SINGAPORE, 21 August 2023 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on National Day Rally 2023.
The Prime Minister in his National Day Rally 2023 speech outlined a new classification of public flats to address the evolving housing landscape. Distinctions have blurred between “Mature” and “Non-Mature” housing estates, with some BTO launches proving to be more popular in the latter group. Amid growing calls of inclusion and equality, while faced with the perennial need to ensure affordability as a mainstay for a public good that is enshrined in our national identity, the HDB has creatively reclassified flats as Standard, Plus and Prime. Prime flats are currently offered under the prime Location Public Housing (PLH) model.
Plus flats are housed in a choice location within a region, while Prime flats would be placed in the choicest location islandwide. The main consideration behind substantial subsidies and ensuring affordability, even for Plus and Prime flats, is to uphold a healthy social mix to maintain the social fabric of our society. Without adequate subsidies, the government’s fear is that socio-economic classes would develop more discernibly with the choicest flats affordable to all but those whose incomes are near the ceilings. To mitigate the infamous lottery effect associated with BTO flats, a subsidy recovery upon resale will be implemented for Plus and Prime flats to ensure equity among various group of flat buyers. A 10-year Minimum Occupation Period is also mandated for buyers of new Plus and Prime flats. Tighter resale conditions would also be introduced which could include income ceilings for buyers of such resale Plus and Prime flats.
In essence, the Plus category is one that bridge the Prime and the Standard categories. It would be conceptually clumsy to introduce a framework that can smooth out all the differences among flats offered, and the new three-category framework will go a long way to placate the public sentiments on issues of equity.
The upshot of the new framework is that while choice HDB flats would not be denied to most Singaporeans, the longer MOP should reduce the speculative intent of homebuyers. In addition, conditions like an income ceiling for buyers of resale Plus and Prime flats would moderate the price appreciation of such flats in the secondary market, with corresponding price capping effects in the Standard flats. This would ensure a gradual appreciation of public housing prices although the effects would likely be seen only in a decade’s time when such flats go on sale in the secondary market. In the interim, the ramp up of BTO public housing supply with shorter waiter times should also help moderate resale flat demand in favour of new flats, and help moderate the price appreciation of public resale flats.
Public housing access to singles was also enhanced as they would in future be able to purchase 2-room flexi flats from HDB across the three categories of flats, a significant relaxation from the current restriction of choosing from only non-mature estates for new flats. Priority for public housing would still be given to the family model and the new enhancement is a means to allay the concerns of singles while upholding the family as the basic unit of society.
Further details on the new public housing framework were provided by Minister Desmond Lee on 21 August 2023. Most of the details gave cause for little surprise as they reflect an extension of the current prime Location Public Housing (PLH) model. For instance, the rental of the entire Plus or Prime flat would be disallowed at any point to limit the rental potential and moderate demand. Likewise, the purchase of resale Plus or Prime flats would be restricted to Singaporeans as is the case for resale PLH flats.
Some salient observations:
The income ceiling imposed on buyers of resale Prime flats is $14,000 for families and $7,000 for singles, carried over and kept unchanged from the eligibility conditions to purchase BTO flats. Eight in 10 Singaporean households earn $14,000 or less a month, while eight in 10 Singaporeans reside in public housing. As such, the authorities have deemed the prevailing income ceilings as adequate to limit excessive price appreciation in the resale market for Prime flats to maintain the affordability ethos. A relaxation of the income ceiling would open the eligibility floodgates and jeopardise resale price stability.
For resale Plus flats, a flat $14,000 income ceiling is imposed on buyers, whether families or singles. The key distinction here is that singles with high earning capability would now be able to compete with other households for larger resale Plus flats. While this demographic of singles could quite easily afford private housing, some of them, especially the elderly singles, might consider public housing to enjoy the interaction and care of a close-knitted community, that is likely more prevalent in public housing. In large part, this would help many senior singles realise their wish to age-in-place in familiar surroundings, as the majority of the populace would be well acquainted at some point in their lives with public housing, supported by excellent infrastructure and amenities.
30-month wait-out period for private property owners
Private property owners would have to serve a 30-month wait-out period to purchase resale Plus or Prime flats. This harmonises the eligibility vis-a-vis that to purchase BTO flats, ensuring that demand is not channelled to the resale market for lack of a level admission criteria between BTO and resale markets. Currently, seniors aged 55 years old and above who own or used to own private property are exempted from the wait-out period if they were to move to a 4-room or smaller resale flat, and perhaps this exemption can be extended even to the purchase of smaller resale Plus or Prime flats to facilitate the free up of retirement capital for seniors in their golden years.
Households who earn above $14,000
Going forward, options for households who earn above $14,000 a month to purchase resale HDB flats are limited to Standard flats or to the existing pool of 1.1 million flats, some of which are located in central locations or possess other strong locational attributes. High-earning households are likely to still opt for centrally located resale flats with choice attributes, which means that there could still be significant upward pressures on existing prime flats. Some high-income households may also opt for resale Standard flats by virtue of their relatively long remaining leases. As such, we might witness some pricing anomalies in future where resale Standard flats could trade at higher prices compared to resale Plus or Prime flats, but it may be a case of crossing the bridge when we get there. A public housing framework that satisfies all stakeholders is impossible, and there could be further fine tuning of the system along the way to ensure efficient allocation of resources while maintaining affordability, social cohesion and equity.
The choice Plus and Prime flats come with 10-yr MOP conditions, be it for new or subsequent buyers. The government is sending a clear message that affordable choice flats are not out of reach, but one would have to reciprocate the privilege with a strong occupation commitment and keep in check expectations of climbing the private property ladder. For those who are turned away by a 10-yr MOP requirement, the alternative is to pay for existing flats in prime locations with 5-yr MOP, albeit at higher prices and for shorter tenure. In short, there are now more options to suit a wide spectrum of demographics, whereas previously prime flats were accessible only to high income earners (in the resale market) or to lucky lottery winners (in the BTO market).
For further information, please contact:
Seah Li Ching (Ms)
DID: +65 6393 2510