Considering the New Plus Flats: How Would it Impact the HDB Property Market?

Previously, in October 2021, the Ministry of National Development (MND) announced the Prime Location Housing (PLH) model. From the following month, new Build-To-Order (BTO) projects situated in the designated four ‘prime’ neighbourhoods (Central Area, Queenstown, Kallang/Whampoa, and Bukit Merah) were classified as Prime flats. 

Recently, during the National Day Rally in August 2023, Prime Minister Lee Hsien Loong unveiled another new flat classification called Plus flats. These new classifications are slated to replace the current mature and non-mature estate categorization in the latter half of 2024.

Below is a summary of the upcoming changes in flat classification as well as the key features of each classification of flats.


 

Source: HDB

Like Prime flats, one of the key restrictions of Plus flats involves a 10-year Minimum Occupation Period (MOP). Considering that BTO flats typically require an average of 4 to 5 years for construction completion, this means Prime and Plus flat owners would have to wait an average of 15 years before they can sell their flats, ensuring a commitment period for homeowners.

Another noteworthy restriction for Plus flats is that the entire unit cannot be rented out; only spare rooms are eligible for rental purposes. This further curbs the investment potential for HDB flats.

Moreover, both Prime and Plus flats are subject to subsidy recovery. Given their advantageous locations and subsequent higher capital appreciation compared to BTO flats in non-prime areas, owners of Plus and Prime flats are required to return a fixed percentage (currently set at 6% for Prime flats) of the resale price or valuation of the flat. This measure is implemented to offset windfall gains and maintain equity among BTO flat owners who did not receive such additional subsidies. 

Source: HDB

In addition, both Plus and Prime flats are subjected to an extended 30-month wait-out period after selling private properties before they can acquire an HDB flat. This strategic measure aims to curb speculation from investors seeking higher returns on investment (ROI) by investing in Plus or Prime flats. The extended waiting period is designed to prioritise genuine homeowners who are committed to long-term residence in prime locations.

These stringent regulations serve as clear indications of the government’s awareness regarding property investors leveraging BTO flats for investment purposes and underscores the government’s commitment to the core purpose of HDB flats, which is to provide affordable and high-quality housing for all Singaporeans.

Would There Be Lesser Demand for Plus/Prime Flats?

To address this question, let us examine the application rates for the initial release of Prime BTO flats and assess whether they exhibit a lower demand compared to Standard flats.

Analysing the application rates allows us to understand how homebuyers perceive and respond to the additional restrictions imposed on Prime flats.

Source: HDB

Using River Peaks I / River Peaks II as an example, the application rate for 4-room flats among first-time buyers stands at an impressive 5.3. This figure indicates a notable demand, with approximately 5 applicants vying for each available unit. Comparing this rate to the overall average application rate for all BTO projects, which is at 3.0, it becomes evident that the application rate for the PLH project surpasses the average.

While comparing against other Standard BTO projects in Hougang, Jurong West, and Tengah, the application rate for River Peaks I / River Peaks II is significantly higher. This data points to a heightened level of interest and demand for the Prime flats compared to Standard BTO projects. 

To delve deeper into our discussion, let’s explore another example that highlights the attractiveness of Prime and Plus projects.

Source: HDB

Despite the restrictions imposed on Prime flats, we still see high demand for it as seen in the case of Serangoon North Vista. The application rates for 4-room flats among first-time families is an impressive 9.3.. Both figures surpass the median application rate of 2.3, highlighting sustained demand for these Prime flats. Furthermore, when compared to other Standard BTO projects, the application rates for these PLH projects consistently demonstrate a higher demand trend.

The key takeaway is that, despite the additional restrictions on Prime flats, there has been no reduction in demand. On the contrary, Prime flats exhibit higher demand compared to Standard flats. This suggests that for flat buyers, the perceived value of location outweighs the impact of restrictions, emphasising the significance of location in the decision-making process.

This market behaviour provides a strong indicator of what’s to come when Plus flats become available. These flats, designed for those who want proximity to MRT stations or town centres, are expected to enjoy the same level of demand due to their advantageous locations.

Comparative Analysis of Prices for Prime Location Flats vs. Non-Prime Location Flats

Shown below are the most recent transaction prices for 4-room HDB flats in the Kallang/Whampoa and Punggol area respectively.

Source: Squarefoot

Here we observe that HDB flat prices in the Kallang/Whampoa area hover around $800k-1 million, while those in the Punggol area are more affordable at $400-600k. This stark contrast reveals that home buyers are willing to pay an additional premium of $400k for the privilege of residing in a prime central area. It reinforces the notion that, for HDB buyers, location is a major consideration in their decision to buy a flat.

The demand for Plus/Prime flats is unlikely to decrease in the future

Despite the added restrictions, PLH flats continue to draw significant attention from HDB buyers. The prime factor influencing this trend is the superior location of PLH flats, particularly their proximity to central areas.

Anticipating the future, Plus flats are poised to follow a similar trajectory, boasting higher application rates than Standard flats, given their more convenient locations.

As investors ponder the prospect of purchasing Plus and Prime flats, the 10-year MOP and rental limitations may deter short-term profit-seeking strategies. However, the consistent preference for long-term residency over speculative investment demonstrates that the demand for Prime and Plus flats is likely to remain robust.

Are Plus and Prime flats worth buying?

For Genuine Homebuyers:

For those seeking a place to call home for years to come, the location is undeniably pivotal. Prime flats, with their prime central locations, offer a wealth of amenities and conveniences, making them an attractive choice. The value of a well-located property, which enhances daily life and future prospects, can’t be overstated. Hence, for genuine homebuyers, Prime flats become a logical and appealing option.

Yet, prime flats in better-located areas come with an additional premium of approximately $400k, prompting genuine homebuyers to carefully evaluate whether the long-term benefits of a superior location justify the increased cost. Additionally, with the introduction of Plus flats and emergence of new MRT lines, the necessity of residing in prime areas for enhanced accessibility comes into question.

For Property Investors:

Investors, however, might be concerned about the additional restrictions, including the 10-year MOP and rental limitations. Yet, there’s a silver lining here. The persistent demand for Plus/Prime flats indicates that their prices are unlikely to see significant declines. Moreover, these restrictions also provide a more secure exit strategy once the MOP period is over, minimising the risks associated with real estate investments.

With Prime flats demonstrating a higher resale value than Standard flats, a similar trend is anticipated for Plus flats in the future. However, it’s crucial to consider that while Plus flats may exhibit higher capital appreciation than Standard flats, the profits will materialise much later due to the 10-year MOP. Presently, leading up to 2024 when Plus flats are set to enter the market, resale flats in ‘Plus’ areas might witness increased demand, potentially driving up their prices.