Buyers of Prime and Plus apartments would forfeit 6–9% of the transaction price under

Buyers of Prime and Plus apartments would forfeit 6–9% of the transaction price under the new HDB BTO subsidy clawback

Although limits and "modest" subsidy recovery rates are unlikely to discourage purchasers, the subsidy structure produces a "price anomaly" that may influence buyers to choose Plus apartments: analysts

October 16, 2024

CONDOsingapore.com

The Housing and Development Board (HDB) announced on Wednesday, October 16, that buyers of the new Plus and Prime apartments would get a refund of 6 to 9% of their resale price (or value) when they sell the apartments.

The HDB's new Build-To-Order (BTO) structure has a 9% subsidy recovery rate for the first batch of Prime apartments. The 312 Crawford Heights apartments available in the well-liked Kallang-Whampoa neighbourhood start from S$390,000 for a three-room apartment and S$568,000 for a four-room unit.

The Crawford four-room apartments' BTO launch pricing (without including subsidies) are around 36% cheaper than the existing sales prices for four-room apartments in the neighbourhood, which ranged from S$890,000 to S$938,000.

When selling their units, owners of Plus apartments will have to pay between 6 and 8% of the unit's sales price or value, whichever is greater. Seven complexes in Ang Mo Kio, Bedok, Geylang, and Kallang-Whampoa are offering plus apartments.

A two-room flexi at Central Trio @ AMK costs S$187,000, while a four-room unit at Merpati Alcove costs S$530,000. These are the BTO selling prices for the 3,273 Plus apartments that will be available for the October launch.

The three-room units in Bedok that sold for between S$605,000 and S$663,000 had a 39 percent reduction to current market rates, while the four-room resale apartments in Kallang-Whampoa that sold for between S$868,000 and S$1.2 million had a roughly 40 percent discount.

According to HDB, the purpose of the subsidy recovery is to "maintain parity with other BTO flat buyers who are not accorded additional subsidies."

In addition to market reductions, buyers of Plus and Prime apartments will get extra subsidies, making apartments in desirable areas more affordable to a wider audience.

Stricter rental and resale restrictions are also imposed on Plus and Prime apartment purchasers in an effort to control resale prices and lessen the BTO "lottery effect," in which sellers of apartments in desirable areas profit greatly from resale.

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

Only after a minimum of ten years of occupancy (MOP) may Prime and Plus apartments be sold. The typical MOP for standard apartments, which make up the majority of the BTO supply, is five years.

Analysts predicted that purchasers who are attracted to the better areas would not be put off by the limits and "modest" subsidy recovery rates.

"If a buyer buys a four-room Prime apartment for S$650,000 and later sells it for S$1.2 million, the 9% subsidy clawback amount comes to S$108,000." said Ismail Gafoor, CEO of PropNex.

"The owner might still be able to take advantage of gross gains exceeding S$400,000."

The pool of resale purchasers may be limited by an income limitation, although Gafoor pointed out that the restriction may be increased in the future. The most recent change to the BTO family income limit was made in 2019.

However, according to Lee Sze Teck, senior director of data analytics at Huttons Asia, the extra subsidies produce a little "price anomaly" in the market. According to him, this may influence purchasers to choose Plus apartments rather than Prime apartments in better areas or nearby Standard apartments in the same complex.

He cited two comparable BTO initiatives in Ang Mo Kio town: Central Weave at AMK, which debuted in August 2022, and the impending Central Trio @ AMK. While a comparable four-room apartment at Central Weave started at S$535,000 (excluding grants), a four-room Plus apartment at Central Trio began at S$481,000 (excluding grants).

According to him, the S$54,000 discrepancy between the two might be equivalent to the 6% subsidy clawback now applied to Plus apartments.

"The four-room apartments at Central Trio @ AMK should be comparable to Central Weave @ AMK if not for the additional subsidies," he said.

Given all of these minor price variations, some astute purchasers are probably going to choose Plus apartments over Standard or Prime apartments. With greater subsidies than Standard apartments and (fewer) limitations than Prime apartments, they get to have the best of both worlds.

According to HDB, the subsidies needed to maintain the affordability of developments with different market values have different recovery rates.

For instance, because of their superior sites closer to East Coast Park, the Bayshore Vista and Bayshore Palms developments in Bedok would fetch higher market prices than Kembangan Wave. According to HDB, further subsidies are thus needed to guarantee that they continue to be affordable for a larger group of purchasers.

The subsidy recovery rates for prime-location apartments have gone up from 6% in 2021 to 9% in the most recent launch, according to Nicholas Mak, chief research officer at Mogul.sg. This is because the government had to offer apartments with larger discounts as resale values continued to climb.

The government would need to raise the market discount for BTO apartments in order to maintain cheap pricing, Mak added, because resale prices are predicted to experience upward pressure and the cost of constructing new apartments will rise due to increased land and construction expenditures. According to him, it could then need to increase the subsidy recovery rates even further in the future.

8,573 apartments will be available in the October BTO exercise. A two-room flexi apartment in Jurong West costs S$109,000. A three-generation apartment in Pasir Ris costs S$644,000. There will be around 265 senior Community Care Apartments (CCAs) available in Merpati Alcove in Geylang.

At the only Prime project in Crawford Heights, HDB will also test a "white flat" idea that would allow customers to arrange their living areas without the need for internal partition walls. "White flats" will have their prices reduced by S$8,600 for a four-room apartment and S$6,000 for a three-room apartment.

Additionally, this launch makes it possible for qualified first-time singles to apply for about 2,000 two-room flex apartments in all categories. Previously, only BTO apartments in immature estates were available to singles.