An Analysis On The New HDB Classifications and Restrictions

What Happened?
Prime Minister Lee Hsien Loong announced a new set of classification and restrictions for public housing in his 2023 National Day Rally speech, which are intended to curb the “lottery effect” from the resale of BTO flats. It is timely to abolish the mature and non-mature estate model, which is long overdue for an overhaul. We have seen an increase in the number of million dollar flats transacting in the past 2 years, from Pinnacle @ Duxton to Bukit Merah, Ang Mo Kio, Yishun, Woodlands and Jurong East. This sends a strong signal that desirable HDB flats are very attractive in price quantum as compared to private properties and that buyers are willing to meet the sellers’ asking price to secure their homes. Of course the shift to a stronger need for one’s own space was driven no less by the pandemic and a resilient economy. 

Does This Spell The End For HDB Upgraders?
Affordability. During a recent BTO launch, 2,541 applicants were vying for the 372 five-room and three-generation flats at Central Weave @ Ang Mo Kio, despite a selling price of between $713,000 and $877,000. This translates to around three first-time applicants to each available unit. Second-timers face an even bleaker prospect with more than 82 applicants to each available unit. 

There is an income ceiling cap of $14,000 for the resale buyers of Plus and Prime HDB resale flats. Assuming the buyers take up a HDB loan at 80% Loan to Value, 2.6% interest rate for 25 years tenure with a mortgage servicing ratio of 30%, the maximum purchase price can be up to approximately $1.15 million. While the income ceiling cap restricts the eligibility to purchase and the loan amount, buyers can choose to pay more for the resale flat if they are willing to top up with cash or CPF (subject to valuation).

The gross profits will range from $273K to $437K assuming buyers pay $1.15m for similarly priced BTO flats like Central Weave. Yes the “lottery effect” is mitigated but can prove more lucrative for buyers who enter at lower prices for their BTOs. 

Duration of Ownership. This is a very important factor to take into consideration. Let’s say a couple applies for their BTO at age 28 with an average construction time of 5 years and adding a 10 year Minimum Occupation Period (MOP), this would mean they would be at least 43 years of age before they can sell the flat. During the course of ownership, if there is a need to upgrade or downsize from your flat, you will be restricted from doing so until you have fulfilled the MOP. In this case, those who intend to set up a family unit should get the largest unit size available to future proof their requirements. 

Not Allowed to Rent Out Whole Flat. This will essentially make public housing in the Plus and Prime areas pure home ownership since the owners are only allowed to rent out unused rooms. However you can still purchase a second residential property in private housing for investment after paying for the ABSD. 

Subsidy Recovery. This was introduced when HDB launched the Prime Location Housing Model (PLH). There will be clawback of some subsidies that are granted to you under the Plus model and all of the subsidies under the Prime model. Before the new classification, there was only a clawback in terms of a resale levy if one takes up a second subsidised flat. 

Longer Wait-Out Period for Private Property Owners. This was first introduced on 30 September 2022 as part of the cooling measures to restrict private property owners from the HDB resale market for a period of 15 months after the disposal of their private properties. For Plus and Prime BTO flats, the wait-out period requirement is doubled to 30 months. 

Only Singaporeans Can Purchase Resale Plus and Prime Flats. Singapore Permanent Residents (SPR) currently have a wait-out period of 3 years from the date they obtain SPR status before they can purchase a HDB resale flat. The new restriction will give more Singaporeans better access to public housing in choice locations.

What Is Likely To Happen?
These measures will benefit genuine home seekers and will dampen demand from those looking to make a quick buck from a BTO. That said, the latter group may shift their focus to the Standard BTOs and drive up application rates in this segment due to the lesser restrictions.  Also the demand for older resale flats in good locations will be boosted due to the shorter MOP and it could delay the en-bloc (SERS) for these areas and somewhat address the fears of decaying leases and decline in resale values.

In my opinion, the new classification will give Singaporeans equitable access to affordable public housing in prime locations and it is a reminder that we can’t have the best of both worlds – desirable location and lottery effect. At the end of the day, property owners should consider their current and future needs and requirements based on a 10 to 20-year timeframe.

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