Calculations on a HDB purchase versus rental part II

Part I Calculations on a HDB purchase versus rental (for singles)

Unrecoverable costs of Rent vs Buy

After coming across Uncle Temperament's recommendation of a Youtube video, a new concept on renting versus buying struck me - comparison of their unrecoverable costs. Which means if the unrecoverable costs of renting is less than buying, it would make sense to rent and vice versa.

Unrecoverable cost of renting for N years is simple as follows.
Monthly rental cost × 12 × N years. 

On the other hand, the unrecoverable cost of buying a house would require a bit more complex calculations as it comprises of renovation costs, property taxes, income taxes (if renting out rooms), maintenance costs and cost of capital (mortgage interest and cost of equity capital). Cost of equity could refer to down-payment, option fees or any other money paid upfront for the property which could otherwise be invested for returns. All these vary according to the size of flat unit purchased, purchase price and condition of unit etc. Some sunken costs would be one-time and others repeating. Here I am not even factoring in the hassles of doing all of the above.

When it comes to HDB, we have another set of considerations. 

Sorry if I am veering off tangent as my brain starts its wild run here.

Problem with 99-year

We know that all HDB flats have a 99-year lease. Technically speaking, gov owns the flat and lease to us even though we so-called purchase it. So if one holds the flat through 99 years (if one lives that long!) it would eventually decay to zero value aka returned to state. In which case, its purchase price also becomes an unrecoverable cost. A huge 6-figure one.

In my previous post, the example 4 rm flat has got a 70 years lease left. Given the new housing loan rules, once the flat hits 65 years or less in remaining lease, it would get more and more difficult to sell especially to the younger families (resulting in exponential price decay?). That would be in just 5 years!

"The total amount of CPF that can be used will depend on whether the remaining lease can cover the youngest buyer until age 95.  If this criteria is met, a buyer can use CPF to pay for a property up to its valuation limit. If not, the use of CPF will be pro-rated.

No CPF can be used if the remaining lease is less than 20 years."

That means if one doesn't like the flat afterwards or need to sell it for whatever reason, one has to sell it fast within a 5-year time frame to suffer less "decay" in its selling price. However, if he has gotten any CPF housing grant then he would have to wait out the 5 years MOP, which means... good luck.

So how?

The other ways to recover value from the property before it fully "decay" would be to rent it out (as previously mentioned), wait for SERS (chances are slim as striking lottery) and/or embark on the Lease Buyback scheme

Lease Buyback scheme can only be applied when the flat owner reaches 65 years or older, by then the flat would be left with 40 years lease. OK, that's some hope just don't wait until it's left with 20 years! But I can't even remotely guess whether this scheme will still be in place 30 years from now. If yes, what would be the buyback value then?

Unrecoverable cost = Purchase cost + Interests - Lease buyback value
[What's the unrecoverable cost of renting as a single for 30 years? Conservatively, it is $216,000 without inflation factored in.]

From random searches on property sites, the price difference between flats that TOP in 1990s versus 2010s is approximately $100k. Should one pay $100k+ more now for about 20 more lease years to sell back in future and less likelihood of exponential "decay" after the 5 years MOP? Something to chew on...

Now it dawns on me why there's so many 1990s flat going for sale in the market and so few 2010s. All the middle-age trying to recover their housing costs (or reap profits if BTO) before it's too late??

It's a difficult choice

To buy or to rent in SG - there is no textbook formula that can fully put things into perspective when it comes to the world's one and only HDB concept. After all, there is no crystal ball to tell what will happen to one's finances, the flat and gov housing policies 20-30 years down the road.

Part 3 on Single's BTO?

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Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets.


  1. I have kopi session with my long time blog visitor. She is so happy finally eligible to apply and buy Single's 2-RM BTO after years of being pushed around over the tiny island of Singapore by her landlord. Buying stocks never crack our head so hard. Buying BTO is easier. You will finally recover your cost of BTO from rental saving and after Point X; your BTO will become "freehold" or Pillow home for living.

    Buy BTO for home and invest for living expenses. No good?

    1. Hi Uncle8888,

      Buy BTO good... but must wait. And estate, floor, facing sometimes not much choices to choose from.

      I am just cracking head over resale. Resale no good?

    2. Buying resale is making partial investment decision as you will be passing your hard earned saving to someone as their investment gains. :-)

    3. Just read this -


  2. HDB is just upfront rental. HDB still owns the leasehold title of the land, not you. So whether BTO or resale ... don't pay too much! ;)

    If you want element of investment or speculation e.g. to rent out, or to sell after 5 years, then location & context will be important.

    E.g. Near major MRT stations (we've reached a point where there's 1st tier, 2nd tier & 3rd tier stations LOL), near major job centres (e.g. many good-paying industrial jobs in the West, many good-paying financial jobs in Central) are all things to consider.

    1. Hi Spur,

      Thanks for your advice!

      However, except for the lucky ones who got their BTOs before the areas became prime, those known prime areas usually already have their resale price reflecting their "gains". :(

  3. Rainbow girl,


    Any business finance trained students will contradict you - what do you mean no textbook formulas to determine Buy or Lease?

    We have listed companies that prefer to lease their factories or offices from landlords.

    Then there are those who prefer to buy the land and build their own factories/offices over it.

    And we have companies that own their own factories/office tower but decide to sell and lease it back from the new owner. REITs anyone?

    How to convince the Board of Directors or shareholders if the BUY or LEASE decision is not based on sound economics (fancy word for doing the math)?

    If you're the CFO who says can't decide, no textbook formulas... You'll probably be fired! Wait, how did you get that job in the first place?

    No. You are the confused one. (Don't hit the face!)

    With so many HDB resale transactions every month, evidently there are buyers out there that can come to a BUY decision that suits their own personal situation ;)

    You may also want to find out how many of your cohort (married or single) who can afford to buy their own homes but prefer to rent instead?


    You may want to pause, think, and reflect for a change?

  4. Hi SMOL,

    Of course there must be enough confusion for me to write a post here. My blog is my self-discovery journal. If everything is a simple math formula and black-or-white then no need to think and analyze so much lo.

    Can a simple formula apply across all situations?

    How many buyers out there got "smoked" or "smoked" themselves into a BUY decision? Who's the confused ones?

    Perhaps what I wrote here is just ONE aspect to consider when buying a hdb flat.

    As you've said, we cannot ask other people what shoe size fits us. Different people, different situation.

    Yeah so I am reflecting (in my head) still based on my personal purpose and budget.

  5. For singles looking for BTO as home in Singapore; every heartland locations are well connected via public transport net hop is less 20 mins connection time to nearest MRT station. End to end MRT journey less than 2 hrs. It is not JB to SG leh. For singles; you are not looking for locations with good school. Why locations weigh so much? Don't disguise property as home when actually thinking it as investment. Different capital game! BTO is your Pillow home after Point X. LOL!

    1. Hi Uncle8888,

      Yeah. And no rental income lo... BTO is relatively cheap and must become Pillow home, so cannot complain much. >.<


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