New HDB BTO Classification Framework, What Are The Possible Consequences?

At National Day Rally (‘NDR’) 2023, Prime Minister Lee announced a seismic shift in how HDB is going to classify its flats for sale from 2H 2024. The framework of classifying estates as either mature or non-mature will be replaced by one that is either Standard, Plus or Prime. When I first heard it live during the NDR, I immediately thought of how Apple sells its iphones in similar categories too. That aside, I also think that there are already enough articles out there explaining the differences between the 3 categories. Therefore, I will skip this portion and try to value add by gazing into a crystal ball to hazard a guess on what’s going to happen to the Singapore residential market after this announcement. What are the possible consequences from this new HDB BTO classification framework?

New HDB BTO Classification

The current framework of classifying HDB BTO estates is very binary; it either falls under a mature or a non-mature estate. Diagram 1 show how current HDB towns are classified.

For the longest time, I thought classifying Pasir Ris as a mature estate is unfair when Jurong East is classified as a non-mature estate. No offence intended to Pasir Ris-ians, but it is all about relativity here. With the new classification, I am going to hazard a guess where these Plus flats will fall under since we are already familiar with Standard and Prime HDB flats.

As shown in Diagram 2, CNA shows that most Plus HDB flats will be found in the Central regions. They are likely to be the least well-located within these Central locations; such as requiring a feeder bus to get to the nearest MRT station.

The project in Diagram 3 in the upcoming September 2023 HDB launch in Kallang/Whampoa is a good candidate to be grouped under the Plus flats, even though it will not be affected by the new HDB classification framework. While it is convenient for drivers since it is located at the exit of an expressway, those relying on public transport would realise that they are 3 to 4 bus stops away from the nearest MRT.

Diagram 2 also indicated that some of the Plus flats will be located in the Rest of Central Region (‘RCR’) or what are currently classified as non-mature estates. HDB flats located near to MRT, with access to good amenities such as town centres will be good prime candidates to be considered as Plus flats. Kovan Wellspring springs to mind (pun intended) since it is located beside the MRT and has immediate access to a shopping mall and town centre.

Having explained where I think HDB Plus flats will be located in the future, let’s find out how does this new HDB classification framework affect the Singapore residential market?

Consequences of new HDB classification

Make no mistake, the impact on HDB resale prices will be significant although the impact will be varied across different categories.

Winner – Current owners of HDB flats located in central areas

Think The Pinnacle@Duxton, Tiong Bahru View, The Peak@Toa Payoh – these are all legacy flats with very desirable attributes. Because of the new rule, they suddenly find themselves not only classified as Standard flats but also unencumbered by any resale conditions. This will invariably drive up demand since there is no nationality nor income ceiling restrictions. For instance, those earning above the income ceiling of $14,000 a month may turn towards these legacy flats since they are not eligible to purchase resale Prime or Plus flats under the new HDB classification framework.

Furthermore, since Prime and Plus flats now come with 10-year minimum occupation period (‘MOP’), supply of new HDB flats entering the resale market will slow down considerably. Simple economics – demand is up, supply is down, resale prices of these legacy flats will increase.

Winner- Owner of future Standard BTO flats

I expect application rate for Standard BTO flats to go up significantly for these reasons.

1. 10-year MOP of Plus and Prime BTO flats
2. Absence of any sale restrictions will enable moderate economic gains

A 10-year MOP is not something to be messed with. Coupled with a typical 4 or 5-year wait for the BTO to be ready, the entire commitment is easily 15 years. This is an incredibly long period, almost 1/6 of your lifetime and many circumstances can change. Another tip “Never buy a property thinking you WILL never sell it in your lifetime” I would strongly ask young buyers to think twice about making such a commitment that is very difficult to walk away from.

During the NDR, PM Lee stated that the Prime Location Public Housing (PLH’) model, which also comes with 10-year MOP, does moderate demand. He compared the application numbers for Bukit Merah Ridge against Central Weave@Ang Mo Kio with the former having significantly lesser application rates as a result of its PLH status.

Secondly, home buyers who do not meet restrictions for Plus n Prime HDB flats may turn to Standard flats in the resale markets. This refers to both existing flats before the new HDB classification framework takes effect as well as future Standard BTO flats. As a result, I expect the percentage rise in prices among Standard BTO flats to outpace the rise in Plus and Prime flats. Therefore, a Standard BTO flat may represent the best choice amongst the 3 models as a stepping-stone to accumulate wealth in the HDB market. However, do bear in mind the “price to pay” in terms of staying 5 years in a more inconvenient location.

With the aforementioned reasons, aspiring flat owners bidding for a Standard BTO flat would ironically face lower chances of getting a ballot number at their first attempt.

Loser: Future owners of Prime and Plus HDB flats hoping for a lottery effect

Firstly, by enforcing owners of Prime and Plus HDB flats to sell into a smaller market with constrained purchasing power, there will be less demand for their flats. Therefore, it might take a longer time to dispose their apartments after the MOP. If that is not bad enough, the claw back of subsidies shall put paid to any huge windfalls. Therefore, I would say the policy will be effective in curbing the lottery effect often associated with owners who are lucky to get a well-located flat in a mature estate.

Loser: Property agents dependent on HDB transactions

With a longer MOP and restrictions on the type of rental transactions (not allowed for entire unit), there will be lesser transactions in the HDB market. With the shrinking of the pie, there will be less bacon for each property agent to bring home. Coupled with the emergence of digital platforms and AI, I feel that property agents definitely have their work cut out in the future.

This article is published on 27 Aug 2023

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