Singapore has always been considered as a prime location to invest in for their vibrant property scene and a lot of people living in Singapore think of their home as a retirement plan. Often we come across smart investors making a killing in property investment in Singapore. Some might say it’s luck but for most, it’s really depends on a sharp eyes and profound knowledge. To start, it is logical that you should ponder about which kind of house is the real moneymaker. Not everybody can get a private condo, thus, should you be looking at a BTO (built-to-order) HDB, a resale HDB or an executive condo?
For the purpose of argument, let us assume that the following pertains to houses in the same area location. However, it is important to note that not all houses are equal; depending on the price, location, and the available surrounding supply, the rate of capital appreciation can differ significantly between projects.
BTO (built-to-order) HDB
Ever since the introduction of the Build-To-Order HBD flat purchase system in 2001, it has become synonymous with starting a family and marriage proposals in Singapore.
The main benefit of Build-To-Order flats is that they have the lowest initial cost. A lot of people tend to over estimate the cost of Build-To-Order flats, probably due to an old practice of HDB, which is no longer relevant, to peg the prices of new flats prices to the resale prices. In 2016 the starting prices for BTO flats in the more mature towns ranged from $ 135000 for a 2 room flexi-flat in Bedok to $ 497000 for a 4-room flat in the Kallang Residences.
With the old and new old flats being de-linked in 2011, the market prices of Build-To-Order flats are more affordable. In mid-2015, for example, 8 in ten BTO flats (4-room units) were sold for less than $350,000. In non-mature estates, like Punggol, 4-room BTO flats could be bought for $ 295,000.
The most well known examples of the appreciation of BTOs are in Sengkang and Punggol. Between 2003 and 2005, these estates were not mature. They had a less number of amenities than estates such as Queenstown, Kallang or Bedok that had already seen a buildup of eateries, malls, parks, etc over the years. So as to compensate for this, the market prices of BTO flats were low. It is also important to note that the prices of similarly constructed housing between the non-mature towns (Sengkang, Punggol etc.) and the mature towns (Bedok, Toa Payoh, etc) differ by as much as 80 percent because of land prices.
In Punggol between 2003 and 2005, the price range of Build-To-Order flats was between $ 138000 and $ 178000. InAs of 2015, their resale price range iwas between $ 373,000 and $ 575,000. This is a 223% increase in approximately 10 years!
During the same time period in Sengkang, the market prices of BTO flats ranged between $ 129,000 and $ 202,000. InAs of 2015, the resale prices were between $ 356,000 and $ 615,000. This is an appreciation of around 204%.
It is important to note that supply is also a major factor. It`s not likely that similar profit margins will be realised in Sengkang and Punggol ; this is due to the fact that more new Build-To-Order flats have been launched, and once these Build-To-Order flats go on the resale market (after the 5 year minimum occupancy period), the increase in supply will have a negative impact on the prices.
Ultimately, BTOs derive their high-profit margins due to the fact that you`re purchasing at a big discount. In addition to the standard housing subsidies, you`re being compensated for accepting to put up with the initial inconveniences – you`ve to wait for approximately 2 to 3 years for the BTO flat to be constructed, and you`ll probably have to live in an estate that is underdeveloped. However, the payoff will come later, after amenities are built in the estate.
When purchasing BTO flats you should put into consideration any upgrading plans you and your family might be having in future. For instance, a couple might think that a 3 room flat is adequate space for them in the next five years. The couple may rationalize that they can always decide to upgrade in the future if they require more space. This kind of planning is okay. Nevertheless, some couples might not realise that there`s a resale levy payable if they sell and purchase another new HDB flat. If they had realised this earlier, they most likely would have chosen a different housing option from the outset.
Resale HDB Flats
Many Singaporeans prefer to purchase resale HDB flats because they are in a hurry to settle into their new home as affordably and fast as possible. However, purchasing a resale flat will probably net them the lowest profit when they decide to sell it again.
For example the million dollar resale flats, like a maisonette in Bishan which was sold for $ 1.01 million in April 2015, or the 5 room Queenstown flat which was sold for $955,000 in 2016. The people who bought these units do not expect to make a lot of profits – given that they`ve already paid large amounts for their resale HBD units, it`s unlikely that the value of these units will increase beyond the amounts they’ve paid in even ten or fifteen years.
But let’s come down to the more typical resale HDB flats. Before 2014, buyers could see the premium they were paying on a flat before they purchased it. In 2011 the median Cash Over Valuation (COV) was $ 36,000, that had to be paid in cash in addition to the actual value of the flat. This caused many people to back away from the resale HDB market.
Under the new regulations, the COV is hidden –you negotiate the price of the flat and get the Option-to-Purchase first, a valuation is then conducted (and you discover if you paid less or more than is necessary). Additionally, information regarding Cash Over Valuation is no longer published by HDB.
However, this doesn`t mean the COV vanished. The seller of the resale flat is most likely going to want to be given premium. After all, if you purchased the resale flat as a Build-To-Order flat, wouldn’t you plan to sell it at a profit after 5 years?
Buyers are tolerating the higher prices because the flats are already constructed. There is no wait time, and it`s one way that they can use to immediately get a flat in an area that is already mature. Also, some buyers –like families that are only the Permanent Residents and those who are not citizens of Singapore – can only purchase resale HDB flats.
You should expect higher initial costs, of approximately $ 400000 to $ 500000 for a 4-room flat, and over $ 600,000 for a 5-room flat. The rental yields are approximately 7%. The potential profits of selling a resale flat depend on it`s sold sell it (right now you might not get a profit and you may end up with a loss), but will most likely never rival Build-To-Order flats due to their higher initial cost.
After the introduction of the new COV regulations in 2014, the COV prices decreased dramatically, in some cases reaching $ 0. This suggests Cash Over Valuation prices, once such a strong deterrence to the purchase of a resale HBD flat, may become a non-factor.
In 2016, Executive Condominiums were among the bestselling projects. The gap in the price of private condominiums and Executive Condominiums (ECs) narrows significantly after privatization. Generally, in 2016 the price of Executive Condominiums was around 25% to 30% below the private condominiums at the same location. Due to their affordable prices, Executive Condominiums are highly sought after in the current market.
After the five year and ten year mark, the price of an Executive Condominium tends to catch up with a private condo. The average price gap between Executive Condominiums and private condominiums begins at approximately 20 percent (or more). This means that a typically new Executive Condominium is sold at a 20 percent discount to a comparable new private condo. The big price difference at launch can be mainly be attributed to the difference in construction and land costs and the sale restrictions that are imposed on Executive Condominiums.
Unlike private condominiums, ECs still fall under the purview of the Singapore government and the developers have to be conservative in their pricing.
Upon fulfillment of minimum occupancy period and at privatization, the discount narrows to 9 percent and 5 percent respectively. And the prices of condominiums are, the ones which seem to appreciate the fastest.
In Sengkang, the favored example of the people who treat Build-To-Order flats as an investment. Yes, it is impressive that prices in this area increased by around 204%, but it took approximately ten years to do so. However, the price of condominiums in Sengkang, increased from $ 874 per sq.ft to $ 1,094 per sq.ft between 2011 and 2014. That’s an increase of more than 25%. If we compare resale HDB flats in the Sengkang area at the time, they rose in price from $418,000 to $420,000 – or less than 1% percent.
Or consider condominiums in the developed areas – within the same time period of 2011-2014, the prices of condominiums in Bedok, increased from approximately $900 per sq.ft to more than $1,072 per sq.ft, an increase of approximately 19%. By contrast, the flats in the area increased by around 16%, from $ 450,000 to approximately $530,000.
However, rental yields from condominiums are normallytend to be lower than flats at around 4%.
Although BTO flats may show remarkable returns over ten years, they`re still not quite on par with executive condominiums. This suggests that, if you`ve an eye towards capital gains, condominiums are still the best bet you can make. Executive Condominiums are poised to be a great long-term investment, given their lower prices (compared to private condominiums) and subsidies. Based on the historical data, first-hand owners of the currently privatised Executive Condominiums are sitting on substantial gains.
So if you want to make money, according to our estimations Executive Condominiums come first, followed by BTO HDB flats, and resale HBD units last.