Ethnic Integration Policy buyback scheme 'long overdue', minimal impact on resale market: Analysts

SINGAPORE — The announcement that the Housing and Development Board (HDB) will buy back flats from sellers facing genuine difficulties caused by the Ethnic Integration Policy (EIP) is one that may come with some downstream implications, property analysts said.

These include surges in applications for the new scheme, as well as the possibility that some sellers may not make the best effort to sell the flat, knowing that there is a "backup buyer" in HDB. 

However, the experts that TODAY spoke were generally supportive of the move announced in Parliament on Tuesday (March 8), with one of them saying that it is "long overdue".

They also noted that it was largely the minority sellers who have been held back by the EIP. 

The Ministry of National Development (MND) and HDB said in a joint statement on Tuesday that “a small number” of flat owners are constrained by the policy and may find it hard to sell their flats. 

Under the EIP, a homeowner of a minority race can only sell his or her flat to another member of a minority race, once the quota for the majority race has been reached.

With this latest move, which takes effect immediately, HDB will assess requests for buyback assistance on a case-by-case basis. It will take into consideration factors such as whether the household has fulfilled the minimum occupation period and owned the flat for at least 10 years, or if regular genuine attempts were made to sell the flat at a reasonable asking price. 

Lauding the move, Ms Christine Sun, senior vice-president of research and analytics at real estate agency OrangeTee & Tie, said that some flat owners may have trouble finding suitable buyers given the prevailing ethnic proportions in the public housing block or neighbourhood.

"As a result, some EIP-constrained flat owners may take longer than usual to sell their flats (and) some of these flats may be sold below valuation to attract suitable buyers." 

She added that the policy change will help EIP-constrained households that need to sell their flats urgently, especially those facing financial or family difficulties. 

"Others may need to sell their flats within six months because they need to take possession of their new homes, which could be another Built-To-Order or resale flat," she said. 

Agreeing, Mr Ismail Gafoor, chief executive officer of real estate agency PropNex Realty, said: "The HDB buyback policy will give EIP-affected sellers more confidence and certainty in planning the next steps of their real-estate matters." 

POTENTIAL EFFECTS OF BUYBACK OPTION

However, the property analysts said that there may be downstream effects of having such a buyback option. 

An issue that was raised was that flat owners may not list their properties on the market with the intention of selling it, but merely to qualify for the option. 

One criterion that HDB will consider is this: The duration that the flat has been put up for sale on the market must be comparable to the time taken by most flat owners to sell their flats, which is now set at six months. 

Mr Lee Sze Teck, senior director of research at real estate agency Huttons Asia, said that although the policy may help genuine sellers, some owners may have the mindset that they "have a backup buyer in HDB and may not use their best efforts to sell their flat". 

Therefore, HDB may end up buying back flats that could potentially have been sold on the free market. 

Mr Nicholas Mak, head of research and consultancy at real estate firm ERA Singapore, said: "Only time will tell if some flat owners will try to game the system.

"However, I believe that the Government will conduct regular reviews and adjustments of this scheme when necessary."

HDB and MND said on Tuesday that flat owners opting for the scheme should also keep monthly records of their marketing attempts throughout the marketing period, such as online or print property listings, and submit them to HDB when seeking assistance. 

Mr Ismail foresees that there could be in an increase in the number of EIP-affected owners applying to HDB to get the public housing authority to buy back their properties. 

These would include these who have been trying to sell their flats without success for the past year.

However, he said that this number should stabilise over time.

Ms Sun from Orange Tee & Tie said that with the latest changes, there may also be more EIP-constrained homeowners buying HDB flats in mature estates. 

In the past, these potential buyers may avoid such flats because they are usually pricier than those in non-mature estates and the risk of later selling these expensive flats in mature estates at a potential loss may be higher.

"More flat owners may apply for flats in the mature estates and those under the Prime Location Public Housing scheme since the Government will be giving more support to flat owners constrained by EIP," she added. 

IMPACT ON RESALE MARKET

The property experts told TODAY that the policy's impact on the resale market will be minimal, due to the relatively small number of households that will benefit. 

Around 500 Singaporeans had appealed for their property to be waived from the EIP in 2020.

This makes up only 2 per cent of the 23,100 resale applications filed that year. 

Mr Ismail of PropNex Realty said: "Generally, we do not expect the number to be significant enough to distort the HDB resale market."

However, Mr Mak of ERA Singapore noted that even though it "seems like the number is not very big", there may be homeowners who did not consider appealing in the past but may now go for the HDB buyback option in the hopes of getting a better return on their property. 

"In theory, the greater the number of HDB flat owners affected by the EIP who sell their flats to HDB, the greater the impact on the HDB resale market," he said.

"If they change the rules (by introducing a HDB buyback option), it may bring out many more cases."

The analysts also said that the problem of a lack of minority buyers may still remain, but HDB would be in a better position to absorb the policy constraints than the sellers themselves. 

The flats bought back by HDB will become part of its housing stock and will be offered for sale to the public through the Sale of Balance Flats exercises or open booking. 

Mr Mak said that HDB will have a "longer runway" to market such flats from the buyback scheme. For instance, the flats may be in HDB's possession until the ethnic make-up of the block changes and it is no longer limited by the EIP. 

"If worse comes to worst, there has also been a suggestion that (flats bound by the EIP) can be turned into rental flats if HDB can’t sell them," Mr Mak added.

WHAT ONE FLAT OWNER SAYS

One homeowner who lives in a HDB flat in Geylang told TODAY that he is still unsure how the property will be evaluated by HDB should he be eligible for the buyback option, and hopes that there will be more transparency on the process going forward. 

The homeowner, who wanted to be known only as Mr Abbas, said that his block has met the EIP quota. Because of this, his neighbour, an Indian family, had taken one year to sell his flat to a Malay or Indian family under the policy.

Though Mr Abbas has no plans to sell his 12-year-old flat yet, the 62-year-old said that he would welcome HDB making an offer for his unit with a "favourable" rate.

"The revised policy is good, but the execution is questionable... It's still unclear and I am unsure of whether the valuation of my flat will be favourable," he said.

"If HDB offers what I can get from the free market, then there is no difference and I would rather sell it myself."