Prime Minister Lee Hsien Loong announced several new housing policies during National Day Rally 2023. The most significant change pertains to the review of the estate classification of new Build-To-Order (BTO) flats.
From the second half of 2024, new flats will be categorised as Standard, Plus or Prime. Plus and Prime units will be in choicer locations but bounded by stricter resale conditions and a longer MOP (minimum occupation period) of 10 years. All other flats are Standard, with a five-year MOP and standard restrictions.
Why is the estate reclassification necessary? What is the impact of extending the MOP for some flats? How will the policy changes affect the rest of the property market?
To better reflect the intrinsic value of properties
The classification review is timely as the line between mature and non-mature estates has blurred over the years, especially since amenities are now more comprehensive in certain non-mature estates.
The new framework may better reflect the intrinsic value of flats outside the city centre. Usually, buyers pay a premium for flats near downtown. But the median prices of HDB resale flats (of all types) in non-mature estates like Punggol ($550,000) and Sengkang ($541,888) surpassed those in mature estates like Bedok ($440,000) and Ang Mo Kio ($425,000) in 2022.
The price trend indicates buyers are placing a higher value on locational benefits, such as proximity to town centres, MRT stations, popular schools and shopping malls, rather than a property’s distance to the city centre.
With hybrid work becoming prevalent and more vibrant hubs being built in the suburbs or city fringes like Jurong, Tampines, Buona Vista and Woodlands, we expect more buyers to shift to these decentralised locations and pay more for the amenities and convenience.
Preparation for new towns
There will be significant shifts in our property landscape in the next few decades. Old schools, former government offices and ageing buildings will be demolished to make way for new housing.
The plot ratio of some land parcels will be increased to allow for higher buildings and more residential units. More residential-commercial hybrid developments will be built across the island, providing seamless and holistic living.
New towns will emerge. Relocation and major redevelopment are under way, involving sites like Paya Lebar Air Base, Mount Pleasant, the proposed Long Island along the East Coast, the Singapore Turf Club site in Kranji and the Greater Southern Waterfront. The reclassification will be useful to tackle the stratification of these new housing precincts, some of which are massive, straddling different housing estates and districts.
Curb speculative demand and moderate HDB resale price growth
Lengthening the holding period of an HDB flat can delay the “lottery effect” and reduce the number of people purchasing units in good locations for short-term gains. The new policy will reinforce the narrative that public housing is meant primarily to serve as a home for the long term and not to be used for speculative investment or treated as short-term assets.
Data shows more speculative activities among young Singaporeans. A growing number of families sold their flats shortly after the MOP, as they consider public housing to be a springboard to move up the property ladder after reaping quick resale gains.
According to HDB transaction data from data.gov.sg, the number of flats sold within two years of the MOP or flats aged seven years and below ballooned 733 per cent from 743 units in 2014 to 6,189 in 2022.
In terms of the proportion of total HDB resale units, such transactions constituted a bigger market share, which jumped from 4.6 per cent to 23.2 per cent over the same period.
Also, more newly MOP flats were sold for at least a million dollars. In 2022, 63 million-dollar flats were seven years old and below, making up 17.1 per cent of all such flat transactions that year.
No such transactions were recorded in 2014. The rising number of such million-dollar transactions can distort the price expectation of other sellers and fuel the heated million-dollar-flat market.
Supposing more Singaporeans sell their flats early and divest the proceeds to other riskier investments or volatile financial products, the less savvy ones risk losing their savings or not having sufficient cash for retirement. Others may not even have a roof over their heads when they retire.
With the new changes, the price appreciation of flats in the secondary market may moderate. There will be income ceilings placed on buyers of resale Plus and Prime flats, which will crimp their ability to pay high prices.
Moderate private home demand by regulating pace of upgrading
The demand drivers of new private homes are primarily locals, especially HDB upgraders who have gained a windfall from selling their flats. With demand far outstripping supply, new home prices in some suburban areas have risen beyond $2,000 per square foot (psf), while other new properties in the city fringes have hit $3,000 psf. The pace of price growth may not be sustainable in the long run.
Delaying or pacing the upgrading timeframe for some HDB home owners by imposing a longer MOP may manage demand. Private home supply is allowed to catch up, moderating price growth in the private markets.
Although some Singaporeans may take longer to scale the property ladder, they stand to gain if prices grow at a more sustainable rate. Young families will have more time to save for retirement or buy a bigger property later as they wait out the 10-year MOP.
Although the MOP has been extended for some flats, the move is likely to be acceptable to most Singaporeans since the majority of flats were sold after 10 years. Based on 2022 resale transactions, 73.1 per cent of resale transactions involved flats that were at least 10 years old, of which 24.8 per cent were at least 30 years but under 40 years old, and 21.8 per cent were at least 20 years but under 30 years old.
The new prime location public housing (PLH) flats, which require a 10-year MOP and were first launched in the Rochor area in 2021, were probably used as a test bed to assess market acceptance of premium flats that entail a longer MOP. The results have been positive based on the robust number of applicants.
Promote mobility and social mix within the HDB market
Property upgrading usually involves buying a private home or shifting from non-mature to mature estates. The creation of Plus flats can help promote mobility within the HDB market.
Singaporeans have an additional option of upgrading within the same market segment now, from Standard to Plus flats or Plus to Prime flats.
There may be a better distribution of social classes and income groups across the island as well. Middle-income groups may consider living outside the city centre by purchasing Plus flats in other locations, while lower-middle-income groups can live nearer to the CBD when they buy Prime or Plus flats in the Central Area owing to the generous subsidies.
Possible demand increases in other housing segments
Singaporeans who do not want to be committed to a longer MOP may buy resale HDB flats or older resale condo units. There could be more impact on the HDB resale market since additional grants are given to first-timers buying resale flats. Resale flat supply in specific locations may also lag demand in the mid-term as the MOP will be longer for certain flats.
Some buyers may find the holding period onerous and may not like the idea of being vested in a single property for more than 10 years. The MOP commitment may restrict others who must move for their children’s primary school registration, job change, or the need to live with their elderly parents. Other families may encounter difficult neighbours or dislike their homes for personal reasons.
Moving forward, property literacy and providing more guidance on home selection will be pertinent since a longer commitment is required for young Singaporeans purchasing Plus and Prime flats.
“Source:[HDB flats’ new classification – Standard, Plus, Prime – could raise resale demand] © Singapore Press Holdings Limited. Permission required for reproduction”
