New HDB classifications: Could stricter rules curb upgrades and capital gains?

NEW HDB
CLASSIFICATIONS:
COULD STRICTER
RULES CURB
UPGRADES AND
CAPITAL GAINS?
The new public housing classifications of
Prime, Plus and Standard that the
Singapore government introduced. The
article explains the differences and
implications of the three types of flats for
HDB flat owners and buyers. The article
also presents various opinions from
property experts, analysts, and potential
buyers on the advantages and
disadvantages of the new classifications.
JULY 2023 // PREPARED BY MELVIN LAU

#PROPWITHMEL PAGE | 02
During his National Day Rally speech on August 20, Prime Minister Lee Hsien Loong
introduced a fresh approach to public housing classification, consisting of three tiers:
Prime, Plus, and Standard. The previous distinction between "mature" and "nonmature"
estates has become less clear over time, with a projection that more Build-To-
Order (BTO) developments will fall into the "mature" category in the future. This shift
necessitates a departure from the mature and non-mature framework.
PM Lee stressed that the fundamental goals remain unchanged under the new HDB
categories of Standard, Plus, and Prime. These goals include maintaining affordability
of homeownership across income groups, preserving a diverse social mix in all towns
and regions, and ensuring fairness for all individuals within the system.
Prime flats are currently part of the Prime Location Housing (PLH) program, introduced
during the November 2021 BTO launch. These flats are located in the Central Area and
come with substantial subsidies to ensure their affordability. Plus flats, on the other
hand, are situated in HDB projects outside the Central Area but are strategically
positioned near MRT stations or amenities, offering an attractive housing option.

PAGE | 03
#PROPWITHMEL
“ENHANCED SUBSIDIES AND
OWNERSHIP CONDITIONS FOR
PRIME AND PLUS BTO FLATS”
Buyers of Prime and Plus BTO flats can anticipate additional subsidies to uphold affordability,
but these come with specific stipulations regarding subsidies and selling regulations. Notably,
both Prime and Plus flats will have a longer minimum occupation period (MOP) of 10 years,
unlike the five-year MOP for Standard flats.
While owners of Prime and Plus flats have the option to rent out bedrooms, renting out the
entire flat is prohibited. This measure has been designed to discourage an investmentoriented
approach, as highlighted by Lee Sze Teck, Senior Director of Data Analytics at Huttons
Asia.
Exclusive to Singaporeans, the resale market for Plus and Prime flats enforces restrictions.
Private homeowners interested in purchasing a Plus or Prime resale flat must undergo a 30-
month waiting period. Moreover, buyers of these resale flats must adhere to BTO conditions,
including the requirement of not exceeding a monthly household income of $14,000.
Charmayne Aw and Damien Ng, a Singaporean couple, shared their preference for the
Standard HDB option due to concerns about the resale process and the extended MOP for
Prime and Plus flats. Aw, an interior designer, noted the higher cost of Plus and Prime flats
despite their advantageous locations. She cited a friend's experience of securing a prime
location flat through a ballot at a price of $700,000 for a four-room flat.
In retrospect, Aw and Ng are content with their decision to choose a 116 sq m (1,249 sq ft),
five-room flat at Tampines Green Jade, overlooking Bedok Reservoir. They successfully
obtained this flat in the August 2021 BTO launch at a cost of $525,000, marking their first BTO
application. Aw expressed their fortunate outcome, considering that her cousin and friends
who applied faced disappointment. The couple is eagerly anticipating receiving the keys to
their new residence, scheduled for sometime in 2025.

#PROPWITHMEL PAGE | 04
PREFERENCE FOR PLUS FLATS
DESPITE RESTRICTIONS: INSIGHTS
FROM 27-YEAR-OLD NICOLE LIM
Amidst Constraints, Location Holds Priority for Buyers like Nicole Lim
HDB occupancy constitutes 77.9% of Singapore’s residential households, as indicated by the
Singapore Department of Statistics 2022 report. This percentage dwarfs the 17% residing in
apartments and condominiums, with an additional 4.9% inhabiting landed properties,
spanning terraced, semi-detached, and detached houses.
While Prime Minister Lee has forecasted that the majority of forthcoming HDB projects will
maintain Standard categorization, it is noteworthy that the resale market remains unrestricted
apart from the five-year Minimum Occupation Period (MOP).
Lam Chern Woon, Head of Research and Consulting at Edmund Tie, elucidates the motivation
behind the new categorizations, stating, “The aim is to offer a broader range of choices to
cater to diverse demographics. Previously, prime flats were accessible solely to high-income
individuals in the resale market or fortuitous 'lottery winners' in the BTO market.”
In this context, Nicole Lim, a 27-year-old individual, remains undeterred by the regulations and
is inclined towards a Plus flat selection. Expressing her viewpoint, she emphasizes, “Location is
pivotal for me. The significance of the 10-year MOP pales in comparison to the importance of
location.”
Given that there are no constraints on the monthly household income of buyers interested in
Standard resale flats, it's plausible that certain affluent households with earnings surpassing
$14,000 per month might choose to consider resale Standard flats.

PAGE | 05
#PROPWITHMEL
POTENTIAL FUTURE PRICING
DISCREPANCIES?
With unrestricted household income criteria for Standard resale flat buyers, there's a
possibility that certain affluent households earning over $14,000 monthly might incline
towards choosing resale Standard flats. Lam points out that a substantial pool of 1.1 million
Standard flats exists, with some being strategically positioned in central areas or boasting
alluring locational advantages.
Lam suggests, "In the future, we might observe instances of pricing disparities where resale
Standard flats could command higher prices compared to resale Plus or Prime flats. However,
addressing this scenario might be a consideration for later."
In the near to medium term, an upswing in demand for existing resale flats could materialize,
potentially leading to an escalation in HDB resale flat prices. This might be propelled by
individuals who prefer to avoid flats with extended MOP. Christine Sun, Senior Vice President
of Research and Analytics at OrangeTee & Tie, proposes, "First-time buyers of resale flats now
receive increased grants, potentially diverting demand towards the resale market and
triggering price hikes."
The lengthier 10-year MOP for upcoming Plus and Prime flats might result in an extended
timeline for Singaporeans aspiring to transition to private properties. Eugene Huang, Founder
and Director of Redbrick Mortgage Advisory, emphasizes, "Considering a 10-year MOP and a
three to five-year construction phase, the middle class could find themselves confined to their
Plus and Prime flats."
The allure of existing flats in well-located projects like Pinnacle @ Duxton, Skyville @ Dawson,
and Skyterrace @ Dawson, unburdened by the new Prime flats' limitations, could surge. As a
result, the prices of these units might experience further escalation. Huang envisions a
particularly strong future for projects like Pinnacle @ Duxton, describing them as potentially
"legendary."

#PROPWITHMEL PAGE | 06
“LIMITING TRANSACTIONS
INVOLVING MILLION-DOLLAR
FLATS”
Huang further remarks that the novel restrictions applied to Plus and Prime flats might
decelerate the process of amassing wealth. He explains, "The fresh regulations could
discourage new homebuyers from employing their BTO flats as a means to gradually
accumulate wealth and eventually make the transition to private properties."
Nonetheless, Sun from OrangeTee perceives the extension of the MOP for Plus and Prime flats
as a positive stride. She comments, "This modification will reinforce the notion that public
housing primarily serves as a permanent residence, discouraging speculative investments or
regarding it as a short-term asset."
Notably, data from HDB transactions, accessible on data.gov.sg, reveals an escalating number
of young Singaporeans vending their flats shortly after fulfilling the obligatory five-year MOP.
Within the category of units sold within two years of MOP or those aged seven years and
below, OrangeTee highlights a remarkable surge of 733%, escalating from 743 units in 2014 to
6,189 units in 2022."

PAGE | 07
#PROPWITHMEL
This category of residences now constitutes 23.2% of the entire spectrum of HDB
resale transactions, demonstrating a notable surge from its modest 4.6% standing in
2014, as pointed out by OrangeTee. This pattern is particularly pronounced in nonmature
estates, where the proportion of transactions involving flats aged seven years
or below leaped from 5.2% in 2014 to 31.3% in 2022," Sun further elaborates.
There has also been an increase in the count of flats that have recently fulfilled their
MOP and were subsequently sold for a sum exceeding $1 million. In 2022, flats within
the age bracket of seven years or less accounted for 63 transactions, constituting
17.1% of the total million-dollar transactions for such flats during that year.
This stands in stark contrast to the situation in 2014, when no flats within this age
bracket were sold for a million dollars or more, Sun highlights. She underscores, "The
mounting frequency of such transactions could potentially distort price expectations
among other sellers and contribute to the fervent market for million-dollar flats."
Sun goes on to emphasize that the extension of the MOP duration for Plus flats
situated beyond the Central Area is expected to curtail these transactions. She
explains, "As aging mature estates are revitalized into new housing ventures, it serves
as a meaningful reminder to young Singaporeans about the value of residing longer in
these well-located and subsidized flats.

#PROPWITHMEL PAGE | 08
ENSURING ACCESSIBILITY AMIDST
ESCALATING PRICES
The imposition of fresh regulations on Plus and Prime resale flats will inevitably rein in
the proliferation of million-dollar flats, Sun concedes. "Given that forthcoming HDB
resale buyers of Plus and Prime flats will be subject to a range of constraints,
encompassing income thresholds, their capacity to afford and pay exorbitant sums for
future resale flats will be affected," she affirms.
Ismail Gafoor, CEO of PropNex, postulates, "Without the implementation of household
income restrictions, prices for Plus and Prime flats in the resale market could
skyrocket beyond the $1 million mark. Over the span of 10 years, these resale flats
might only be within reach of the affluent."
By capping the monthly household income at $14,000, Gafoor asserts that this
initiative offers individuals from diverse socio-economic backgrounds the chance to
reside in a Plus estate. He emphasizes, "This fosters social unity and prevents the
emergence of a class-conscious Singapore a decade down the line. This represents the
principal objective of these restrictions."
According to Gafoor, constraining the income ceiling concurrently curtails price
escalation. Nevertheless, he acknowledges that the extent to which this hampers
people's prospects of advancing to private property hinges on future price trends.
Assuming an individual acquires a Plus flat within the $500,000 to $600,000 range and
subsequently sells it for $700,000 to $800,000 a decade later, "The seller can still
derive some profit," he underscores, while noting that considerable capital
appreciation might be reined in.

#PROPWITHMEL PAGE | 09
POTENTIAL SHIFT TOWARDS
EXECUTIVE CONDOS (ECS) DUE TO
10-YEAR MOP FOR PLUS AND
PRIME FLATS
Might the introduction of a 10-year Minimum Occupation Period (MOP) for Plus and
Prime flats steer a portion of the demand towards the executive condo (EC) market?
ECs, a fusion of public and private properties, offer HDB grants to first-time buyers,
albeit with specific terms, and accommodate a higher $16,000 monthly income
threshold.
First-time EC purchasers face a five-year MOP, following which they can only vend their
units to Singaporeans and permanent residents (PRs). Post the 10th year, ECs can be
traded without restrictions to both locals and foreigners, akin to other 99-year
leasehold condos in the OCR.
Nevertheless, prospective EC buyers are excluded from availing HDB loans and must
instead seek financing from private financial institutions, with the loan-to-value (LTV)
ratio capped at 75%. "EC buyers need to possess sufficient cash for the [25%] down
payment," emphasizes Sun from OrangeTee. She further highlights that ECs offer
distinct offerings such as shared condominium facilities and gated security access.
However, there are trade-offs to consider. Sun points out that while ECs are subjected
to fewer constraints, they tend to be situated in less sought-after locations compared
to Plus and Prime flats. Sun explains, "Had ECs been located in more desirable areas,
the MOP might have been extended, possibly to a 10-year MOP before being available
to Singaporeans and PRs, and a 15-year MOP before being open to foreigners. This
could have resulted in more stringent selling criteria as well."

R067207F
Contact: +65 8826 9398