BTO-to-resale price gap: Are they always the same? A look at 19 years of data

PHOTO: Stackedhomes

Resale flat prices are at their highest in around eight years, and it’s painful for first-time flat buyers. In this Covid-19 environment, with high risks of construction delays, picking between BTO and resale is the proverbial “rock and a hard place” scenario.

However, have we developed a skewed perspective of how big the price difference really is? Here’s a look at how the price gap between BTO and resale HDB flats has changed over the years:

How did we derive the data for the following?

The following is based on transaction data from HDB. From here, we derived the average resale flat price for the given year and flat type. We then compared it to the average BTO price for the estate and flat type, in the given year.

As some of the information – such as BTO prices for some areas and years – are patchy, there is invariably some room for error. More recent data will be more accurate, as HDB does show the likely sale price during a launch exercise (but the information for past exercises wasn’t always still around). 

For BTO data, the average price is determined by averaging the minimum and maximum selling price without grants for that flat type and estate.

In addition, note that the remaining lease is a major factor in the price gap (more on this below).

The general price gap between BTO and resale

In determining the price gap, there were many variables based on location, flat size, etc., many of which we address below. However, to give you a sense of the general price gap, we can look at the average prices of BTO vs. resale 4-room flats, on an island-wide basis.

(We use 4-room flats because these are the most common flat sizes)

The BTO-Resale gap is across all estates for 4-room flats
PHOTO: Stackedhomes

In a general sense, you can see there has been a sharp recent uptick from 2020. The price gap has risen by around 6.3 percentage points, in the span of just a year.

While that’s concerning, however, it’s important to realise that – in a wider context – the situation is nowhere close to how bad it was in the early 2000’s, or just prior to 2013 (which was the last property peak).

We may well be getting to that point again, but for now, we’re still some distance from it.

Specifics based on HDB town

Not every HDB town follows the same, island-wide patterns. Here’s the price gap for different flat types and towns, where the data was available:

3-Room BTO-Resale Gap:

Year Ang Mo Kio Bedok Bishan Bukit Batok Bukit Merah Bukit Panjang Choa Chu Kang Clementi Geylang Hougang Jurong East Jurong West Kallang/Whampoa Pasir Ris Punggol Queenstown Sembawang Sengkang Tampines Toa Payoh Woodlands Yishun
2007         -2.5 per cent 4.6 per cent 28.3 per cent
2008           26.8 per cent 43.3 per cent 27.6 per cent 31.6 per cent 49.0 per cent
2009           60.1 per cent 45.5 per cent 39.4 per cent -13.7 per cent 30.8 per cent
2010           61.8 per cent 68.6 per cent 66.7 per cent 39.2 per cent 60.4 per cent 59.8 per cent
2011 36.0 per cent         88.4 per cent 91.0 per cent 70.6 per cent 65.1 per cent 58.2 per cent 27.9 per cent 60.0 per cent 48.6 per cent 70.5 per cent
2012 20.2 per cent 21.9 per cent   43.6 per cent 19.2 per cent 112.4 per cent 104.6 per cent 8.6 per cent 6.5 per cent 16.1 per cent       13.4 per cent   96.3 per cent 81.2 per cent 12.5 per cent   78.1 per cent
2013       59.6 per cent 24.7 per cent   115.8 per cent     82.2 per cent   83.9 per cent       132.0 per cent 75.7 per cent   106.2 per cent 75.1 per cent
2014       66.2 per cent           72.5 per cent   65.5 per cent 1.7 per cent         102.7 per cent 74.6 per cent 9.3 per cent 75.0 per cent 89.0 per cent
2015       58.3 per cent         2.1 per cent 70.7 per cent         84.6 per cent     97.3 per cent 61.6 per cent -6.8 per cent    
2016 -25.9 per cent 5.2 per cent   55.4 per cent   60.7 per cent       60.9 per cent     -3.5 per cent   96.3 per cent     92.4 per cent 43.8 per cent -10.4 per cent   68.1 per cent
2017       31.7 per cent     41.7 per cent 8.8 per cent -23.2 per cent         92.7 per cent     86.2 per cent 42.1 per cent -8.5 per cent 62.5 per cent 68.3 per cent
2018             40.9 per cent   -9.1 per cent     18.4 per cent     61.6 per cent   56.2 per cent 54.5 per cent 41.3 per cent 7.2 per cent 72.4 per cent 38.8 per cent
2019                       17.8 per cent -18.1 per cent   50.1 per cent   50.3 per cent 58.3 per cent     43.2 per cent  
2020     -17.7 per cent       62.4 per cent   -25.6 per cent         25.9 per cent     86.4 per cent   23.6 per cent -29.6 per cent 29.2 per cent  
2021       56.0 per cent -14.5 per cent       -13.2 per cent 24.5 per cent 26.5 per cent   -6.5 per cent     -3.2 per cent     36.3 per cent -9.3 per cent 50.4 per cent  

4-Room BTO-Resale Gap:

Year Ang Mo Kio Bedok Bishan Bukit Batok Bukit Merah Bukit Panjang Choa Chu Kang Clementi Geylang Hougang Jurong East Jurong West Kallang/Whampoa Pasir Ris Punggol Queenstown Sembawang Sengkang Tampines Toa Payoh Woodlands Yishun
2002 32.77 per cent
2003 34.11 per cent
2004 42.50 per cent
2005 33.9 per cent 38.01 per cent
2006 -7.4 per cent 25.0 per cent 51.9 per cent 45.60 per cent
2007 2.7 per cent 9.6 per cent 19.7 per cent 26.04 per cent -5.23 per cent
2008 14.7 per cent 29.2 per cent 18.6 per cent 15.3 per cent 32.87 per cent 20.32 per cent 11.37 per cent
2009 29.7 per cent 26.2 per cent 25.9 per cent 20.5 per cent 3.5 per cent 26.2 per cent 38.69 per cent 12.18 per cent
2010 25.4 per cent 37.0 per cent 36.7 per cent 24.3 per cent 22.7 per cent 48.5 per cent 35.94 per cent 29.53 per cent 27.95 per cent
2011 50.9 per cent 52.3 per cent 36.1 per cent 28.5 per cent 33.4 per cent 29.8 per cent 37.3 per cent 40.2 per cent 48.01 per cent 32.50 per cent 37.63 per cent
2012 5.8 per cent 6.9 per cent 22.1 per cent 27.0 per cent 57.9 per cent 59.3 per cent 5.8 per cent 9.4 per cent 12.9 per cent 52.1 per cent 26.4 per cent 43.98 per cent 41.39 per cent 23.67 per cent 43.29 per cent 36.46 per cent
2013 22.7 per cent 37.6 per cent 31.9 per cent 65.5  per cent 43.2 per cent 49.2 per cent 29.0 per cent 52.4 per cent 63.0 per cent 75.10 per cent 47.43 per cent 59.01 per cent 43.21 per cent
2014 41.8 per cent 42.2 per cent 39.5 per cent 3.8per cent 44.7 per cent 45.2 per cent 50.47 per cent 49.74 per cent 18.61 per cent 40.82 per cent 34.74 per cent
2015 37.6 per cent -3.7 per cent 13.3 per cent 36.3 per cent 30.9 per cent 36.6 per cent 45.47 per cent 37.45 per cent 6.40 per cent
2016 -14.7 per cent -4.7 per cent 35.1 per cent 28.5per cent 34.9 per cent 6.8 per cent 43.1 per cent 37.2 per cent 40.10 per cent 31.66 per cent 10.43 per cent 34.33 per cent
2017 35.7 per cent 18.9 per cent 14.3 per cent -7.1per cent 40.3 per cent 42.45 per cent 29.52 per cent 12.65 per cent 27.45 per cent 30.69 per cent
2018 15.2 per cent 12.2 per cent 16.4 per cent 38.9per cent 21.3 per cent 31.65 per cent 24.08 per cent 39.14 per cent 35.44per cent 22.22per cent
2019 16.9 per cent -7.6 per cent 34.4 per cent 17.3 per cent 36.02 per cent 24.59 per cent
2020 2.2 per cent 0.4 per cent 28.3 per cent -0.5 per cent 4.0 per cent 25.1 per cent 21.12 per cent 4.60 per cent 7.42 per cent
2021 43.5 per cent 5.8 per cent 3.6 per cent 8.1 per cent 13.1 per cent 2.8 per cent 26.8 per cent 21.59 per cent 15.78 per cent 25.15 per cent

5-Room BTO-Resale Gap:

Year Ang Mo Kio Bedok Bukit Batok Bukit Panjang Choa Chu Kang Clementi Hougang Jurong West Pasir Ris Punggol Queenstown Sembawang Sengkang Tampines Toa Payoh Woodlands Yishun
2007 -15.6 per cent
2008 24.1 per cent 4.6 per cent 11.3 per cent 18.7 per cent
2009 6.0 per cent 1.2 per cent 20.8 per cent 27.0 per cent
2010 17.3 per cent 20.7 per cent 12.4 per cent 20.2 per cent 28.4 per cent 26.1 per cent
2011 40.7 per cent 36.1 per cent 27.5 per cent 26.3 per cent 20.2 per cent 23.5 per cent 31.5 per cent 23.2 per cent 37.2 per cent
2012 17.4 per cent 17.5 per cent 21.2 per cent 45.0 per cent 46.9 per cent 10.6 per cent 33.9 per cent 29.7 per cent 31.1 per cent 33.8 per cent 38.1 per cent
2013 27.9 per cent 36.8 per cent 48.6 per cent 47.4 per cent 39.8 per cent 28.4 per cent 42.4 per cent 36.7 per cent 48.5 per cent 44.5 per cent
2014 38.3 per cent 42.6 per cent 28.4 per cent 31.4 per cent 24.4 per cent 39.9 per cent 26.8 per cent 27.5 per cent
2015 40.5 per cent 5.0 per cent 28.7 per cent 6.2 per cent 26.9 per cent 29.9 per cent 17.0 per cent
2016 16.8 per cent 5.9 per cent 41.2 per cent 30.4 per cent 11.0 per cent 18.6 per cent 25.2 per cent 21.1 per cent 20.1 per cent
2017 41.6 per cent 17.3 per cent 19.0 per cent 23.7 per cent 21.7 per cent 26.8 per cent 22.7 per cent 30.1 per cent
2018 9.6 per cent 7.8 per cent 9.6 per cent 11.4 per cent 15.2 per cent 31.2 per cent 23.1 per cent
2019 10.8 per cent 6.0 per cent 5.5 per cent 22.1 per cent 12.1 per cent
2020 14.9 per cent -5.9 per cent 11.7 per cent 11.6 per cent 7.7 per cent -8.1 per cent
2021 35.3 per cent 36.4 per cent 11.9 per cent 17.4 per cent 12.9 per cent

Key takeaways for flat buyers:

  • Resale flat prices can rebound sharply after a crisis
  • Policy changes like MSR and concealed COV can drive down prices for significant periods
  • There seems to be some truth that 3-room flats are worse for resale
  • 35+ years is roughly when lease decay seems to kick in

1. Resale flat prices can rebound sharply after a crisis

The gap between resale and BTO flat prices began to widen in 2008/9, after an initial drop in resale prices. There may be some parallels between this event, and the sharp spike in resale flat prices following Covid-19.

(Note that the same pattern exists for private housing, where a major recession is followed by sharply increased property prices).

This is often attributed to interest rates: in 2008/9, as with today, the United States Federal Reserve cuts interest rates to stimulate economic recovery, when there’s a crisis. And in the aftermath of the ‘08/09 crisis, interest rates were so low that some homeowners on a Swap Offer Rate (SOR) loan saw negative interest rates.

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At present, interest rates from bank loans average just 1.3 per cent, as opposed to the HDB loan’s 2.6 per cent (you can choose to use either bank or HDB loans for flats).

Another common reason is that buyers who could afford private housing pick resale flats instead. They’re trying to be prudent, in difficult times.

Now there’s no income ceiling for resale flats. Even a couple who earn $30,000 a month can buy one, so long as they meet other eligibility requirements. Having a lot of these buyers, competing for flats in desirable areas, can significantly drive up prices.

These are inferences and not facts; there’s no decisive way to prove the market’s motives. But there does seem to be some correlation, between the aftermath of a crisis and rising flat prices.

2. Policy changes like MSR and concealed COV can drive down prices for significant periods

PHOTO: Stackedhomes

Toward 2013, the property market began to overheat. While a lot of attention goes toward cooling measures, we tend to overlook what happened with HDB flats.

Prior to the 2013 peak, Cash Over Valuation (COV) was rampant, with amounts like $35,000 to $50,000 becoming common; this was even in non-mature neighbourhoods like Pasir Ris.

It took only two small tweaks by the government, to send resale flat prices into a roughly seven-year tailspin.

The first change was the Mortgage Servicing Ratio (MSR), capping home loan repayments at 30 per cent of the borrower’s monthly income.

The second change was deciding not to reveal the valuation, until the Option has been secured. Today you agree on the price first – and if the subsequent valuation is under the price, only then do you end up paying COV.

This was devastating to resale flat values. Notice that from 2013 up till very recently, the price gap between resale and BTO flats had been steadily falling; and it’s only the recent crisis that’s changed things.

As such, buyers should keep in mind that changing policies can quickly change their planned property outcomes.

3. There seems to be some truth that 3-room flats are worse for resale

In the rare cases where the price gap became negative (i.e., the average resale price was lower than the average BTO price), it was most evident among 3-room flats.

For example, in Ang Mo Kio in 2016, 3-room flats were 25.9 per cent lower than BTO counterparts. To be clear, this is because they were old flats, and resale 4-room flats there were also below the BTO average.

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However, the 4-room counterparts were only around 14.7 per cent below BTO prices, while the 5-room flats still managed to be 16.85 per cent higher than BTO prices.

In Queenstown in 2009, the average price of a resale 3-room flat was around 13.7 per cent lower than a BTO counterpart. Again, these were older flats; but the equally old 4-room flats here were 3.5 per cent higher than the BTO average, and the 5-room units were 1.24 per cent higher.

Another instance is in Geylang which has consistently registered negative a BTO-To-Resale gap since 2017.

If you go through the tables above, you’ll see that in almost every instance where resale prices fall below BTO prices, it’s in the category of 3-room flats.

From anecdotal evidence, realtors have long told us that 3-room flats are harder to sell, and often see lower demand. Agents have also pointed out that, given the relatively low quantum difference between 3-room and 4-room flats, all but the most budget-sensitive buyers will want the 4-room.

4. The gap between BTO and resale prices narrow as the estate ages

PHOTO: Stackedhomes

From the tables below, you can see the flats in newer estates tend to have a pretty wide gap. As the estate ages and the older the resale flats gets, the narrower this gap becomes. In some cases, it actually turns negative as BTOs start to cost more than its resale peers (such as in Geylang).

Sengkang Estate BTO Average Price Resale Average Price Average Quantum Gap Average per cent Gap Average Resale Lease Remaining (Years)
2012 $312,000 $466,266 $154,266 56.66 per cent 90.9
2013 $283,667 $478,682 $195,016 81.25 per cent 91.1
2014 $243,500 $415,008 $171,508 76.61 per cent 92.0
2015 $277,500 $412,460 $134,960 56.54 per cent 89.6
2017 $279,333 $402,677 $123,344 50.77 per cent 89.0
2018 $308,667 $395,699 $87,032 32.52 per cent 89.2

Average per cent gap for a young estate across all flat types

Yishun Estate BTO Average Price Resale Average Price Average Quantum Gap Average per cent Gap Average Resale Lease Remaining (Years)
2011 $256,167 $371,228 $115,061 48.45 per cent 74.9
2012 $278,333 $407,285 $128,952 50.89 per cent 74.0
2013 $277,500 $419,352 $141,852 54.28 per cent 72.6
2014 $272,000 $386,974 $114,974 50.43 per cent 72.1
2016 $223,500 $329,435 $105,935 51.21 per cent 71.7
2017 $264,167 $365,526 $101,359 43.04 per cent 71.3
2018 $281,667 $355,957 $74,291 28.03 per cent 70.9

Average per cent gap for an older estate across all flat types

Toa Payoh Estate BTO Average Price Resale Average Price Average Quantum Gap Average per cent Gap Average Resale Lease Remaining (Years)
2020 $530,667 $518,088 -$12,579 -5.78 per cent 65.7
2021 $509,500 $565,391 $55,891 7.96 per cent 67.0

Average per cent gap for an old estate across all flat types

Geylang Estate BTO Average Price Resale Average Price Average Quantum Gap Average per cent Gap Average Resale Lease Remaining (Years)
2020 $462,500 $413,081 -$49,419 -13.06 per cent 65.3
2021 $465,750 $450,987 -$14,763 -4.82 per cent 66.3

Average per cent gap for an old estate across all flat types

This is not too different from private properties where newer leasehold properties are priced more than its older peers for obvious reasons that the land value goes down for leasehold properties over time.

This has a knock-on effect when it comes to financing too. When it comes to bank loans, you may not get the full 75 per cent Loan To Value (LTV) ratio, for properties that have 60 years or less on the lease. Bank loans are no longer possible when the lease falls to 30 years or below.

So if your flat is already 35 years old, your next buyers know they won’t see much resale value. This can lower demand and prices, even if the flat is located in a mature area.

Overall, the price difference between resale flats and BTO flats may be considered low now (based on the estate averages for a 4-room flat), however, it does look set to increase in the near term if history serves as a guide.

Work From Home arrangements, the demand for bigger homes, and construction delays all compound the demand for resale flats, and if BTO prices do not catch up, then this gap is set to widen as it has done so before.

This article was first published in Stackedhomes.