What HDB's new BTO categories, Prime, Plus, and Standard, mean for consumers

What HDB's new BTO categories, Prime, Plus, and Standard, mean for consumers

October 9, 2024

CONDOsingapore.com

This month, the government will introduce nearly 9,000 Build-To-Order (BTO) apartments, the first group of public housing apartments to be categorised using a completely new system.

Three groups of new HDB apartments—Standard, Plus, or Prime—will be available, each with different subsidies and tiers of buying and selling restrictions.

Why was the new framework necessary?

In the past, BTO apartments were categorised as either mature or non-mature estates. Buyers are more likely to favour mature estates that were built earlier, in better areas, and with more amenities; the higher demand is reflected in the prices of apartments there. There has been a significant "lottery effect" for owners of apartments in established estates, as sellers have made larger profits on resale.

Former Prime Minister Lee Hsien Loong unveiled the new BTO framework during his 2023 National Day Rally speech. Its purpose is to guarantee affordability and limit the sharply increasing resale values of public housing.

To lessen the "lottery effect," the new framework includes strict resale requirements and a clawback of subsidies.

The more expensive Prime and Plus apartments will receive additional subsidies, some of which will be recouped through resale.

The rental and resale restrictions for Plus and Prime apartments are more stringent. Before flat owners can sell their properties, a minimum occupation period (MOP) of ten years is needed, instead of the current five years.

Furthermore, apartments can only be resold to purchasers who fulfil the BTO eligibility requirements set forth by the Housing and Development Board. This restricts the Plus flat resale market to purchasers earning less than S$14,000 per year. The income cap for the resale of Prime apartments is S$7,000 for singles and S$14,000 for families.

Although they are not permitted to rent out their entire apartment, owners of Plus and Prime apartments are permitted to rent out additional rooms.

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What Prime and Plus apartments will be affected by the longer MOP, resale curbs, and rental restrictions

Ismail Gafoor, the CEO of PropNex, stated that the longer MOP and more stringent resale requirements will deter applicants from adopting a speculative approach when applying for a BTO flat and help to lessen the "lottery effect" in the resale market.

The possibility of flat owners making a sizable income from renting out their HDB apartments is also eliminated by the ban on whole-flat rentals. According to the most recent data from 99.co and SRX, HDB rents flattened out in August, declining 0.4% from the month before. Overall, rents increased 4.2% over the course of the year, with non-mature estates rising 3.9% and mature estates rising 4.5%. In general, HDB rents have been increasing in line with private residential market rents.

According to Christine Sun, chief researcher and strategist at OrangeTee Group, the stringent restrictions on resale are intended to "emphasise to Singaporeans that public housing is meant primarily to serve as a home for the long term."

Additionally, they wish to deter Singaporeans from treating their apartments as short-term assets or utilising them for speculative investments. Buyers frequently resell their apartments soon after MOP because properties close to MRT stations, prestigious schools, and other necessities tend to fetch higher resale values.

The terms of sale for a Standard flat will be comparable to those that have been offered thus far, but Plus and Prime apartments have numerous restrictions. Standard apartments, which roughly correspond to units in what were referred to as non-mature estates, will also make up the majority of the apartments available.

Eugene Lim, the chief executive officer of ERA Singapore, anticipates that Standard apartments will continue to be in demand since they are affordable for purchasers.

Some buyers searching for homes in prime or desirable locations may be deterred by the resale restrictions (for Plus and Prime apartments). As a result, we anticipate a rise in the demand for already-existing resale apartments in these desirable neighbourhoods, which will probably drive up apartment prices there," he continued.

Resale prices have been increasing rapidly in the lead-up to the October launch of the new BTO, rising 2.3% in the second quarter and 2.5% in the third. The government has already tightened loan limits in an attempt to curb the rising resale HDB prices.

Assuming that at age 31, you were able to secure one of these apartments. After accounting for the four-year construction period, you will be 35 years old when you take possession of the flat and 45 years old before you are able to sell it on the market. That means your next home loan can only be taken out for a maximum of 20 years," Lim said.

In contrast to a 30-year runway, a 20-year runway for your next real estate purchase might simply result in a smaller housing loan amount or higher monthly loan payments, and you might have to pay more out of pocket. Your future plans to move up to a private property or executive condominium may be affected by this.

Lim also noted that the flat must be returned to HDB at a price that will "probably be based on the original BTO purchase price minus acquisition costs" if a divorce occurs within the 10-year MOP and neither party is permitted to take ownership of the property.

Where will the Standard, Plus, and Prime apartments be located?

When public housing estate development was reliant on land availability in 1992, the distinction between mature and non-mature was made for the first time.

First to be constructed and designated as mature estates were Ang Mo Kio, Clementi, Marine Parade, and Serangoon. Later-developed projects in Choa Chu Kang, Jurong West, Sengkang, and Woodlands were classified as immature estates.

However, the distinctions between the two types have become less evident as non-mature estates have developed, with the newer estates also boasting better amenities and developed infrastructure.

Market observers anticipate that apartments covered by the current Prime Location Housing (PLH) model will be included in the Prime category. These apartments may have nice views and are situated in or close to the city centre, amenities, and transportation hubs. Crawford Heights, located in the Kallang-Whampoa neighbourhood, will be the first project. Prime apartments may also be included in upcoming estate developments in Turf City and along the Greater Southern Waterfront.

PLH apartments were available in areas like Kallang/Whampoa, Queenstown, and Bukit Merah under the previous BTO structure.

According to Gafoor, plus apartments will probably be located in the outskirts of the city or in "very desirable locations in the suburbs, where the project is within walking distance to a range of amenities and the MRT station."

Additionally, the new framework gives singles—a group that has had limited access to the public housing market, which prioritises families and young couples—more options.

First-time single applicants who meet the eligibility requirements can now: (a) purchase brand-new, two-room flexi apartments in all locations under the Standard, Plus, and Prime categories; (b) purchase a Standard or Plus apartment in the resale market of any size (with the exception of 3Gen apartments); and (c) purchase a two-room flexi Prime apartment in the resale market.

Singles could only apply for a two-room flexi flat in an immature estate in the past.

Additionally, HDB will be modifying the different priority schemes, ballot chances, and flat allocation quotas for first-time applicants.

Conditions that were previously applicable to PLH apartments are now only applicable to Prime apartments, and parameters that were previously applied to non-mature estate apartments will now be applied to Standard apartments.

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