You will build a side-by-side comparison of two homes over a ten-year hold.
Farah and Hakim now had two homes in mind: a four-room BTO flat in a launch whose estimated completion was four years away, and the four-room resale flat in Bedok. They also had a stay length of ten years from lesson 1.4, Rent longer or buy now: compare them honestly. Talking about the two homes had gone in circles for a week. So they opened a spreadsheet, and this exercise follows what they built. Allow about 35 minutes, and have the figures from the activities in lessons 1.1 and 1.2 to hand.
Every number below is an example made up for this lesson. The loan limit of 70% of the price, the 3% interest rate and the five-year MOP are not current HDB, MAS or bank figures. Use your own figures, and where you don't have a quote yet, put in an estimate and mark the cell as an example so you know to replace it.
Make one column per home and one row for each of these: price, valuation, grants, stamp duty and fees, downpayment, loan, monthly instalment, years of waiting, and first year you could sell.
Here is what went into Farah and Hakim's two columns.
For the BTO flat, the price was S$450,000. They left grants at zero, because they didn't yet have an HDB Flat Eligibility letter, and lesson 2.4 would fill that cell. They put stamp duty and fees at S$12,000 as an example, to be replaced with the IRAS calculator result from module 3. At an example loan limit of 70%, the loan was S$315,000 and the downpayment S$135,000. Over 25 years at 3%, the instalment came to S$1,493.77 a month.
For the resale flat, the asking price was S$620,000 and their estimate of the valuation, from recent sales, was S$610,000. The loan is based on the lower of the two, so 70% of S$610,000 gave a loan of S$427,000. The downpayment was the rest of the valuation, S$183,000, plus S$10,000 of cash over valuation, making S$193,000. Stamp duty and fees were an example S$18,000. The instalment came to S$2,024.88 a month.
Use the PMT function for the instalment. In most spreadsheets, =PMT(3%/12, 300, -315000) returns the monthly payment on S$315,000 at 3% a year over 300 months.
Below the purchase rows, add ten rows, one per year. For each home, record what you pay that year in rent and instalments, and the loan balance at the end of the year.
For the BTO flat, years one to four are rent, at S$2,400 a month in this example, so S$28,800 a year and S$115,200 in total, and the instalments start in year five. To get the loan balance at the end of any year, use the FV function, or build a small month-by-month schedule. After six years of instalments, at the end of year ten, the BTO balance in this example is about S$259,361.
For the resale flat, they would pay six months of rent, S$14,400, while the purchase went through, and then instalments for nine and a half years, about S$230,837. The balance at the end of year ten is about S$300,898.
This is where the minimum occupation period goes. For the BTO flat, the MOP runs from key collection, so with keys at the end of year four and an example five-year MOP, the first year it can be sold is year nine. For the resale flat, the MOP runs from completion, so it can first be sold partway through year six.
Shade every year before those in a different colour. If anything in your life might force a move in those years, the shading shows you which home would trap you.
Add up the ten years for each home. Cash and CPF paid out, meaning downpayment, stamp duty and fees, rent and instalments, came to about S$369,751 for the BTO flat and S$456,237 for the resale flat.
That alone favours the BTO, but the resale flat also left them owning more of a home. If both homes were worth exactly their purchase price in year ten, the BTO would be worth S$450,000 against a loan of S$259,361, and the resale S$620,000 against S$300,898. Subtract what each would be worth from what each cost, and the net cost of ten years came to about S$179,112 for the BTO and S$137,135 for the resale.
Then they tested it. The resale flat would have only 52 years of lease left in year ten, and lesson 7.2, Lease decay: what a shrinking lease does, explains why that tends to pull value down. If it were worth 10% less by then, an assumption and not a forecast, its net cost would rise to about S$199,135 and the BTO would come out ahead. So the answer turned on one figure nobody can know, and the spreadsheet made that visible.
Put the value of each home in year ten in its own cell, start it at the purchase price, and try a few changes. You are not predicting prices here, only finding how large a change would have to be to flip your answer.
A finished sheet has both homes side by side, every purchase figure sourced or marked as an example, ten yearly rows with payments and balances, the years before each home can be sold shaded, and a value cell you can change. Underneath it, one or two sentences in plain words say which home you would choose today and what would change your mind.
Farah and Hakim wrote: "Resale in Bedok, because we can move in this year and be near Farah's parents. We would change our minds if the valuation came in well below the asking price." Yours will rest on different reasons. The activity below asks you to build it for the two homes you are actually weighing.
Build the comparison for two real homes, one BTO and one resale or private, and write which one you would choose today and why.
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