This post is not about investments or options trading but to share my personal experience (and an expensive mistake made) when I bought my first flat more than 12 years ago.
Back then in 2011, property prices were sky-high and the average Cash-Over-Value (COV) was at least 30k to 40k. My wife and I were looking for our first home after our wedding that year and had to turn to the resale market as we did not want to wait 4 to 5 years for a new Build-To-Order (BTO) flat. Furthermore, we went through many rounds of balloting for a new BTO and were not lucky enough to secure a unit via the BTO scheme.
So, we bought a resale flat in a mature estate that was close to our parents. We made the first mistake of buying a relatively old flat (more than 30 years) and lived there for a further 12 years (till date). The flat depreciated in value over the years due to its (increasing) age and we could not have any positive sales balance if we were to sell now. However, buying an aging HDB resale flat was not our biggest mistake.
Housing Grants
Back then, we had 2 housing grants that we could take up, the “stay-near-parents” grant which was $10k, and the other “first-timer” grant which was $30k. As it was our first flat after working for a few years, we decided to take both grants (max subsidy) so that we can reduce our housing loan.
Our biggest mistake was to use the “first-timer” grant on our aging resale flat because it resulted in us losing our first-timer status as well as using up one out of 2 chances to own a subsidized flat.
Under HDB rules, every Singaporean household is given 2 chances to own a subsidized flat, and they can be new flats, such as BTO or Executive Condominium (EC), which gave better ROI (Returns On Investments) as compared to an aging resale flat.
In using our HDB first-timer grant, we only had one chance left to buy a subsidized new flat (BTO or EC). And because we were not first-timer, our balloting chances of success for a new BTO over the last 12 years were close to 0%. We tried to ballot for quite a number of BTO new launches but were always unsuccessful.
Not being able to get a new BTO also meant that we had to live in our current flat for a longer while and watch its value further depreciate by the years.
Opportunity Cost
Due to our decision 12 years ago, we lost one chance to own a brand new BTO flat, which would definitely give us a higher profit margin when we sell the flat after MOP. Instead, we are going to incur negative sales on our first subsidized flat.
If we had exercised more caution, done more research, or had a kind soul to advise us before we bought our resale flat and used our first-timer grant, we would have considered the following options:
- Buy BTO first, then sell after MOP, take the profit, and upgrade to EC, which would have another round of profits waiting for us after MOP
- Buy 2 BTOs
- Buy 2 ECs (if finances allow)
- Buy a resale flat but don’t use the first-timer grant and still be left with 2 opportunities to buy subsidized flats
The opportunity cost of missing out on the chance to buy a new flat can be referenced from the average profit made by a BTO seller or an EC seller.
In this article written by Dare to Finance in Feb 2022, which compared 12 BTO projects that MOP in 2020 and 2021, the average profit for a BTO sale was around $185k.
In another article that was published by Yahoo!life, the average profit for EC sold in May 2023 was $470k.
Concluding Thoughts
I hope this sharing helps first-time home buyers to make a more informed decision as a difference of 470k can make a huge impact on your finances and retirement planning. Imagine you could potentially make 2 x 470k profit by selling 2 ECs off. Losing one chance means you have 470k lesser for your next investment or on your retirement funds. So, don’t repeat my mistake of using the first-timer grant on a resale flat unless you are very sure that our first purchase will be your last purchase.
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