HDB as a First-Time Homebuyer Option (Part I)

The Housing & Development Board (HDB) is a statutory board in Singapore that is responsible for public housing. Established on 1 February 1960, HDB was tasked to solve the housing crisis in Singapore.

There was a need to provide the people with decent homes that had proper sanitary living conditions; moving people from away from the unhygienic slums and crowded squatters and kampungs. At that point, only 9% of Singaporeans lived in government flats compared to about 80% today.

Two of the key polices are the Ethnic Integration Policy (EIP) and Singapore Permanent Resident (SPR) quota. The EIP was put in place to preserve Singapore’s multi-cultural identity and promote racial integration and harmony. The basis was to ensure that every HDB town would have a balanced mix of the various ethnic communities and the EIP limits are set at both the block and neighbourhood levels based on the ethnic make-up of Singapore.

The SPR quota on the other hand aims to help SPR families integrate into the local community. It must be noted that Malaysians are excluded from this quota which is set at 8% for block and 5% for neighbourhood. In addition, there are also eligibility constraints.

HDB flats has evolved over the years due to ability of HDB to innovate and reinvent the ideals of home ownership. This includes the introduction of 20-storey point blocks and integration of quality-of-life features in the 1970s, accelerating of development with the adoption of prefabrication technology in the 1980s, creative and distinctive identities that provided more variety in addition to safety features in the 1990s, novel HDB developments (BTO, DBSS, etc) in the 2000s and mixed-developments to account for social, communal, and environmental elements in providing modern and convenient living.

Changes over the years include but were not limited by design, layouts, sizes, amenities, community spaces as well as the new generation of neighbourhood centres introduced since 2019. Check out an architectural review on how HDB block designs have evolved over the years here.

Buying a HDB is nonetheless can be a huge dilemma, often constrained by affordability, possibly a decision based on convenience, but more often than not impacted by factors beyond one's control. Whether you are single, a married couple or simply wanting to stay together as a multi-generational family, there are various options available. The dilemma in question, that first step for most of us in owning a home, is a decision between purchasing a Build-to-Order (BTO) or a resale HDB fat. In making sense of the considerations of buying your first home, there is a need to consider the following which are mostly inter-related and therefore can only be ranked by each individual or potential homebuyers’ unique priorities:

1. Affordability

2. Urgency of moving in

3. Location

4. Distance to work

5. Distance to parents

6. Potential investment returns

Brand New HDB, Build-to-Order (BTO)

The BTO is a real estate development scheme enacted by HDB and first introduced in 2001. The BTO consists of a flat allocation system that offers flexibility in timing and location for potential home buyers to own public housing. In terms of BTO HDB flat options, it ranges from 2 room Flexi, 3-room, 4-room, 5-room, as well as 3Gen flats. The more common ones are the 4-room flats, which come with 3 bedrooms while the 5-room flats typically come with a more spacious living/dining area.

If one is keen on getting a brand new HDB, there is firstly the need to participate in the BTO exercise launched by HDB periodically throughout the year. You may subscribe to a HDB email alert service for the latest BTO exercise here.

All BTO submissions need to go through a balloting process and in many a sense, it almost feels like the odds are stacked against you. This is where first-timer families enjoy higher priority for BTO flats and may influence your decision depending on your needs. It is important to note that one key change that will take place from the second half of 2024 is the classifications that is used for HDB flats. Presently, most of us would be familiar with the terms “mature” and “non-mature” estates.

Moving forward, HDB projects will be classified as Standard, Prime or Plus flats, depending on their locational attributes. Another key change is that singles now have greater choice as they are no longer restricted to just non-mature estates but can select across all the new classifications.

As announced in August 2023, a new system will be introduced to classify BTO projects by their locational attributes. The three new classifications are as follows:

a. Standard Flats which will form the majority of the BTO housing supply will have standard subsidies and standard restrictions across all such flat types.

b. Plus Flats, which will be located in choicer locations within each region across Singapore with greater access to MRT stations and town centres etc. These flats will have more subsidies but tighter restrictions compared to Standard flats.

c. Prime Flats, are flats in the choicest locations, mainly core central region. They come with the most subsidies across the three categories but also have the tightest conditions attached. These are the equivalent of the current flats offered under the Prime Location Housing (PLH) model.

It is crucial to note another change in terms of the minimum occupation period (MOP) that is effective with the new changes in classification system. There are now tighter sale conditions attached, namely a 10 year MOP for both Plus and Prime flats.

Also crucial to note is the claw back of government subsidies upon sale. These terms will provide fairness across all homebuyers mitigates excessive windfall gains and ensure equity with other flat owners who do not enjoy these additional subsidies.

In addition, owners can only rent out rooms after MOP and are not allowed to rent out the whole unit. It is important to note that the new classification will not be retroactively applied to existing flat owners and the current resale markets.

But what exactly are the pros and cons of purchasing a BTO. The pros include the lowest entry price for a potential homeowner and the option of purchasing a heavily subsidised home with a fresh 99-year lease. As shared in the earlier section on how HDB flats have evolved over time, these new flats come modern amenities and community spaces that is inclusive of both the young and old. Most importantly for first-time buyers, BTO has the potential for the highest capital appreciation amongst HDB flats.

We however also need to consider the possible downsides. With the new rulings and classifications for BTOs in place, the timeline for selling and upgrading is a considerable duration. It will now take about 10 years (Standard), 15 years (Plus and PLH) before owners can sell & upgrade; this is inclusive of the 4 to 5 years for the BTO to be built in addition to the revised MOP (5 years for Standard and 10 years for Plus and PLH).

There are also the income ceiling and eligibility constraints to be considered as well as the limited supply and “luck” element due to the BTO ballot process. The availability of BTOs is also an issue in consideration to one’s ideal purchasing timeline and it is crucial to note that BTOs are typically much smaller in size compared to older resale flats in the open market.

Sale of Balance Flats (SBF)

Sale of Balance (SBF) flats are considered leftover flats that were not sold during previous BTO sales launches or flats that were repurchased flats by HDB. The flat types offered are typically 2-room Flexi, 3-, 4-, 5-room, Executive flats, and 3Gen, and these flats are usually already under construction, nearing completion or completed. SBFs can be purchased directly from HDB through the SBF exercise via a ballot process. The pros are similar to BTOs but a huge difference is being able to get the keys to a new flat with a much shorter waiting time. On the other hand, the cons include a higher purchase price compared to BTOs and these flats are usually not found in highly sought-after locations. These flats will also take a longer time to profit compared to earlier buyers because of the higher purchase price and locality of the flats.

Resale Flats

In terms of the resale market, the range of options include 2-room, 3-room, 4-room, 5-room, 3Gen as well as Executive flats. 3Gen flats typically have 2 bedrooms with attached bathrooms and support the needs of extended families.

Floor Plan of an Executive Maisonette

Executive flats on the other hand feature extra space that can be designed into a dream living space. These rare and highly desirable HDB flat types include Executive Maisonette (EM) and Executive Apartments (EA), where some of these include balcony space for added alfresco options. EMs have a double-storey layout that gives off the landed property vibe while EAs are single-storey units that range between 141 and 156 sqm.

Another more unique HDB built is the HDB terraces which are highly sought after landed HDBs built in the 1960s and 1970s. These HDB terraces can be found in Whampoa and Queenstown. These properties typically have two storeys, a front porch and a sloped roof and there are only 285 of such terraces in Singapore.

Flats purchased in the open market can be costly since prices are determined by market supply and demand. The pros include being able to move in almost immediately after purchase and taking over the keys. There is also the opportunity to see the actual unit firsthand and determine the facing, view, and vibe that one prefers. Newly MOP flats may also come nicely renovated and thus ready for one to move in without additional renovation costs or time needed for renovation. Units in the resale market also tend to be larger in size, especially like the larger EMs and EAs which are no longer built. Purchasing a unit from the resale market also allows one to be able to sell and upgrade after 5 years.

The cons of purchasing a resale flat for most people is down to the fact that it is less likely to be profitable and the shorter tenure since it will not be a fresh 99-year lease. The purchase and financing may also be subjected to loan restrictions & CPF usage due to the remaining tenure. While the newer MOP flats may come nicely renovated, the majority of the older flats on the resale market usually require more renovation due to dated designs.

In addition, while the government has dedicated much into HDB upgrading and estate renewal programmes like the Main Upgrading Programme (MUP), Life Upgrading Programme (LUP), Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP), Interim Upgrading Programme (IUP/IUP Plus) and the Selective En bloc Redevelopment Scheme (SERS), you are otherwise faced with dated designs and amenities in your neighbourhood and estate when you purchase an older flat from the resale market.

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My Journey to my First HDB Ownership

My spouse and I bought our first home, a resale HDB flat in 2007. At that time, we explored all the different options of resale HDB, BTO and even private new launches. It was a fun yet stressful process in looking for a place to setup our first home. On hindsight, it was the best choice we could have made considering our circumstance and eventually how we managed to make a decent profit and move into a new property, which I will talk about in another post. You may be wondering what our considerations were then and if there are similarities to your current situation. While there will never be two exactly similar cases in home buying, there are some key points to consider based on our experience.

Our first consideration was that we wanted to setup our own home as soon as we could and that meant that we had to factor in the urgency of time, hence the BTO option was clearly not the way to go. We did however attempt to purchase a BTO as well as looked at the SBF in considering our next property move, again something which I will share about in another post.

With the BTO option ruled out due to the need to setup a place of our own quickly, the next consideration was location. As a young couple, we wanted our own place yet we also wanted to live near to both our parents. The upside was that buying a place near our parents meant we could get a subsidy; however, the tiers of subsidy would also affect the option for our parents to sell their respective flats.

In addition to the distance from our parents, we also considered the distance to our respective workplaces. While public transport is increasingly convenient in Singapore especially over the past two decades, we really did not want to spend the bulk of our time commuting to and from work. This helped us narrow down the estates that we were looking at and helped shaped our final decision.

The next point that we considered was affordability since we were both just starting out in our careers and did not have much savings to dip into. This also limited our options in purchasing a private new launch which was attractively priced and has since gone up by more than 300%, as well as the size and location of the HDB flats we could consider. After viewing several HDB units, we were decided on one particular unit which was within our affordability range and located in a quieter part of the estate away from the main roads.

This turned out to be one of the best decisions, as over the years we realised that it was more convenient than we had initially thought and the development of amenities around us helped significantly as well. There was the lift upgrading which also boosted the price point of our unit, although we had to deal with the construction process and ultimately did not enjoy many years of the convenience of having the lift service every floor. Then there was the development of a park with playground and facilities just a stone throws away from our block, in addition to the larger community park which was less than 5 minutes walk away. We were also located just a single bus stop away from the sports stadium, the swimming pool, the MRT, the wet market and the shopping mall. Unknown to us at the time of our purchase was the potential investment returns that we would eventually make.

Our first property purchase taught us many lessons and provided us with a smooth transition to our next purchase. This is my journey which I would like to share more with you as you take the first step and embark on your first property purchase!