Kelvin Lim, senior marketing director at real estate agency ERA Realty Network, often advises potential homebuyers to apply for built-to-order (BTO) flats under the Housing and Development Board (HDB) if they are eligible - even if it means he loses out on sale commissions.

"It is still the go-to housing choice for young families or couples who have just started out in the workforce and do not possess much savings," Lim says.

In order to make these new HDB flats accessible to the majority of Singaporeans - about 4 in 5 citizens live in public housing - they are heavily subsidised.

And after a minimum occupancy period (MOP) of 5 years, homebuyers can sell these units on the resale market - often for a tidy profit.

BTO flats have therefore been described as a "birthright" of Singapore citizens; with older, well-meaning relatives often advising young couples to seize the government's "gift" with both hands.

"For BTO flats, first-time buyers would be looking at the Enhanced CPF Housing Grant (EHG) of up to S$80,000," said Wong Siew Ying, PropNex Realty's head of research and content.

But anecdotal evidence suggests that more Singaporeans are giving this gift up in favour of resale HDB flats. Buyers and agents polled by The Business Times cited the desire for larger units and the long wait times for BTOs as the primary reasons why they are willing to pay more for older flats.

Giving Up Gains

Among those who buy and later sell new HDB flats, Lim says gains of 20 per cent are "common". His own flat is a 5-room unit in Boon Keng under HDB's Design, Build and Sell Scheme (DBSS) that he purchased in 2008 at a little under S$610,000. When Lim refinanced his loan at the end of last year, the unit was valued at S$950,000.

The DBSS flats - public housing built by private developers - do not come under the BTO system, but buyers also qualify for housing grants.

Should Lim decide to sell, he might be able to fetch even more than the recent valuation. A 5-room unit at Lim's City View @ Boon Keng estate was sold last year on the resale market at a record S$1.27 million. Several other units at the DBSS development have also sold for around S$1.2 million.

While there are no guarantees, ERA head of research and consultancy Nicholas Mak said the chances of a BTO flat owner selling at a profit are "quite high".

As Mak explains it, subsidies for BTO flats effectively mean the government is selling the units at discounts of around 20 to 30 per cent - depending on the projects and the amount of grants the individuals are eligible for. And by the time the MOP is up, BTO homeowners should also benefit from appreciation in the value of their properties.

With a record number of BTO flats hitting their MOP this year, many owners are expecting a potential windfall.

Indicative pricing for the 464 4-room units at Toa Payoh Crest had ranged from S$428,000 to S$546,000 in 2017. Listings on PropertyGuru show about 15 such 93sqm units are currently up for sale, with asking prices ranging from S$860,000 to S$1.08 million.

According to HDB's resale transaction portal, there have not yet been any transactions in the past 12 months. But the Toa Payoh Crest estate is expected to be in high demand. It is one of the few BTO flats in mature estates, and is a stone's throw from The Peak @ Toa Payoh - a DBSS project that made headlines after units were sold well above the S$1 million mark.

Long Waits

In November 2020, electrical engineer Sai Prashanth had a chance to buy a 5-room flat at Bartley Beacon.

The BTO project in Bidadari estate has been one of the most sought-after BTO launches in recent years, due to its central location. But the 25-year-old decided not to go ahead with the selection exercise.

"Our ballot number was the second last, meaning we had a good chance of ending up with a unit that no one wanted, such as a low floor unit," Prashanth said. "The wait time was also too long for us. We wanted our own place as soon as possible."

Bartley Beacon is estimated to be ready in Q2 2025. Potential HDB buyers ballot for a queue number to buy flats that are available. When it comes to their number, or turn, they have the option of taking a flat or forgoing the opportunity to purchase.

Prashanth and his wife recently purchased a resale flat in Woodlands instead. The 5-room flat is close to their parents' homes and will be available almost immediately. It has also been renovated recently, and will therefore need next to no additional work.

"First time buyers may be eligible for housing grants of up to S$160,000 when they purchase a resale flat. This is attractive for many buyers as it could help to defray a sizeable portion of the resale price," said PropNex's Wong.

Industry experts said the lack of BTO units in certain locations as well as longer waiting times are driving many homebuyers to the resale market.

"We think the key driver of demand for HDB resale flats is still the fact that buyers can move in almost immediately after the purchase, as well as having the ability to choose a specific location and unit that they like," Wong said.

"The locations of BTO projects are usually pre-determined for each exercise and may not be in the locations sought by some Singaporeans. They may prefer a certain locale to be closer to their parents, their workplace, certain schools; or perhaps they are drawn to the character or charm of a certain estate," she added.

To alleviate this, HDB has more recently launched BTO projects in mature estates and prime locations.

"Even if the location is quite ulu (Malay for remote), somewhere that seems inaccessible now will one day become a popular new town… (and) a sought-after address," said ERA's Mak, citing examples such as Tampines and Punggol.

The problem of having to wait for a flat, however, is harder to solve. After all, it is central to the concept of a BTO.

The BTO system was piloted in 2001 to allow HDB to build based on real demand.

Before this, potential buyers saw shorter waiting times as they would apply to purchase flats that had already been built. But when the Asian Financial Crisis struck in 1997, demand fell sharply - leaving HDB with thousands of unsold units.

Under the BTO system, potential buyers apply to ballot for a chance to select a flat in proposed sites. Successful applicants then participate in a booking exercise, when they can select their preferred location and flat type.

After the booking exercise, HDB assesses the demand for each BTO project. Construction only begins when there is enough demand for units in the project.

The downside of the BTO system, however, is that flats are usually ready for occupation only after at least 3 years. And it could often take much longer.

Buyers at 3 BTO projects recently received notices from HDB to inform them of further delays to their homes - just months before they were due to be completed.

Completion of Tampines GreenCourt, Clementi NorthArc and Woodleigh Hillside had earlier already been delayed to Q3 this year, and will now be pushed back to up to Q1 2023.

At least 2 other BTO projects - Rivervale Shores and Eunos Court - also face further 3- to 6-month delays.

"Since the beginning of the pandemic, the supply-chain issues and manpower shortage faced by the construction industry have translated to a longer waiting time for BTO flats in some cases," said Pow Ying Khuan, head of research at property platform 99.co.

"Some buyers such as young couples with more immediate housing needs may prefer resale flats while others may purchase resale flats because they could not secure a BTO unit in their preferred location or BTO launches are not available there," he added.

PropNex's Wong said buyers thinking about upgrading to a private home later on may also not want to be "locked-in" to their BTO for 8 to 10 years, including the construction period and MOP.

Bigger Is Better

Another reason for choosing an older resale unit instead of a brand new BTO unit is size.

"Newer BTO flats tend to be smaller than older BTO flats in recent years," said Christine Sun, senior vice president of research and analytics at OrangeTee & Tie.

Drawing from government data on historical transactions, Sun noted that the average size of 5-room flats with leases commencing between 2010 and 2019 fell to 113 sqm, compared to an average of 124 sqm for those in the 90s.

"Sizes have similarly shrunk for 4-room flats over the same period," she said.

Some projects launched at the latest BTO exercise in February have even smaller units, Sun added. For example, 5-room flats at Plantation Creek and Parc Flora @ Tengah dropped further to 110 sqm; and 4-room flats in the Prime Location Public Housing (PLH) model flats at King George's Heights are around 86 sqm.

Demand for space is propping up pricing of these older flats, which are depreciating at a slower-than-expected rate despite the shorter remaining leasehold.

For example, an almost 30-year-old 187 sqm HDB flat in Yishun changed hands in March for over S$1 million. This translated to a price of around $5,551 psm, or S$516 psf, for the jumbo flat - the combination of a 3-room and 4-room flat.

This was significantly higher than the transacted prices of between S$371 and S$381 psf for 4-room flats in the vicinity over the past 12 months, according to HDB data.

However, ERA's Lim notes that this is likely to be an exception rather than the rule. On a per square metre basis, he said, prices of these larger units built before 2000 do not differ too much from that of newer units.

But because of the sheer size of some of these older flats, the quantum prices can be significantly higher.

Still-Strong Demand

Some home buyers, however, have little choice but to opt for a resale flat given the stiff competition for BTO units.

"The application rates of recent BTO projects are healthy and the number of applicants are well above the number of BTO flats launched," said Sun. "The trend indicates that BTO flats are still popular among buyers."

"When we analyse the data on a yearly basis, we do see a steady uptrend in the number of applicants and overall application rates," she adds.

One reason for the increase in number of applicants could be the raising of the income cap to qualify for BTO flats. The income cap has been raised 3 times in the past decade - in 2011, 2015 and 2019.

Data compiled by OrangTee & Tie shows an increase in overall application rates for BTO flats. In 2016, there were 44,094 applicants for the 12,823 3-room and bigger BTO units - which translates into an overall application rate of 3.4 times the number of units available. But overall application rates increased to over 6 times in 2020 and 2021.

"Looking at the overall application rates for past BTO exercises, new flats have been consistently oversubscribed," said PropNex's Wong, adding that she does not see any "waning popularity" of BTO flats among Singaporeans.

"Demand is especially robust for new flats in attractive locations in mature estates. HDB BTO flats are among the most affordable types of housing in Singapore and will continue to appeal to a broad segment of the population," she added.

"Public housing in Singapore has come a long way and we have seen how the authority has been improving the system with their best effort in promoting home ownership," said 99.co's Pow. "The BTO scheme continues to work well in housing the nation and allowing everyone a direct stake in the country's prosperity."

Credit: Business Times