CLOSE to 9,000 Build-To-Order (BTO) flats will be rolled out this month in the government’s first batch of public housing flats to come under an all-new categorisation framework.
New HDB flats will be lined up in three groups – Standard, Plus or Prime, with tiered buying and selling restrictions and varying subsidies.
Why was there a need for the new framework?
BTO flats were previously classified under mature or non-mature estates. Mature estates, developed earlier and in better locations with more amenities, tend to be more popular with buyers and prices of flats there reflect the higher demand. Sellers of flats in mature estates have reaped bigger gains on resale, resulting in a sizeable “lottery effect” for these owners.
At his National Day Rally speech last year, former prime minister Lee Hsien Loong announced the new BTO framework, designed to ensure affordability and to cap the rapidly rising resale prices of public housing.
Under the new framework, stringent conditions on resale and a clawback of subsidies are in place to reduce the “lottery effect”.
More subsidies will be doled out for the higher-priced Prime and Plus flats, with part of the subsidies to be recovered on resale.
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Plus and Prime flats come with tighter restrictions on resale and rental. A longer minimum occupation period (MOP) of 10 years is required before flat owners can sell their properties, compared with five years currently.
In addition, flats can be resold only to buyers who meet the Housing and Development Board’s BTO eligibility conditions. This limits the resale market for Plus flats to buyers who come under the income ceiling of S$14,000. For the resale of Prime flats, the income cap is S$14,000 for families and S$7,000 for singles.
Owners of Plus and Prime flats are not allowed to put up their whole flat for rental, but can rent out spare rooms.
What the longer MOP, resale curbs and rental restrictions mean for Prime and Plus flats
The longer MOP and stricter conditions for resale will help to mitigate the “lottery effect” in the resale market and discourage applicants from taking a speculative mindset when applying for a BTO flat, said Ismail Gafoor, PropNex’s chief executive officer.
The ban on whole-flat rental also takes away the prospect of flat owners earning a sizeable income from leasing out their HDB flats. Latest data from SRX and 99.co showed HDB rents flattening in August, slipping 0.4 per cent from the previous month. Overall rents gained 4.2 per cent on the year, with mature estates up 4.5 per cent and non-mature estates up 3.9 per cent. Overall, HDB rents have been rising in tandem with rents in the private residential market.
The strict curbs on resale are to “emphasise to Singaporeans that public housing is meant primarily to serve as a home for the long term”, said OrangeTee Group’s chief researcher and strategist, Christine Sun.
“They also want to discourage Singaporeans from using their flats for speculative investment or (treat them) as short-term assets. Properties near MRT stations, top schools, and essential amenities often command higher resale values, leading to buyers reselling their flats shortly after MOP.
While Plus and Prime flats come with many restrictions, a Standard flat’s sale conditions will remain similar to what has been offered so far. Standard flats will also account for the majority of the flats’ supply, and roughly correspond to units in what were called non-mature estates.
ERA Singapore’s key executive officer, Eugene Lim, expects Standard flats to remain in demand as they appeal to buyers with tighter budgets.
“The resale restrictions (for Plus and Prime flats) may discourage some homebuyers looking for homes in prime or desirable locations. As a result, we expect to see increased spillover demand for existing resale flats in these prime areas, which will likely fuel price growth for flats in these locations,” he added.
Ahead of the new BTO launch in October, resale prices have been accelerating, rising 2.3 per cent in the second quarter, and climbing another 2.5 per cent in the third. The government has already moved to arrest the rising resale HDB prices by tightening loan limits.
“Assuming you were to secure either of these flats at 31 years old. Factor in the construction period of four years, and you will be 35 years old when taking possession; and 45 years old before you can resell the flat in the resale market. That leaves you just a maximum of 20 years’ tenure for the next housing loan,” said Lim.
“For your next property purchase, a 20-year runway simply could mean lower housing loan quantum or higher monthly loan payments compared with a 30-year runway; and you may have to foot out more cash. This may have an impact on your future plans to upgrade to an executive condominium or private property.”
Lim also pointed out that in the case of a divorce within the 10-year MOP and neither party is allowed to take ownership of the property, the flat will have to be surrendered back to HDB at a price that will “likely be based on the original BTO purchase price minus acquisition costs”.
Where will the Prime, Plus and Standard flats be?
The mature and non-mature categorisation first came about in 1992, when development of public housing estates was dependent on availability of land.
Estates such as Ang Mo Kio, Clementi, Marine Parade and Serangoon were built up first, and designated mature estates. Projects in Choa Chu Kang, Jurong West, Sengkang and Woodlands, which developed later, were designated non-mature estates.
But as non-mature estates evolved, the differences between the two types are getting less obvious, with the newer estates having developed infrastructure and better amenities as well.
Market watchers expect the Prime category to include flats that fall under the existing Prime Location Housing (PLH) model. These flats are located in or near the city centre, amenities and transport nodes, and may command good views. The first project will be Crawford Heights, in the Kallang-Whampoa area. New estates being developed in the future in Turf City and along the Greater Southern Waterfront could also include Prime flats.
Under the previous BTO framework, PLH flats have been offered in locations such as Kallang/Whampoa, Queenstown and Bukit Merah.
Plus flats are likely to be found in city fringe areas, or in “very choice locations in the suburbs, where the project is within walking distance to a range of amenities and the MRT station”, said Gafoor.
The new framework also extends more options to singles, a demographic that has had limited access to the public housing market, where families and young couples have priority.
Eligible first-time single applicants can now (a) buy new two-room flexi flats across all locations under the Standard, Plus and Prime categories (b) buy a Standard or Plus flat of any size (except 3Gen flats) in the resale market, and (c) buy a two-room flexi Prime flat in the resale market.
Previously singles could only apply for a two-room flexi flat in a non-mature estate.
HDB also will be making adjustments to flat allocation quotas for first-time applicants, ballot chances, and the various priority schemes.
Parameters that previously applied to non-mature estate flats will now be applied to Standard flats, and conditions that previously applied to PLH flats now apply only to Prime flats.
