How will new Prime, Plus and Standard Flats Impact Both Buyers and Sellers

Shelwyn @ SGPD — Mon, 21 Aug 2023 04:00:41 +0000

TLDR

Buyers of new Prime and Plus BTO Flats will see lower investability and rentability, and will also be limited to a smaller buyers’ pool due to an imposed income ceiling for resale buyers.

Existing HDB flat owners located at “Prime” and “Plus” locations may have their resale value increased further as supply for flats, especially newer flats without the actual Prime and Plus restrictions will continue to decrease.

Resale HDB flat buyers who are keen in buying in “Prime” and “Plus” locations without the new restrictions may have to buy earlier than later as prices will continue to increase to meet the decreasing supply.

New Categorisation of HDB BTOs - Prime, Plus and Standard

On 20 Aug 2023, PM Lee has announced that the existing categorisation of Mature and Non-Mature estates for new BTOs will cease to exist by second half of 2024. They will be replaced by new categories known as Prime, Plus and Standard. These will not be tagged to existing or flats booked before 2H 2024.

Think of it as tiering – Prime will be the best-located HDB flats and it tiers down accordingly to Plus and Standard.

But instead of just making Prime the most expensive, Prime will have the most resale and rental restrictions and these restrictions scale down for Plus and Standard, respectively.

Below is a table summary of the new categories from MND.

What this means for Buyers of the new Prime and Plus BTO Flats

Prime BTO Flats

With the tightest restrictions, buyers must understand that Prime units come with lower investability – you can only sell 10 years later, you have to return a certain % resale money to the government (if you took subsidies) and resale buyers’ pool will be limited to those who meet the prevailing BTO income ceiling (currently set at $14,000 for families and $7,000 for singles).

If you own a private property, you will have to sell your private property and wait for 30 months before you can buy a Prime resale flat.

These flats will come with minimal rentability as well – you cannot rent the entire flat at any juncture – so you can only rent bedrooms.

These factors will limit you if you are looking to upgrade your property in the future.

Plus BTO Flats

Plus BTO flats are sort of a middle-ground, you don’t get the tightest restrictions but are nonetheless limited with the 10-year MOP and you also have to return a certain % resale money to the government but lower % than Prime (if you took subsidies).

Investabiity is only slightly better than Prime – because all restrictions are similar other than lower subsidy clawback and a higher income ceiling ($14,000) for singles for resale transactions.

Plus flat owners will not be able to rent out the entire flat at any time and Plus flats resale buyers also have a wait-out period of 30 months.

Rentability is definitely better than Prime since you will be able to rent out the entire flat after your 10-year MOP but make no mistake, you still have to wait for 10 years.

Standard flats will have similar restrictions with the existing HDB BTO rules (eg. 5 years MOP, no income ceiling for resale buyers).

What this means for existing Flat Owners located at "Prime" or "Plus" areas

If you currently own a flat that could fall into the category of a Prime or Plus location, especially if your flat is still undergoing the 5-year MOP period, your future resale value could increase further after this new categorisation.

The reasons are simple – you enjoy a wider buyer pool who doesn’t have to meet the prevailing BTO income ceiling, and is not impacted by a longer MOP or rental restrictions while the location is considered a choice location.

It is all about demand and supply. Let’s say I’m a buyer looking to buy a well-located resale flat, I will gravitate towards buying a flat that doesn’t come tagged with multiple restrictions because they provide more options for me on either investability or/and rentability.

Refer to the below map from MND to get an idea where your existing flat may be located. We will likely have a better idea as we monitor HDB BTO launches from 2H 2024 onwards.

What this means for Resale Flat Buyers who are looking to buy in "Prime" or "Plus " Locations

The new Prime and Plus BTO Flats will start to populate the HDB resale market in about 14 years’ time. That may seem like a long time but the fact is that, new flats in these choice locations with only 5 years MOP will cease to exist in less than 6-7 years’ time.

As mentioned above, the resale value of well-located newer flats without these new restrictions will start to go up as demand for them increases.

Resale flat buyers who are keen to buy newer flats in “Prime” or “Plus” locations may have to buy sooner than later as supply for these flats will only start to dwindle and prices will increase to meet the demand.

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