young & savvy

Use your right to BTO flats well

These subsidised homes are a sure way for the young to get into real estate without paying a lot of cash

A close friend, who is an expatriate, once joked with me that he wanted to marry a Singaporean because he would then have a chance to buy a Housing Board flat.

"Where else in the world can you find an asset class that, for the past 20 years, has grown at a compounded annual growth rate of almost 10 per cent," he said cheekily.

His remarks were made in jest but they still left an impression on me: Too many of us seem to take the chance of buying subsidised housing for granted. Perhaps it does not seem like a big deal when more than 80 per cent of the population live in HDB flats.

Over the past few years, news of sell-out private property launches have hogged the headlines. A prolonged period of low interest rates seems to have made an investor out of anyone hoping to pay off his monthly mortgages with income from letting property. I have also subconsciously bought into that dream.

In the past few weeks, I visited some new show suites as research for my work. No matter how many I have been to, the shiny interiors, carefully curated furniture and designer kitchens - also known to me as the most important part of the house - have been very successful at fanning my desires for such a home.

When will I ever be able to own even a one-bedroom unit? I am surely not alone in feeling this way.

A young undergraduate recently asked me how she should diversify her portfolio to include real estate. It seems almost impossible for young graduates with regular jobs, she said. Property prices may have slipped, but they had still shot through the roof over the past five years.

For all my dreams of a kitchen outfitted with Miele appliances, I told her that as a Singaporean, she should buy a Build-To-Order (BTO) HDB flat first if she does not have much to start with.

From the many conversations I have had with seasoned investors, it is clear that the first roll of the property dice is the hardest.

But, unlike diving right into the private market, buying a BTO flat is a sure way to get into the game without stumping up a lot of cash.

Booking a BTO flat requires an option fee ranging from $250 to $2,000, depending on the unit type, according to the HDB website.

A subsequent down payment of 10 per cent of the flat's price is required, which can be paid in full from money in your Central Provident Fund, after which the option fee will even be refunded - meaning that booking a BTO flat can cost one almost no cash.

In contrast, buying a private condominium unit entails a cash booking fee of 5 per cent to 10 per cent. This means a young adult would have to cough up $50,000 to $100,000 at the outset for a home costing $1,000,000 - which would hardly buy anything comfortable enough for those setting up a family these days.

BTO flats are already heavily subsidised by the Government. Yet buyers are still entitled to more subsidies in the form of grants.

For instance, first-time buyers of units in non-mature estates like Sengkang can benefit from the Special CPF Housing Grant, which can go up to $20,000. An Additional CPF Housing Grant is also available for up to $35,000, depending on the household's average monthly income. These figures give young adults a buffer to get them off to a good start.

Although recent reports have noted the widening price gap between HDB flats and private condos, BTO flat buyers are in the money right from the start because the flats are priced at a discount.

It is arguable that HDB flats should be seen as a long-term home rather than an investment.

Still, many people interviewed in the Me & My Money columns in The Sunday Times have cited how their best investment bets were their HDB flats which, by their accounts, had trebled or even quadrupled in value by the time they sold them.

I know of many friends who come from well-to-do families and who can easily afford a luxurious private home, but who have chosen to take advantage of their right by joining the queue for a BTO flat.

Furthermore, a rule that kicked in on Aug 30, 2010, has made it so much harder for private property owners to get back into the public market as they have to sell their private homes within six months of buying an HDB flat.

Mr Donald Han, managing director of property consultancy Chestertons, estimated that BTO flats could gain 30 per cent in value by the time they are put up for resale, after the five-year minimum occupation period is up.

Prime Minister Lee Hsien Loong said in 2012 that our public housing model is just one of many types in the world. He said that, while others have focused on housing citizens by helping them to rent a home, he preferred to give young people a housing asset as an "endowment".

"This is for you for life and to help you have a stake in Singapore and to make sure that you start off with chips which can bring you to an equal starting point," he said.

So while my friend still has to stump up some cash to take a Singaporean out on a couple of dates first, those of us who have that birthright should not just give it up.

ocheryl@sph.com.sg