21 August 2023, Singapore – PropNex Realty welcomes the slew of changes to the public housing policy, as announced by Prime Minister Lee Hsien Loong in his National Day Rally speech on Sunday and further details laid out by the National Development Minister Desmond Lee today.
From the second half of 2024, the HDB will revise certain long-standing policy to make public housing in Singapore more inclusive, as well as to continue to support home ownership. Among the changes announced are the reclassification of flats, enhancing singles’ access to public housing, as well as making homes more senior friendly.
Ismail Gafoor, CEO of PropNex, said, “This reclassification of flats puts the focus on the specific location attributes of the BTO project and their desirability and value, rather than the maturity of each town. We believe the reclassification of flats by the Standard, Plus, and Prime framework will better reflect the value of public housing in attractive locations, compared to the current “mature” and “non-mature” flat classification. We think the restrictions on the new Plus flats are also appropriate to mitigate the “lottery effect” when owners sell such flats on the resale market, and it will curb the speculative mindset when people apply for choice flats.”
Plus flats restrictions and potential impactThe three flat types – Standard, Plus, and Prime – will have tiered subsidies and varying restrictions (see Table 1), with Plus and Prime flats in more attractive locations having a longer minimum occupation period (MOP) of 10 years.
On top of the longer 10-year MOP, the Plus flats will also be subjected to restrictions, more details of which were announced on Monday (21 August) evening. An income ceiling of $14,000 will apply to resale buyers (both families and singles) of Plus flats, and owners of Plus flats will be subjected to a subsidy recovery – lower than that for Prime flats – at the point of first resale, in view of their lower subsidy compared to Prime flats. In addition, only Singaporeans will be able to buy Plus flats on the resale market; there will also be a 30-month wait-out period for private property owners. Besides the resale restrictions, Plus flats owners will also not be allowed to rent out their whole flat.
Table 1: Reclassification of flats from 2H 2024
Source: PropNex Research, HDB
Mr Gafoor added, “One of the more immediate impact from this is that we could see more flat applicants coming in for the four upcoming build-to-order (BTO) exercises before the new framework kicks in from 2H 2024, especially for BTO projects that are in good locations and are not under the Prime Location Public Housing (PLH) scheme. They may perceive that such locations could be parked under the Plus category in future BTO launches and would rather apply now to avoid being subjected to restrictions later on. That said, there could be applicants who plan to live in their flat over the long-term and they may wait it out in view of the higher subsidies for Plus flats. However, all prospective applicants should also be mindful that the HDB will be tightening its non-selection rules from the September 2023 BTO exercise, and they will be penalised if they do not select a flat when they are invited to do so.”
The September 2023 BTO exercise will feature popular estates Kallang Whampoa and Queenstown, while the December BTO launch will include desirable towns Bedok, Bishan, Bukit Merah, and Queenstown. These locations tend to attract strong interest from buyers and could see higher demand, ahead of the implementation of the new classification from 2H 2024.
PropNex anticipates the implementation of the new framework to reduce speculative interest for BTO flats in choice locations among buyers who may be thinking about “flipping” the flat upon meeting its MOP for a large profit or tap rental yield over the long-term (see Table 2 on implications). It could also help to moderate HDB resale prices in the future as the BTO eligibility conditions on resale buyers will curb excessive price upside for Prime and Plus flats.
Other potential effects of the longer MOP and restrictions on Plus flats are that there may be more interest for existing resale flats near Plus flat locations as they still have the typical 5-year MOP and no resale restrictions, it could potentially crimp the HDB resale stock in choice locations down the road, as well as slow HDB upgrading demand for private homes in the future as more owners are tied to their flats for an extended period. Moreover, the subsidy clawback and resale restrictions for Plus flats would likely trim gains and affect the capital with which to purchase a private home, as part of the owners’ home upgrading journey.
Table 2: Potential implications from upcoming housing policy changes
Source: PropNex Research
Meanwhile, the $14,000 income ceiling for both families and singles buying Plus resale flats will help to curb potential sharp price increase when such flats are resold, ensuring that these flats in choice locations remain affordable to Singaporeans.
Mr Gafoor added, “By and large, we think these changes to the public housing policy are keeping in step with the evolving lifestyle preferences amongst Singaporeans as well as the changing housing landscape in Singapore. In the next few years, we will see the market adjusting to these changes – perhaps greater demand for BTO Standard flats, or more interest for certain resale flats due to their attractive locations without the extra strings attached – but over the longer term, we believe the changes will lead to a more equitable and stable HDB housing market.”