Is It Worth Buying A 3 Room Resale Flat?

14 Mar 2022

For young couples thinking about buying their first home, is a tough choices. The typical Singaporean norm of applying for a 3-room flat and temporarily living together with parents or in-laws may no longer work as well.

Sharing our childhood bedroom with our spouse for the short term may be feasible when both of us are going to office, but it becomes near impossible when both of us need to hold separate online meetings in the same space. The pandemic restrictions on activities and movement may have also exacerbated any relationship strain of living together in tight quarters. Unsurprisingly, this has materialised in a surge in housing demand as evidenced by the consecutive months of rising prices in the HDB resale market.

For new home buyers, this presents a tricky situation: is it worth buying the more affordable 3 room hdb resale flat for sale and renting while waiting or should we bite the bullet and pay for the higher prices for a resale 3-room flat that we can move into within the next few months?

How Much Does It Cost To Rent And Wait For BTO Flat?

For this comparison, we will be looking at Hougang which has 2 launches with different estimated completions within the same estate and comparing them to the resale prices in Hougang. While Hougang is classified as a non-mature estate, it is a fairly well established estate with plenty of 3 room hdb resale flat for sale including some of the flat types that are no longer constructed by HDB such as the Executive Maisonettes.

For all cases, we will be looking at the most common flat type: the 3-room resale flat. For comparison simplicity, we have excluded the other costs of purchasing a property such as mortgage and mortgage interest, stamp duty, lawyer fees, renovation or other expenses. If included, these costs would likely widen the differences between the two options as resale flats tend to be more expensive and require more extensive renovations. Resale flat prices used are based on 2Q2021 median resale prices for registered resale applications from HDB’s resale statistics. Rent data is taken from HDB’s rental statistics.

As first-time HDB buyers for both BTO and resale flats are eligible for the Enhanced CPF Housing Grant (EHG), we would not be including the EHG in this comparison. However, first-time resale flat buyers are eligible for an additional Family Grant. For 3-room resale flat, the Family Grant amount is $50,000 if both spouses are Singapore Citizens.

We are also assuming that families and couples opting to buy resale will not occur any rental costs in the interim. Depending on the sellers, a resale transaction can take a few months to complete.

Is It Worth Renting And Waiting For A BTO Flat?

Based on the Hougang BTO prices in the August 2021 launch, we can see that the cost of a BTO flat can be higher than a 3-room flat, due to location. Kovan Wellspring is located right next to Kovan MRT which is why it is priced at a premium compared to Hougang Citrine. As the median resale price in Hougang would also include old flats with shorter remaining leases as well flats that are less desirably located, it is not surprising that buying a BTO flat at Kovan Wellspring will be more expensive.

This price difference is greater when we factor in the cost of renting. The longer wait time for Kovan Wellspring adds another 18 months of rent or $36,000 to the total cost. For a couple who chooses to rent while waiting for their Kovan Wellspring BTO flat, this will work out to a total of $576,000 in cost.

A quick search on PropertyGuru showed one matching result for a resale flat in the same vicinity as Kovan Wellspring, within 3 mins walk from Kovan MRT. The TOP of the unit was in 1983 and has a remaining lease of 61 years.

In the case of Kovan Wellspring which is located in a very desirable location, it may be well worth the expense to rent and wait. Even before collecting the keys, the 3-room resale flats in this launch is already sitting at huge price discount (28%) from existing resale flats in the area. Even after you factor in the cost of renting, the price discount is still 10%, even before accounting for the differences in lease and the future capital appreciation.

It Really Depends On The Location And Your Own Housing Needs

The above analysis is only meant as a guide and would differ depending on our individual circumstances. Do speak to a trusted agent or home loan broker before committing to a home purchase and loan.

In general, if you managed to score a successful ballot in a centrally located unit, even in a non-mature estate, you are likely to be better off renting and waiting for your BTO flat. However, the longer you need to rent for, the more you have to pay, which may tip the scales differently. If you are like our co-founder Dinesh, whose BTO flat has been delayed for many months but is also seeing an appreciation in the value of the surrounding flats, it would also still be worth your while to rent and wait it out instead of giving up your flat.

However, if your BTO flat doesn’t command that location premium, it may be worth considering just biting the bullet and getting the cheapest 3 room resale flat now. The additional Family Grant does soften the financial blow of buying a resale flat significantly especially in non-mature estates. It may be well worth buying the cheapest 3 room resale flat today to save yourself and your family the intangible costs of not having a permanent solution to meet your housing needs.

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