Build a side-by-side comparison of two homes held for ten years.
Put the figures from your activities in lessons 1.1 and 1.2 beside you before you start, and set aside about 35 minutes. You'll build a ten-year spreadsheet comparing the two homes you are actually considering. Then you'll write one or two sentences saying which one you'd choose. When two homes sit side by side on one sheet, you can see which figures the decision depends on. That is hard to see when you only talk the options over.
Farah and Hakim spent a week discussing two homes and got nowhere. One was a four-room BTO flat with estimated completion four years away. The other was a four-room resale flat in Bedok. They already had a stay length of ten years from lesson 1.4, "Rent longer or buy now: compare them honestly". So they opened a spreadsheet and worked through the steps below.
Give each home its own column. Down the side, add rows for price, valuation, grants, stamp duty and fees, downpayment, loan, monthly instalment, years of waiting, and the first year the home could be sold. Use your own figures. Where you have no quote yet, enter an estimate and mark the cell as an example so you know to replace it later.
Farah and Hakim's BTO was priced at S$450,000 (an example figure; every number here is invented for teaching, and the 70% loan limit, 3% interest rate and five-year MOP used below are not current HDB, MAS or bank figures). They left grants at S$0 because they had no HDB Flat Eligibility letter yet. You can do the same, and lesson 2.4 fills in the grants cell once you have the letter. They entered S$12,000 for stamp duty and fees, to be replaced later with the IRAS calculator result from Module 3. With a loan limit of 70% of the price, the loan was S$315,000 and the downpayment was S$135,000.
The monthly instalment comes from the spreadsheet PMT function. For the BTO they typed =PMT(3%/12, 300, -315000), which returns the monthly payment on S$315,000 at 3% a year over 300 months, a 25-year tenure. The result was S$1,493.77 a month.
The resale flat had an asking price of S$620,000. They estimated its valuation at S$610,000 from recent sales. For a resale flat, the loan is based on whichever is lower, the price or the valuation. Their loan was therefore 70% of S$610,000, which is S$427,000, and the rest of the valuation, S$183,000, was downpayment. On top of that comes the cash over valuation, which is the amount by which the price exceeds the valuation. You pay it in cash, and it adds to the downpayment. Here it was S$10,000, so the downpayment came to S$193,000. Stamp duty and fees were S$18,000, and the instalment was S$2,024.88 a month.
Below the purchase figures, add one row for each of the ten years. For each home, record what you pay that year in rent and instalments, and the loan balance at the end of the year. You can get the balance from the FV function, or from a small month-by-month schedule if you'd rather see each payment.
While they waited for the BTO, Farah and Hakim would pay rent of S$2,400 a month. That is S$28,800 a year and S$115,200 over years one to four. BTO instalments start in year five and run to the end of year ten, leaving a loan balance of about S$259,361. For the resale flat, they would rent for six months while the purchase went through, costing S$14,400. After that they would pay instalments for nine and a half years, about S$230,837 in total, and end with a balance of about S$300,898.
The minimum occupation period (MOP) is the period before a home can be sold. For a BTO flat it runs from key collection. For a resale flat it runs from completion of the purchase. Using the five-year example, mark the first year each home can be sold, then shade every earlier year in a different colour.
Farah and Hakim would collect their BTO keys at the end of year four, so the first year they could sell it is year nine. They could first sell the resale flat partway through year six. The shading shows which home would trap you if something in your life forced a move during those years.
Total the ten years for each home in two ways. The first total is cash and CPF paid out: downpayment plus stamp duty and fees plus rent plus instalments. The second is the net cost of ten years: cash and CPF paid out, minus what you own at the end. What you own is the home's value in year ten less the remaining loan.
For Farah and Hakim, cash and CPF paid out was about S$369,751 for the BTO and about S$456,237 for the resale. Suppose neither home changed in value. 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 a loan of S$300,898. That gives a net cost of about S$179,112 for the BTO and about S$137,135 for the resale. The BTO costs less in cash paid out. The resale has the lower net cost, because they would own more of that home at the end.
Put each home's year-ten value in its own cell, start it at the purchase price, and try a few changes. The value test does not predict prices. It shows you how big a change would have to be to flip the answer. The resale flat would have 52 years of lease left in year ten, and a resale flat with a short remaining lease tends to lose value. Lesson 7.2, "Lease decay: what a shrinking lease does", explains why. Farah and Hakim therefore tested a resale flat worth 10% less by year ten. This was an assumption, not a forecast. Its net cost rose to about S$199,135, and the BTO came out ahead.
Their answer depended on a figure nobody can know, which is the resale flat's future value, and the spreadsheet showed that plainly. Under the sheet they wrote that they choose the resale in Bedok because they can move in this year and be near Farah's parents. They would change their minds if the valuation came in well below the asking price.
A finished comparison has:
both homes side by side every purchase figure either sourced or marked as an example ten yearly rows with payments and balances the years before each home can be sold shaded a value cell you can change one or two plain sentences underneath giving today's choice and what would change it
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. Write down which one you would choose today and why.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).