they’re purchasing at a significant discount. Aside from getting housing grants from the government, buyers are indemnified for contending with initial inconveniences. For example, you need to wait several years before getting to move in to your new home and there’s a chance the residential project is located in a non mature estate. Nonetheless, you can reap a hefty profit margin once the area becomes more developed.

According to Squarefoot’s analysis of URA data, the price gap between a private condo and a nearby executive condominium (EC) narrows significantly after the latter meets its five-year MOP.

For instance, units at the Eastpoint Green private condo commanded a premium of over 20 percent versus the nearby Simei Green EC in 1999 (their TOP date). But by 2004 and 2018, the price gap fell to below 20 percent and zero percent respectively.

As similar trend occurred at Bishan Loft EC and the nearby Rafflesia private condo, which were both completed in 2003. By 2008, units at the latter were more expensive by about 18 percent, but in 2018, the private condo’s price advantage vanished.

This means prices of ECs start appreciating significantly after the five-year MOP to the point that it becomes roughly comparable to the price of a nearby private condominium. Apart from being sought-after, condominiums post the fastest increase in property prices in Singapore.

Compared to BTOs in Sengkang, which saw capital values increase by slightly over two-fold from 2005 to 2015, condo prices in the area increased at a faster pace over a shorter period. In fact, between 2011 and 2014, condo prices rose by around 25.17 percent from $874 psf to $1,094 psf. On the other hand, HDB resale prices only edged up by 0.48 percent from S$418,000 to S$420,000 over the same period.

If we look at mature estates, condo price growth from 2011 to 2014 also outpaced that of HDB flats. For instance, values of condos in Bedok rose by 19.11 percent from about S$900 psf to over S$1,072 psf versus an increase of 17.8 percent for HDB flats from S$450,000 to approximately S$530,000.

While buyers of an EC also have to meet the five-year MOP, there is strong demand for such properties. For instance, this year the only EC launch Rivercove Residences sold nearly 80 percent of its 628 units in April 2018.

Even though some BTO units recorded stellar capital appreciation like those in Punggol and Sengkang, ECs still outperform it, so if you’re investing to re-sell later, consider executive condos as your pot of gold. Your only main obstacle is surmounting the five-year MOP.

While there was a maisonette in Bishan and an HDB flat at Queenstown that fetch over S$1 million, resale HDB flat are usually not investment material. This is because if you bought one, you will likely get lacklustre earnings if you resell it, and people typically buy such properties not for investment reasons.

As for the maisonettes and HDB flat purchased at such dizzying prices, their values are not anticipated to increase further due to dwindling leases, and the buyers probably did not acquire such units for investment.

Moreover, prior to 2014, you can determine the premium you will be paying for a resale HDB flat before the government did away with the practice of paying Cash-Over-Valuation (COV) for such properties.

Under the new rules, the seller or buyer is not allowed to get a valuation of the unit from Housing Board before the selling price has been agreed and the Option to Purchase (OTP) has been granted. So basically, you will only know if you undervalued or overvalued your HDB flat after settling on the price. Aside from that, the Housing Board is no longer publishing COV data.

But this doesn’t necessarily mean that COV has disappeared, as no seller will want to dispose of his HDB flat at a lower price compared to similar units in the vicinity. After all, who wants to sell at a loss after holding the property for a very long time?

There are also many buyers who are willing to pay a higher price as the flat has already been completed and there’s no waiting time involved unlike for BTO flats. It’s also one way to purchase a home in a well-established area. In addition, some households, like those comprising of Permanent Residents are only permitted to purchase second-hand HDB flats.

But currently, there’s a good chance to get a resale HDB flat with zero or negative COV due to the downtrend in HDB resale prices that has made the market more favourable to purchasers.

In fact, flash estimates from the Housing Board revealed that resale HDB prices dipped by 0.2 percent year-on-year in Q3 2018. While there was an uptick of 0.1 percent in the second quarter, values were on the downtrend in the last two quarters of 2017.

Another downside is that resale HDB units compared to BTO flats are more expensive, so the latter will typically be a better investment. But if you’re still undeterred and want to purchase an HDB resale flat, please check our listings.

To sum it all up, if you’re purchasing a property for investment purposes but can’t afford a private condo, focus on an executive condo first, and then a BTO flat. Resale HDB flats should only be considered for having a place to stay and other non-investment purposes.

If you found this guide helpful, don’t hesitate to check our other guides. You may also browse our resale HDB flats and private condos for sale.