‘Prime’ time for change: Why the HDB reclassification is long overdue

The long MOP likely won’t deter demand for Plus and Prime units, analysts said.

Real estate agents in Singapore welcomed the government’s recently unveiled plans to revamp its system of classifying HDB developments.

Under the “Plus” model, Singapore will do away with its “mature” and “non-mature” estate classification. In its place, HDB developments will be classified as “Standard”, “Plus”, and “Prime”, depending not just on location from the city center but on the attributes offered by its locale.

“The review is timely as the line between mature and non-mature estates has gradually blurred over the years. Moreover, the price mechanism for future BTO projects should be less associated with locational attributes,” said Christine Sun, senior vice president of research and analysis, OrangeTee & Tie.

In his National Rally Day address, Prime Minister Lee Hsien Loong said that he expects the changes to improve single persons’ access to public housing–a sentiment echoed by real estate agents.

“The reclassification of new HDB flats and improving access to public housing for singles, are in our view long overdue, while the improvement to housing infrastructure for the seniors are particularly relevant, given Singapore’s aging population,” said PropNex CEO Ismail Gafoor, who noted that by 2030, almost 1 in 4 Singaporeans will be over 65 years old.

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Better choices
Potential home buyers should have an easier time choosing a flat that suits their needs, as the new classification is more sensitive to local attributes and range of amenities near the specific BTO project.

“It is a refreshing change and we think it is akin to product segmentation, where there are differentiated offerings that will suit different groups of buyers depending on their needs, wants, and budget,” Gafoor said.

Originally, mature estates have attracted higher prices than non-mature estates, but development of individual locales in recent years meant that certain non-mature estates have attracted higher prices. For instance, a media resale price in Punggol and Sengkang would go for between S$540,000 to S$550,000– far higher than in mature estates such as Bedok and Ang Mo Kio, which sold for S$425,000 to S$440,000 in 2022.

These trends indicate that buyers are now placing a higher value on a product’s attribute rather than its proximity to the city center, Sun said. 

“Therefore, reclassifying flats to be less associated with locational attributes can provide a more accurate depiction of the intrinsic value of certain flats, especially those outside of the city center,” Sun noted.

The long haul
Another notable change is the enactment of a 10-year minimum occupation period (MOP) for the Plus flat owners. Owners are also subject to restrictions such as the clawback of subsidies upon resale, a 10-year minimum occupation period (MOP), and an income ceiling on resale buyers.

Whilst the changes to the housing policy may lead to a stable HDB market in the long run, it could make it harder for owners to eventually buy their own private homes.

“It is taking longer for owners of HDB flats to realise substantial capital gains to be able to move up the housing ladder,” said Sze Teck Lee, senior director, data analytics, for Huttons Asia.

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The proportion of buyers with a HDB address buying a private property has declined in recent years and more are relying on intergenerational wealth transfer to do so, according to Lee. 

“This may exacerbate the haves and have-nots in society,” Lee added.

Families getting a “Plus” unit, for example, will need to plan ahead of over 10 years of living in the unit.

“[Buyers] of these flats are in for a longer haul, say 4 years construction period and the 10-year MOP, as opposed to the construction period plus 5 years’ MOP for Standard BTO flats, or even just the 5-year MOP if they opt to buy existing resale flat,” Gafoor noted as an example.. 

“They will have to consider very carefully their plans to have kids, the school that they wish to enroll them for in the future, and their own home upgrading journey, because they will be tied to their Plus/Prime flat for some 14 years,” he added.

Another issue is that the restrictions in Plus apartments may instead drive demand to Standard apartments, making ballots more difficult in this area, Gafoor said.

OrangeTee&Tie’s Sun, however, does not expect the long MOP to impact demand.

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She noted that in 2022, 73.1% or almost 3 in 4 resale transaction of flats were for units that were at least 10 years old.

Sun also noted the demand for the new Prime Location Public Housing (PLH) model flats, which were launched in 2021. The PLH flats, which already had a 10-year MOP, attracted strong demand.

“Based on the robust number of applicants for PLH model flats, the results have been positive, indicating that many buyers are receptive to buying flats with longer MOP,” Sun said.