Commentary: How the new HDB policies for Plus and Prime flats will promote housing mobility

The property market in land-scarce Singapore is remarkably robust.

Developments with good locational and site attributes can in fact enjoy substantial capital appreciation, helping their owners reap a hefty windfall when sold on the open market.

As a result, housing here has been widely popular as an asset class for investors seeking to grow their wealth. The proliferation of investment activity has, in turn, exerted upward pressure on prices. 

Cooling measures introduced by the Government in September 2022 to take the heat out of the resale market for Housing and Development Board (HDB) flats as well as HDB's ramping up of the supply of new flats has softened the market to some extent.

However, the HDB resale price index has persisted on an uptrend for 13 consecutive quarters since the second quarter of 2020, and recorded 1.4 per cent growth in the second quarter of 2023.

Similarly, the Urban Redevelopment Authority price index for private residential property has been rising since the first quarter of 2020, and  showed signs of easing only in the second quarter of 2023.

In such a bullish landscape, the gap between the haves and have-nots will become increasingly entrenched, with adverse consequences for housing mobility.

In a buoyant market, current homeowners, propped up by the equity of existing homes, will find it easier to buy and sell, and then buy and sell again with ever thickening profit margins.

On the other hand, lower-income families and first-timers, especially those without wealthy parents to fund their first purchase, will find themselves increasingly alienated from a pricey housing market.

GOVERNMENT INTERVENTION IN HOUSING

The Government has long supported housing availability and affordability through a two-pronged approach that involves discounting the price of new Build-to-Order (BTO) flats from market value, and applying fiscal policy in the form of means-tested grants to subsidise the cost of purchase.

Through its massive public housing programme, the Government has progressively raised home ownership rates, which in 2022 stood at an impressive 89.3 per cent of the population.

Regulatory intervention had prevented society from being segregated into a class of landlords and another class of tenants, with limited mobility between the two socioeconomic groups.

But to keep up to speed with the evolving urban landscape, Prime Minister Lee Hsien Loong in his recent National Day Rally announced the new “Plus” model of public housing.

Plus flats are HDB projects in “choicer” locations which, for example, enjoy proximity to major transportation nodes or facilities such as markets and retail malls.

The new Plus flats, together with the normal BTO flats and units under the Prime Location Public Housing model, which will be respectively re-designated as “Standard” and “Prime”, will replace the current mature and non-mature terms in the later part of 2024.

To keep Plus and Prime flats widely available, the Government will be scaling up subsidies for these units.

Such projects, however, are expected to enjoy exceptional locational attributes, and their subsequent value on the open market will be correspondingly high.

Lucky owners who managed to successfully ballot for such units in the first instance will hence reap a windfall akin to striking lottery.

To mitigate the lottery effect and disincentivise speculation, tighter resale restrictions include subsidy clawbacks and a longer Minimum Occupation Period (MOP) of 10 years for such flats. 

Additionally, homebuyers seeking such premium units in the resale market will now be subjected to an income ceiling at levels similar to those for BTO flats.

This means S$14,000 for married buyers of Plus and Prime resale flats. For singles, it is also S$14,000 for resale Plus flats but S$7,000 for resale Prime flats as they can buy only two-room flats of this model.

To prevent homes from being converted into a tool for speculation, Plus and Prime flat owners have to live in place for a longer time, are unable to rent the whole unit out and can sell to a smaller market with more constrained purchasing power, which in turn entails a thinner profit margin for sellers.

On the surface, such an outcome would appear to stifle housing mobility. But a closer examination suggests otherwise.

IMPLICATIONS FOR HDB RESALE MARKET

A longer MOP for Plus and Prime flats will naturally attract homebuyers who are predisposed to long-term housing consumption.

By definition, such projects will enjoy good locational attributes, so there is strong motivation to live in place. Those with the financial means and interest to invest in property will therefore be self-sorted into the private housing market.

As such a scenario unfolds, prices of HDB resale flats are anticipated to moderate and stabilise. Entry into this market for first-timers and lower-income families will therefore become more accessible.

IMPLICATIONS FOR PRIVATE MARKET

The current HDB resale market is an open market which attracts a wide variety of homebuyers, including affluent home hunters.

For example, the number of HDB resale transactions exceeding S$1 million spiked to 370 units in 2022, up from 2021’s 259 units, which suggests that there is no lack of money entering and circulating in that market.

HDB upgraders flush with cash from lucrative transactions are known to have driven demand for private property, especially for projects in the outside central region (OCR).

In 2022, median prices of some new OCR launches set a precedent by breaching the S$2,000 psf mark, thereby closing the gap with their counterparts in the core central region (CCR) and rest of central region (RCR).

Respondents polled in an NUS Real Estate sentiment survey late last year indicated that the bulk of the demand originated from cash-rich HDB upgraders.

However, with income ceilings slapped onto homebuyers in the HDB resale market under the new policies, many high-income earners will automatically be disqualified.

Over the long run, constrained demand will translate into softening resale prices, with a corresponding dip in the purchasing power of HDB upgraders.

Insofar as HDB upgraders are major contributors to price inflation in the private market, especially in the OCR, lower buying capacity from this segment may eventually moderate the prices of private property.

OVERALL AFFORDABILITY

Overall, the new HDB policies are simultaneously tackling accessibility, via more generous subsidies, and affordability, by disincentivising speculative activity through more stringent resale conditions.

While there may be certain aspects — such as the 10-year MOP — which may hinder geographical mobility, at the macro level, we can expect the stabilisation of prices amid higher housing accessibility and affordability, which in turn promotes housing mobility.

ABOUT THE AUTHOR:

Qian Wenlan is the Ng Teng Fong Chair Professor in Real Estate and professor of finance and real estate at the NUS Business School as well as Director of the Institute of Real Estate and Urban Studies, National University of Singapore. These are her own views.