The latest HDB May 2023 BTO exercise closed on 8 June with application rates from first-timer families higher for bigger flat types across all estates. In particular, the 5-room flat types at the Serangoon North Vista project received an application rate of 13.8 times from first-timer families, while the application rate for 3-room flats was highest at 2.1 times for the Bedok South Blossoms project. In essence, most BTO applicants may stand a chance to book a flat in projects if application rates are lower than 1.7.
This tells us that despite the possibility of lower success rates at the ballots, most first-timer Singaporeans still favour applying for bigger flat types, especially the 5-rooms, which could cost as much as $150,000 or more than the 4-rooms.
For most of us, including myself, we have been advised by our loved ones to choose the bigger flat type—ideally the 5-room—as it would give us more space to accommodate an expanding family size in the future. While the advice is said with good intention and may sound logical, the fact is that more of us are staying in families of 4 or less.
Based on the numbers from SingStat over the last three years, from 2020 to 2022, the resident household numbers dropped for 5-person and 6-person or larger households by 9.8% and 30%, respectively. While, for the same period, resident household numbers for 3-person and 4-person households rose by 17% and 4%, respectively.
| Resident Households (Number) |
2022 | 2021 | 2020 |
| 1-Person Households | 217,300 | 217,400 | 220,300 |
| 2-Person Households | 331,300 | 331,200 | 309,800 |
| 3-Person Households | 329,300 | 297,500 | 280,500 |
| 4-Person Households | 287,100 | 279,100 | 275,600 |
| 5-Person Households | 147,500 | 160,900 | 163,500 |
| 6-Person Households Or Larger |
87,100 | 104,400 | 122,900 |
Source: SingStats
Given these circumstances, we explore whether it still makes sense for first-timer families to choose the biggest flat type (i.e., 5-room) that they can afford?
Go For The Flat Type That Suit Your Needs Best
Applying for a bigger flat as a first-timer would make sense if your needs require the larger space. For instance, you may have done some family planning and intend to have a few children, or you may plan to live with your parents/in-laws. In such circumstances, choosing a bigger flat type makes sense, as more space is required to accommodate the large family size.
However, if you are just starting your married life with your spouse, then you should consider these factors when deciding on the suitable flat type for your current phase in life.
Read Also: Complete Guide To HDB Flat Eligibility (HFE) Letter
#1 Bigger Flats Require Bigger Downpayment
For most young first-timers, buying an HDB flat would be our biggest financial asset, and we would probably need to take out a housing loan to finance it. Typically, we have a choice between taking a HDB concessionary loan at 2.6% or a bank loan at the market rate. Our choice affects not only the financing rate on our loan but also the downpayment required to qualify for the loan.
Since September 2022, eligible homebuyers can only receive up to 80% Loan-to-Value (LTV) of the purchase price for HDB housing loans, while we can only loan up to 75% with bank loans. While we can use a mix of CPF savings and cash for the downpayment, it suffices to say that the higher the purchase price, the more we need to fork out for the downpayment.
This might be challenging for young families as the couple may have just started working and may not have enough savings, especially as they may need to also set aside savings for other life goals such as a wedding and home renovation. This may lead to overstretching one’s finances or borrowing from family members.
Read Also: What Happens If You Cancel Your BTO Application At The Different Stages
#2 Lesser CPF Housing Grants For Bigger Flats
One way we can reduce our outlay of cash and/or CPF savings for our downpayment is by offsetting it with the CPF housing grants that first-timers are eligible to receive.
For instance, first-timers buying BTO flats or resale flats are eligible to receive an Enhanced CPF Housing Grant of up to $80,000, depending on the buyers’ income. Additionally, first-timer buyers of resale flats are eligible to receive another $80,000 under the CPF Housing Grants for Resale Flats (Families) for 2-to-4-room flats and $50,000 for 5-room or bigger flats.
As such, not only would we get $30,000 less in CPF housing grants when we buy a 5-room or bigger resale flat, but the total CPF housing grants received would also constitute a smaller percentage of the downpayment. Instead, if we purchase a smaller flat with a lower purchase price, we could cover a larger portion of our downpayment without having to fork out additional cash/CPF on our end. This may benefit young families by allowing them to keep more of their savings (i.e., the first $20,000 in their CPF Ordinary Account) or reduce more of their loan commitments.
Read Also: Guide To Housing Grants For First-timers
#3 Smaller Flats Have Lower Running Expenses
Instead of looking to stretch our loan to the maximum, we should aim to reduce our obligations so that we can pay less in financing costs. This extra savings may not only be helpful to pay for other life events like honeymoons or pregnancy costs but also give us more breathing room to build up our finances as a couple.
Other aspects that we can save on with a smaller flat are the renovation costs and household expenses like the service and conservancy charges (S&CC). For instance, most town councils charge 5-room flats around $79 in S&CC, while 3- and 4-room flats are charged around $47 and $63, respectively. Additionally, smaller households are given a bigger subsidy under the permanent GST Voucher Scheme, which can help young families cope with their daily living expenses.
Read Also: GST Voucher (GSTV) Scheme: How This Permanent Scheme Supports Singaporeans As GST Rates Increases
#4 Bigger Flats May Not Necessarily Yield Higher Profits
News of record million-dollar houses, especially for 5-room or larger HDB flats, circulated frequently over the past two years. This perpetuates the notion that larger flat sizes translate to higher profits when sold.
To a certain extent, this may hold true, at least in terms of the dollar amount. Naturally, a 10% increase in value on a $1,000,000 investment would yield $100,000, versus a similar increase for a smaller investment of $500,000, which would gain $50,000.
Nevertheless, bigger flats may not necessarily yield higher profits in percentage terms, as it depends on other factors such as location. For example, the difference in the median price of a resale 4- and 5-room HDB flat is highest in Bishan at $222,500 and lowest in Sengkang at $40,000. This highlights that a 5-room flat in Bishan is more valuable than a 4-room flat in the same estate, while a 5-room flat in Sengkang may not be any more desirable than a 4-room flat.
#5 Not Everyone Might Be Comfortable To Rent Out Spare Rooms
For some of us with more investment acumen, we may think about getting a bigger flat type to have the option to rent out the spare room(s) after the minimum occupation period (MOP) or in our senior years.
However, the truth is that some of us may just not be comfortable sharing our space with a third party. Depending on the tenant, we may have to adapt to their lifestyle or living habits, which becomes less appealing if we are not pressed for the extra income. Hence, while we may have had plans to rent out the rooms, we may end up leaving them empty and not utilising the additional space well.
Read Also: What Are HDB Jumbo Flats And How You Can Own One?
You Can Always Upgrade Later When You Need To
Having a buffer by choosing a smaller flat type with a lower purchase price as your first home could, in fact, put you financially in a strong position. There would be less pressure to cope with household expenses and loan commitments, especially if one party were to suddenly lose their jobs. You could tap your OA savings (i.e., the first $20,000) to finance the property until the other spouse finds another job.
With a smaller loan commitment, you would be able to save more in CPF savings or cash, which you could then deploy to other investments with higher expected returns or use in times of emergency.
Furthermore, you can always upgrade to a bigger flat if your family situation changes or if you’re financially more stable. This way, you are less likely to overstretch your finances or have buyer’s remorse about overcommitting your finances very early in your married life.
Read Also: Taking A HDB Housing Loan: Should You Keep More Than $20,000 Or Let Your CPF OA Be Wiped Out
The post Buying The Biggest HDB Flat As Your First Home: 5 Reasons Why It May Not Always Make Sense appeared first on DollarsAndSense.sg.
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