A new dimension to first-timers’ BTO dilemma

Since these changes, the volume of resale HDB transactions has moderated downwards, with an estimated 26,000 transactions in 2022, and approximately 25,000 transactions in 2023. A more modest growth rate of 4.8 per cent was registered for resale HDB flat prices in 2023, less than half of the 10.4 per cent increase reported in 2022.

Despite these outcomes, two signs pointed towards the need for further intervention; even as the volume of resale HDB flat transactions dwindled, the HDB resale index continued to surge by 27.6 per cent from Q4 2020 to Q2 2023 – and so did the number of million-dollar HDB flat transactions.

In 2021, there were a total of 259 resale HDB flats sold at the million-dollar mark. This figure grew to 369 units in 2022, and hit the current peak of 470 in 2023. And as of January 2024, 74 resale HDB flats were transacted in the seven-figure range.

Against the backdrop of these developments, the government unveiled its new BTO framework in August 2023.

Taking effect in H2 2024, the incoming BTO classification system will introduce the Standard, Plus and Prime categories.

While Standard flats will retain current BTO sales conditions such as the current five-year MOP, Plus and Prime flats, located in more attractive locations, will come with stricter regulations. These include a 10-year MOP as well as more stringent rental and resale conditions, including a clawback of a percentage of the future selling price or valuation, whichever is higher, and a S$14,000 income ceiling for resale HDB buyers.

Moderating the ‘lottery effect’

Purchasing an HDB flat in a mature estate and selling it after the standard five-year MOP has proven highly lucrative for first-timers.

For example, when the four-room BTO flats at Ghim Moh Edge were launched in 2012, their prices ranged from S$450,000 to S$594,000. Fast-forward to 2022, after achieving MOP status, a total of 117 of these units were sold for significant profits, with transaction prices of between S$703,000 and S$1.1 million.

The term “lottery effect” has been coined to describe the significant gains that some BTO buyers get to enjoy upon selling their flat on the resale market.

This effect is most pronounced among HDB flats that are 15 years of age or newer (that is, resale flats that have achieved MOP in the last 10 years). They made up the bulk of million-dollar flat deals from 2021 to 2023.

Among the 259 million-dollar HDB flats sold in 2021, 196 (75.7 per cent) were 15 years old or newer. In 2022 and 2023, a similar trend was observed: 197 out of 369 (53.4 per cent) and 246 out of 470 (52.3 per cent) million-dollar units were not more than 15 years old.

That said, the “lottery effect” may become a thing of the past, following the introduction of the new BTO framework.

BTO or resale?

With the new classifications in place, first-timers with aspirations of upgrading to a private property may find existing resale HDB flats in mature estates to be a more appealing option than a Prime or Plus BTO flat.

In addition to facing less-stringent resale conditions that enable a quicker exit, existing resale HDB flats are also free from rental restrictions upon reaching MOP. This provides an opportunity to generate passive income from rent, even after purchasing a private property.

Another sign pointing in favour of the resale market is that fewer buyers are paying Cash-Over-Valuation (COV) for their flat purchases.

Often, it can be a struggle for first-timers to secure the required cash for COV payments, but with the decline in the number of resale buyers paying COV from 30 per cent in Q4 2022 to 15 per cent in Q4 2023, it is more likely that they will be better positioned to consider a resale flat.

We forecast 26,000 to 27,000 resale HDB flat transactions and a projected resale price growth of 3 to 5 per cent in 2024; it is unlikely that Prime and Plus BTO flats – with their resale curbs and subsidy clawback – will yield the same unprecedented levels of price appreciation seen from 2021 to 2023.

Be that as it may, profitability should not be the sole barometer for the suitability of a home purchase.

In the long run, the revised BTO framework will reshape the HDB landscape for the better, by moderating price growth and making affordable homeownership possible for generations of Singaporeans to come.

Prime, Plus, and Standard BTO flats play a significant role in this future by fostering a more diverse and sustainable housing landscape, while continuing to provide a more gradual pathway for homeowners to upgrade.

Eugene Lim is key executive officer, and Wong Shanting is head of research and market intelligence at ERA Singapore