Despite the challenging constraints, HDB Plus and Prime BTO apartments are excellent investments

These residences are appealing for investment and lifestyle, and they maintain the system's equity for everybody.

October 14, 2024

CONDOsingapore.com

By purchasing brand-new Housing and Development Board (HDB) apartments at discounted rates, many Singaporeans have amassed riches. Will this tried-and-true strategy for building wealth still be effective if someone buys an apartment with more stringent requirements under the new HDB framework?

Beginning with the October Build-To-Order (BTO) exercise, HDB will offer 8,573 apartments across 15 projects. These apartments will be categorised as Prime, Plus, or Standard. There are 3,273 Plus apartments spread across seven projects, 4,988 Standard apartments spread across seven projects, and 312 Prime apartments in one property in this experiment.

The best areas will house prime apartments. Plus apartments will be in better areas, like close to amenities and transportation.

Significant market reductions are available to BTO purchasers of different kinds of apartments. Additionally, Prime apartment purchasers will get the greatest subsidies, while Plus apartment buyers would receive the most.

As a result, Prime apartment purchasers will face the strictest requirements, while Plus apartment buyers will be subject to more stringent requirements.

If BTO purchasers of Plus and Prime apartments decide to sell their apartments, they will reimburse the HDB a portion of the selling price. Compared to Prime flats, Plus flats will have a lower clawback.

The minimum occupancy term (MOP) for buyers of Plus and Prime apartments will be ten years, as opposed to five years for buyers of Standard apartments. Following the MOP, the HDB house may be sold and a private residence may be purchased.

Plus and Prime apartment owners are not allowed to rent out their full apartment at any time. Additionally, a resale Plus or Prime apartment must have at least one Singaporean buyer. Additionally, the BTO monthly family income cap, which is presently S$14,000, must be met by a couple purchasing a resale Plus or Prime apartment.

The new HDB framework seeks to preserve a decent social mix in each town and area, make the system equitable for everyone, and keep apartments within the means of all income categories.

BTO applicants should accept BTO Plus and Prime apartments notwithstanding the tight limitations placed on purchasers.



Good financial results

One is that the prices that resale Plus and Prime apartments may command may not be limited by imposing an income cap on purchasers.

A quality resale HDB property may cost over S$1 million, which is six times or more of a young couple's yearly salary of S$168,000 or S$14,000 per month. However, if the aforementioned couple receives parental assistance in buying a property, their affordability increases.

Additionally, there have been sporadic increases to the BTO family income cap. Potential raises in the income cap might expand the pool and purchasing power of purchasers of resale Plus and Prime apartments.

Importantly, local seniors who would be financing their purchases by selling, example, a private residence or a highly desired HDB property, may be drawn to resale Plus and Prime apartments. Private homeowners wishing to purchase resale Plus and Prime apartments must wait out.

Nearly half a million Singaporeans, or more than 13% of the total population, were between the ages of 45 and 54 as of the end of June. In around 15 years, when the first batches of Plus and Prime apartments may be available for sale after MOP, many members of this group may begin to retire.

Two, although though a BTO buyer of a Plus or Prime apartment may forfeit a portion of the sale earnings, these apartments are purchased with greater subsidies and in desirable areas. Therefore, purchasing a BTO Plus or Prime apartment should still provide strong financial returns.

Consider a buyer of a four-room BTO Plus apartment with a 99-year leasehold. Assume that the mark-to-market price is 45% higher than the acquisition price, which is S$550,000. Over a 15-year period, implement a 3.5% yearly price increase.

After 15 years, the aforementioned apartment may be sold for a profit of around S$719,000 on the purchase price, minus transaction fees, after deducting clawback of, say, 5% of sales profits. This corresponds to a straightforward yearly gain of almost 8.7%.

In comparison, the HDB resale price index increased 7.9 percent year over year and the compound annual growth rate was 3.3% between Q3 2014 and Q3 2024, according to the Q3 flash estimate.

Additionally, since the former would be considerably newer and have significantly longer remaining land leases, resale Plus and Prime apartments will be competitive with resale units at prized HDB buildings with far fewer restrictions, such Tanjong Pagar's Pinnacle@Duxton and Queenstown's SkyVille@Dawson.

Three, purchasing a house that is suitable for habitation is highly valued by many purchasers. A Plus or Prime apartment owner has a prime location that makes it easy to use public transportation to work or to drop off children for different activities.

For a homeowner, the ban on renting out a whole apartment may not seem like much. The ability to rent out a room after MOP may satisfy an owner-occupier of a four- or five-room apartment.

A long MOP should be doable since many local residents have been in their HDB properties for more than ten years. Additionally, owners who may need to sell their properties before MOP due to certain circumstances may have some flexibility.

Path upgrade

Four, young couples may still upgrade to a private residence after purchasing BTO Plus and Prime apartments. Consider a couple in their early 30s who relocate into an owned BTO Plus or Prime apartment. When they are in their early to mid-forties, they may sell their HDB apartment and purchase a condo. When they reach their prime working years and have saved a significant amount of money via job advancement, they may be moving from public to private housing.

For a home loan that lasts beyond the borrower's 65th birthday, a lower loan-to-value limit may not make a difference. Furthermore, given the increased labour market involvement among individuals over 60, the 40-plus-year-old pair may decide to invest in a condo since they anticipate being economically active for many more years to come.

Under the new HDB structure, homeownership may make it a little more difficult to accumulate wealth. Nevertheless, those who are accepted for BTO Plus and Prime apartments will guarantee a decent place to live and a wise investment.