HDB flats: Give those ‘forced’ to buy resale units the chance to buy BTO flats

SINGAPORE’S Housing and Development Board or HDB flats are the envy of people globally. Many Singaporeans own their HDB homes, giving them a stake in the country’s prosperity.

HDB homes are well-designed and well-built. HDB towns boast comprehensive amenities that cater to the young and old, as well as good transport connectivity. Also, the HDB embraces sustainable development.

Many residents enjoy living in well-maintained multi-racial HDB towns.

What many HDB dwellers value greatly too is their ability to create wealth via home ownership.

Amid rising HDB resale home prices, flat owners can monetise their units to fund retirement needs. Meanwhile, the positive wealth effect provides owners confidence to consume more.

Moreover, as HDB flats are popular with tenants, homeowners can, subject to approval, earn recurring income from renting out part or all of a flat.

Rising HDB flat resale prices 

Post Covid-19 pandemic, prices of HDB resale flats rose faster than private homes. Between the fourth quarter of 2019 and the first quarter of 2024, the HDB Resale Price Index jumped 40 per cent versus a 33 per cent hike in private home prices, according to the Urban Redevelopment Authority’s price index.

Prices of HDB resale homes might rise faster than private homes in 2024. In Q1, HDB resale flat prices increased 1.8 per cent quarter on quarter (qoq) versus a 1.4 per cent quarterly uptick in private home prices.

Flash estimates from SRX and 99.co showed the volume of HDB resale flat transactions rose month on month in April, as prices climbed for the seventh consecutive month.

If HDB resale flat prices rise by 1.5 per cent qoq over each of the next three quarters, the annual increase in 2024 will be 6.5 per cent – faster than that in 2023.

Buying a highly coveted HDB resale flat can stretch the affordability of even relatively high-earning households. Recently, a five-room HDB resale flat in Boon Tiong Road in the Tiong Bahru area sold for S$1.588 million. 

Spending S$1.3 million on an HDB resale flat equates to about 7.2 times the annualised household income of a family earning S$15,000 per month.

The median monthly household income from work including employer CPF contributions of resident employed households in 2023 was S$10,869. The median resale price of a four-room HDB flat in Toa Payoh of S$834,000 in Q1 is 6.4 times the annualised income of such a household.

Still, only a small proportion of HDB resale flats sell for over a million dollars, although the number of million-dollar resale flat transactions is generally rising. 

Also, eligible HDB resale flat buyers receive grants. However, could providing such grants end up largely benefiting resale flat vendors?

Of course, HDB resale homes are generally far cheaper than resale condominium units nearby.

However, the most cost-effective way to become a homeowner here is typically to buy a Build-To-Order (BTO) flat from the HDB as these homes are sold at subsidised prices. Also, with a BTO home, one generally gets a fresh 99-year lease plus the chance to live in a brand new home.

In future, many BTO units may be built in choice locations too, such as the Greater Southern Waterfront, Pearl’s Hill, Bukit Timah’s Turf City, Mount Pleasant and Bayshore.

Expanding pool of BTO buyers 

With rising cost of living, should housing options be expanded for some people who can buy HDB resale units but not BTO homes?

One option could be to give Singaporean couples who bust the monthly household income ceiling of S$14,000 and permanent resident (PR) households the chance to buy BTO flats.

Improving housing choices for relatively high-income locals as well as PRs could help anchor more economically productive people here.

Also, consider allowing local singles aged over 35 years old who are buying BTO homes the chance to buy larger flats and not be restricted to two-room flexi flats. Currently, singles looking to buy larger HDB flats with two bedrooms or more have to resort to the resale market.

Sure, a two-room flexi flat of under 500 square feet may work for many singles or joint singles. However, some who work from home might want more space. Others could be seeking larger flats so that they can put up elderly parents or nephews and nieces occasionally. 

With adequate planning, the HDB can build more BTO homes to cater to a larger pool of flat buyers. Its track record of ramping up supply of BTO homes to meet demand is good.

Expanding the eligibility to buy BTO homes can come with safeguards. Perhaps, levy a surcharge on nuclear families earning more than S$14,000 per month who buy HDB BTO homes.

Another possible measure is to subject singles who buy BTO three-room or larger flats to a clawback on sales proceeds upon resale of the units.

A combination of longer minimum occupation period, tighter restrictions on renting out part or all of the unit, and clawback of proceeds upon resale of flats can apply to PR households who buy BTO homes.

Tight restrictions on eligibility to buy BTO homes help drive demand for HDB resale homes as some people who want to buy a home for owner-occupation have little alternative besides the HDB resale market.

In turn, a buoyant HDB resale market helps private housing developers as some HDB BTO owners might channel money from selling their homes at good prices to buy new private homes.

Ultimately, keeping HDB resale flat prices generally affordable matters. Some families with urgent needs to buy a home to move into straightaway will resort to the HDB resale market. Also, some buyers target specific HDB resale flats because they are keen to live close by to other family members.

Shifting some demand from HDB resale flats to the BTO segment will likely help moderate the pace of escalation in resale prices without bringing the HDB resale housing market to a standstill.

Meanwhile, many people could see their mental and financial well-being improve, should they become eligible to buy brand new affordably priced BTO homes in choice locations.