AFTER the series of cooling measures that started in late 2021, and with the ramp-up in Build-To-Order (BTO) flat supply, the Housing and Development Board (HDB) resale market seemingly took a turn. HDB resale price growth adopted a more measured cadence, and resale transactions declined in the first half of 2023.

For 16 consecutive quarters, the HDB resale price index scaled upwards, reaching a peak of 176.2 in the second quarter of 2023. Price growth moderated to 1.5 per cent quarter on quarter in Q2 2023, down from a recent peak of 3.4 per cent quarter-on-quarter growth in Q4 2021.

Transaction volume, excluding one and two-room flats, declined by 2.5 per cent year on year to 12,620 units in the first half of 2023. 

In recent years, the count of million-dollar flat transactions has emerged as another metric used to benchmark the state of the HDB resale market. Between 2017 and 2020, an average of 66 million-dollar flats were sold per year. In 2021, 259 million-dollar flats were sold; another 369 such transactions were recorded in 2022.

In the first eight months of 2023, 294 million-dollar flats have changed hands. Over the longer term, the rising number of million-dollar flat deals could raise the market’s expectations, even though they make up a small minority of transactions.

All HDB flats are equal, but some are more equal than others. Well-located resale flats remain highly sought after and typically command a premium. It is thus unsurprising that a majority of the million-dollar transactions are in mature estates. The median price of a four-room flat in a mature estate exceeds S$700,000, while that of a similar flat in a non-mature estate is just below S$500,000.

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The HDB has committed to launch up to 100,000 BTO flats between 2021 and 2025, to meet current demand. Yet, BTO launches in attractive locations continued to be highly oversubscribed.

For instance, during the February 2023 BTO exercise, there were 3.5 first-time applicants vying for each four-room flat in Kallang Whampoa. Similarly, during the May 2023 BTO exercise, there were 14 first-time applicants for each five-room flat in Serangoon. The common market perception is that first owners of well-located BTO flats can stand to make substantial upside gains upon selling their homes after fulfilling the minimum occupation period (MOP).

Overall, about 40 per cent of BTO applicants eventually gave up their chance to book a flat due to various reasons. Many turned to the HDB resale market instead, adding to resale demand.

Reclassification for an equitable market

During the recent National Day Rally, Prime Minister Lee Hsien Loong announced a new framework for HDB flats, with the reclassification of BTO flats into Standard, Plus and Prime models.

The Singapore government has repeatedly echoed the need for sustainable conditions in the HDB market. Hence, the overhaul will better reflect HDB’s policy plans. Resale curbs for Plus and Prime homes aim to bridge the widening HDB price gap islandwide.

Barring any updates to current policy, one can expect to see the effects of the BTO flat reclassification on the resale market in the next decade. The new framework will encourage prospective buyers to be more thoughtful about their housing needs.

As the new classification will only take effect from the second half of 2024, and given that HDB flats take four to five years to be built, the Plus and Prime types will only enter the resale market some 14 to 15 years later.

Existing resale flat owners are not affected by this new classification, and demand for resale flats, particularly in centrally located estates, remains resilient.

The shorter five-year MOP, which also applies to the new Standard flats, is technically more attractive for HDB flat owners who seek flexibility and runway to upgrade to executive condominiums (ECs) or private property in the future.

Plus, Prime, and the property ladder

For sellers of the new Plus and Prime flats, the stringent resale conditions may limit potential upside, making it more difficult for them to climb the property ladder eventually.

First, the 10-year MOP shortens the runway for any eventual bank loan for the buyer to upgrade to an EC or private condo. Take a 30-year-old couple, who books a Plus or Prime flat. They will take possession of the flat at age 35. The couple will be 45 years old before they can resell the flat to upgrade. The bank loan tenure for their next property purchase will then be trimmed to 20 years, compared to 25 years for a 30-year-old couple who books a Standard flat with a five-year MOP. The shorter the loan tenure, the higher the monthly loan instalment. Therefore, the older the buyers are when they buy their Plus or Prime flats, the more disadvantaged they may be, should they plan to upgrade after the 10-year MOP.

Second, the household income ceiling cap of S$14,000 for the resale buyer of a Plus or Prime flat, together with a mortgage servicing ratio (MSR) of 30 per cent on all loans to buy HDB flats, essentially limits the maximum loan quantum of the eventual resale buyer.

Based on this, the maximum resale price that the first resale buyer could afford to pay would be S$1.11 million (if they were to take a loan from HDB) and S$1.06 million (if they were to take a bank loan). This then essentially caps the eventual resale prices of these Plus and Prime flats, whereas there is no income ceiling cap for resale buyers of Standard flats.

As such, Standard flats may be a better alternative for homebuyers whose plans and needs may change in time. For instance, parenthood often leads couples to look for a bigger flat after the MOP.

Standard flats also help keep first property purchases at a palatable price point, and allow for an earlier exit strategy compared to Plus and Prime flats.

A longer 10-year MOP, the clawback of HDB subsidies, and the imposition of an income ceiling on resale buyers will help negate the “lottery effect” of flats in coveted locations. The stricter resale restrictions will also deter speculation, and may moderate resale price growth over the longer term.

Spillover demand

Existing resale flats are not subject to these restrictions, and may continue to see resilient demand from homebuyers. However, resale prices of these flats are unlikely to skyrocket with their shorter lease balance. Owners aged 55 or above and seeking to downsize from private property still have the option to buy four-room or smaller flats without the 15-month wait-out period. Households that are nearing the income ceiling of S$14,000 may consider purchasing an EC or private property instead.

But HDB homebuyers are subject to an MSR capped at 30 per cent of the borrowers’ monthly income. For private property buyers, the current Total Debt Servicing Ratio is 55 per cent of the borrowers’ monthly income.

Policy has also been tweaked to cater to demand from singles. Eligible singles can now apply for two-room Flexi BTO flats in all areas. Singles who have pressing housing needs or prefer a three-room to five-room HDB flat are not restricted from buying from the resale market.

The government has undertaken calibrated measures to prevent the HDB resale market from overheating. This aligns with the HDB’s mandate to keep the public housing resale market accessible to Singaporeans, and help them achieve their lifelong aspiration of owning a property. With demand staying stable, HDB resale prices may see more measured growth going forward.

Eugene Lim is key executive officer at ERA Realty Network