You’re eager to purchase your first house but realise that your income exceeds the HDB BTO income ceiling. What other choices do you have?
Should you try to find a condo unit at a more affordable price point instead of searching for HDB resale flats? Maybe instead of a condominium, should you go for an Executive Condominium (EC)?
Here’s a Classic ‘Sandwich Class’ Case Study
Let’s say we have a Mr and Mrs Tan in their early 30s who are about to get married. They’re both earning a comfortable sum of $7,500 a month, which puts their combined monthly household income at $15,000. Based on their income, the Tans may have set a budget of $700,000 for their future home.
This puts them in a difficult position because they are not quite wealthy enough to spend millions on a condo or landed property, but are not eligible to buy HDB flats directly from HDB (e.g. new flats from upcoming BTO and Sale of Balance Flats (SBF) exercises).
With HDB resale flat prices at a record high and interest rates for bank loans (i.e. the only loans private property buyers can use to find their homes) continuing to peak, the question remains: which property purchase now is more bang for your buck? If you’re in the same boat as the Tans, this guide will compare the pros and cons of each option to help you decide which type of housing to go for given your ‘sandwich class’ earning power.
What Is the Current BTO Income Ceiling?
|BTO HDB flat type||Income ceiling|
|4-room flat or bigger||$14,000; or $21,000 if purchasing with extended or multi-generation family|
|3-room flat||$7,000 or $14,000 depending on the project|
|2-room Flexi flat||$7,000 for 99-year leases; or $14,000 for short leases (15 to 45 years)|
BTO flats are considered subsidised housing, which is why an income ceiling exists. The BTO income ceiling sets a $14,000 limit on your total monthly household income, which includes all those whom you’ve listed in your flat application.
Most Singaporeans need not worry about exceeding the income ceiling: for young couples just starting their careers, chances are, their combined salary doesn’t exceed $14,000.
According to the Ministry of Manpower (MOM), the median gross monthly income of full-time employed residents was only $5,070 in 2022. For a couple like that, their combined income would not be more than $10,000, making them eligible for most BTO flat types.
But what if you’re like the Tans in the sandwiched class, earning an above-average wage but not that rich to buy a $2 million condo? Or maybe you have just given up on balloting for the upcoming BTO launches due to them being heavily subscribed. Let’s explore your options if you exceed the BTO income ceiling in 2023.
Buying an HDB Resale Flat
High-income earners who may not be eligible to buy a new BTO will be pleased to know that there’s no income ceiling for HDB resale flats.
Pros of Buying an HDB Resale Flat
- Can choose an HDB resale flat in your location of choice
- Some CPF Housing Grants are applicable
- Able to move in immediately to soon after buying
- More affordable than condominiums and ECs, can buy a larger space
With a $700,000 budget, the Tans have a variety of options for a ‘premium’ HDB resale flat in many popular locations and mature estates. Resale flat buyers also get to choose from larger types of flats such as executive maisonettes, executive apartments, jumbo flats, and Design, Build and Sell Scheme (DBSS) flats.
Your income partially determines your ability to get certain HDB Housing Grants. Still, it’s worth mentioning that the income threshold for most CPF housing grants is identical to that of BTO units.
In the case of the Tans, their combined income of $15,000 means they are only possibly eligible for the Proximity Housing Grant (PHG) and CPF Housing Grant for Resale Flats (Families) bonus of $50,000 for first-timers.
Note: On 14 February 2023, Deputy Prime Minister and Finance Minister Lawrence Wong announced in the Budget 2023 statement an increase in CPF Housing Grant for first-timer families with children and young married couples aged 40 years and below: eligible applicants could previously receive up to $160,000 in CPF Housing Grant; they can now receive up to $190,000.
Although the grants are significantly less than BTOs, it is still better than if the Tans were to choose private property – there is no such ‘discount’ for that.
Finally, the best part about getting a resale HDB flat is that you don’t have to wait years for your home to be built and can move in within months. This is an important factor to consider, especially with ongoing BTO construction delays and longer completion times.
Cons of Buying an HDB Resale Flat
- Not brand new
- Higher renovation costs
- Dwindling lease
- HDB resale flat prices are currently at a record high
Firstly, HDB resale flats are ‘preloved’ properties, meaning previous owners have lived in them. Some property seekers may mind and prefer a brand new home instead.
On one hand, an older property is more likely to show wear and tear, so renovating a resale HDB flat may incur higher costs than buying a new property. On the flip side, if you’re not fussy about the design, an HDB resale flat may well be move-in ready with all the furniture and fittings you need.
Of course, the dwindling lease is one of the most talked-about disadvantages of getting a resale flat. If you buy a relatively new resale flat – one that has recently fulfilled its Minimum Occupation Period (MOP) – then there is not much of an issue. However, if you’re eyeing older ones and intend to sell them in future, then the decaying lease may be a concern.
The good news is that in 2023, HDB resale flat price growth may be stabilising. Dr Tan Tee Khoon, Country Manager – Singapore, PropertyGuru, said: "HDB resale demand should gradually stabilise in 2023, as more BTO projects are completed, construction delays continue to alleviate, and more BTO flats are offered at the quarterly HDB launches. We should expect the momentum of the price appreciation to slow and the HDB resale market to stabilise, barring any economic shocks."
Buying an Executive Condominium (EC)
ECs are developed and sold by private developers but subsidised by HDB. Because they’re subsidised, they also come with a $16,000 income ceiling but remain a popular option for many for having all the typical condo facilities such as a pool and gym.
Note: For this analysis, we are considering new ECs (i.e. bought from the developer). Resale ECs are priced similarly to private condos, which we will discuss in the next section.
Pros of Buying a New EC
- Look and feel of private property
- More affordable than private condos
- Good value and potential appreciation
If you want to live in a private property, then ECs may be your best bet. ECs were specifically designed for the ‘sandwich class’ like Mr and Mrs Tan: middle-income Singaporeans who don’t qualify for an HDB BTO flat but find private condominiums out of their reach.
ECs are cheaper and would be within the Tans’ budget – compared to private condos, they are 10% to 15% cheaper. Since ECs are designed for own-stay purposes (as opposed to condos with shoebox units to cater to investors), ECs are usually bigger and start from three-bedroom units.
Many people also view ECs as a smart investment since they can sell for prices fairly comparable to private condos once they reach the five- and 10-year marks. This implies a sizable profit for individuals who first purchased the ECs at a subsidised price.
Although EC buyers may be able to apply for the Family Grant or Half-Housing Grant, there is an executive condo income ceiling of $10,000 – $16,000. So although Mr and Mrs Tan cannot apply, if you earn less, you may be eligible.
Cons of Buying a New EC
- Few launches
- Usually in less accessible locations
- Bound by HDB rules for 10 years
ECs are a great option for Mr and Mrs Tan, but that’s assuming they can find a suitable EC launch at the time of their application. Compared to private condo launches, EC launches happen less frequently.
While there can be over 20 new launch condos, there are usually less than five EC launches per year. Tenet in Tampines, which launched recently, sold 72% of its units on launch day on 14 November 2022.
They are also usually at far-flung locations such as Punggol, Woodlands, and Sembawang, with little access to public transport. So unless the Tans own a car, don’t mind walking further or taking a taxi every day, or work from home often, an EC may not be super viable.
As mentioned above, the five and 10-year marks are important to ECs. This is because ECs are considered HDB properties for the first 10 years. This means you have to follow the five-year MOP rule. In terms of eligibility, you must also fulfil other conditions such as the property ownership and resale levy rules.
Buying a Private Condominium
One of the 5Cs of Singaporean aspirations – Cash, Car, Credit card, Condominium and Country club membership – a private condominium is often seen as a mark of having ‘made it’. Naturally, condos are the most expensive option of the three.
The Tans, with a budget of $700,000, searching on PropertyGuru brings up mostly 1-bedroom units or studio apartments.
Pros of Buying a Private Condo
- Well-equipped with facilities
- No income ceiling
- No renting and/or selling restrictions
For young working professionals like the Tans in higher-paying jobs, staying in a private condo means they get all the benefits of living in a beautifully designed property, with facilities like a pool, gym and BBQ pits, and round-the-clock security.
In addition to having no income ceiling, private properties are not bound by HDB restrictions to do with renting and selling. This is why many people choose private condos as investment assets. The Tans won’t have to wait five years if they want to sell or rent out their condo.
Cons of Buying a Private Condo
- Smaller in size
Buying a private condo may seem like the best and most prestigious choice if you can afford it. However, with the Tans’ budget of $700,000, they probably can only afford very small one- to two-bedroom units in less accessible areas, like the Outside Central Region (OCR).
If you don’t consider the condo facilities and only compare the actual unit itself, this seems a lot less comfortable than a 4-room resale flat near an MRT station, which you can get at a similar price point. For $700,000, you can get a new-ish 3-room HDB flat on a high floor in a desirable, city fringe neighbourhood with money left over for renovation.
In terms of how long a new launch condo will take to build, we’re looking at a similar timeline to BTO flats. Construction delays brought on by pandemic-induced manpower and supply shortages mean you’ll have to wait. But if you’re looking at a resale condominium, you can move in more quickly.
HDB Resale Flat, EC, or Condo: Which Should You Choose?
If you value having a larger space and already have your gym membership, an HDB resale flat may be the most cost-effective option for you.
If you prefer to live in a property with condo facilities, new ECs are a good option as they are still a type of subsidised property and cheaper than most private condo units.
However, if your heart is set on buying a condo unit, you can probably still afford one, just that it’s likely to be very small and inconveniently located. This is not quite suitable for young couples planning a family.
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