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  • Writer's pictureJoshua Loo

The Mid 20s Financial Guide to BTO Flat Purchasing

Updated: Jun 22, 2020

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Purchasing a Build-To-Order (BTO) flat once you are eligible, as your first home can be a smart move if you have limited cash to purchase a property. After all, having a good cash flow is important for young, married couples where expenses can add up, and give you bill shock!

I have some friends that are recently getting married – they are in their 20s, and are already loaded with debt! This is all because of the money spent on getting an education loan, wedding packages, car loans, their recent application for the BTO flat, and also a renovation loan.

Some of you might say that the car purchase is unnecessary. I partially agree on this as it can add to huge expenses outside of just the car purchase. This includes road tax, car insurance, season parking, and petrol/diesel top-up.

However, it is a necessity for some job functions like sales, which is one of the best career prospects to enjoy a higher starting salary due to transport allowances, variable bonuses, and most importantly, commissions.

This article is catered more towards the millennials in their 20s, which I feel are a largely dismissed crowd for property related matters. Sure, we are not the sales targets for pushy real estate agents, but this also means that we tend not to get enough information which will affect our finances in the long run.

Central Provident Fund (CPF) Expenses

Before I was involved in the real estate industry, CPF contribution was something that I was not concerned about. As a single adult in his mid-20s why do I need to bother about something that does not affect me if I am not buying a house? Besides, I am nowhere close to retirement.

After joining the real estate industry, I have realized that the CPF account is an easy, important tool to grow wealth in the long run, provided that you have used it correctly. This is because based on the CPFs Housing Scheme, you are supposed to return back all CPF funds along with its accrued interest of 2.5% p.a!

For the amount that was already withdrawn, I recommend that you make a voluntary refund to your CPF OA in these cases.

  • You are intending to sell your house, and you might not have enough cash proceeds for upgrading as you are forced to refund into your CPF account.

  • You might intend to be asset-light and not own any properties, upon selling the BTO flat, it might be a cash negative sale, this defeats your initial purpose of using your BTO flat as an investment vehicle.

  • You intend to stay in your BTO flat for a long time to come, however even if 20-30 years later when you decide to sell it, you are still required to make the refund with an accumulation of over 20-30 years!

However, you should not make a voluntary refund if;

  • Your BTO flat might unexpectantly result in a negative sale, which means that the cash refunded into your CPF OA. This is because, in the event of a negative sale, you do not need to top up the shortfall in cash provided the property is sold above or at market value.

It takes good planning of your existing cash reserves and CPF funds to maximize the benefits that you can draw, so be careful in your planning.

To prevent the cases of a negative sale, always carefully following the current asking prices and past transactions of flats that are sold in your BTO cluster. As a good gauge, you should hold your BTO for no longer than 8 years after you obtain your temporary occupation permit (TO). This estimate is based on past transaction prices of BTO flats. has a fantastic article detailing negative debt, that you should read.

In addition, do you know that the grants that given to you for the purchase of your home can easily rob your opportunities for upgrading to a condominium!

This is why I recommend that if possible, try to reduce your repayments through the use of CPF funds and pay in cash instead of or start making voluntary refunds early.

Mortgage Servicing Ratio (MSR)

The MSR is a limit set on a borrower’s gross monthly income for servicing property loans for a purchase of an HDB flat or an Executive Condominium (EC). The MSR is currently capped at 30% of a gross monthly income. This means that if you earn a gross monthly salary of $3500/month, which is inclusive of all CPF contributions, you are allowed to receive a housing loan that entitles you to make repayments of $1050/month.

This monthly repayment comprises of both the principal and interest.

Knowing what your MSR is important as, being in your 20s, you are likely to have limited cash flow, and it is important that you understand your MSR so that you are not being overleveraged by housing debt.

After all, you still have plenty of other loans to repay for!

Renovation Works

When you are purchasing a new Build-To-Order (BTO)/ Sale of Balance (SBF) flats, HDB offers applicants the choice to apply for the Optional Component Scheme (OCS). This allows you to opt for optional upgrades such as internal doors, flooring, and sanitary fittings. As the options from the OCS is added into the final purchase price of your BTO/SBF, you are allowed to pay using CPF funds. Do take note that the CPF funds used are also required to be returned with accrued interest too!

However, homeowners have mentioned previously that some of the workmanship from the OCS can be unsatisfactory.

Weigh your options carefully as going for the OCS might not be the best choice in obtaining your dream interior design for your flat, but it will save you thousands of dollars (cash) if you choose to outfit your BTO flat modestly. The difference saved can be better used as a cash downpayment if you are intending to upgrade to a condominium in the future.

Further Reads:

Thanks for reading this article, I believe it should have been insightful on how you can plan your next purchase in more detail. If you are highly tight on funds, I believe that going for a BTO flat is your best option as it is always better to purchase within your means.

For those that are more affluent, I strongly suggest that you consider an EC. Looking past the higher downpayment, an EC appreciates better than a BTO flat. This provides plenty of opportunities. Furthermore, most ECs have high-grade floor finishing and carpentry, and you will not be required to look for an Interior Designer separately.

Remember, renovation loans do have their interest rates too.

In addition, the strong appreciation of an EC benefits you, as with gradual repayments of your housing loan builds equity. This will allow you to take on a Mortgage Equity Withdrawal Loan (MEWL) and consolidate all your other debts (i.e. study loan, car loan, renovation loan, etc).

This is a good choice as MEWL typically provides for a very low-interest rate, estimated at around 1%.

Curious about ECs? Check out my other articles on them!


Are you looking at any specific property and thinking if it is the right purchase for you? Contact us at +65 96329840 or send your queries to! Our consultations do not have a charge, so let us assist you!

The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.

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