With a firm emphasis on equal opportunity and inclusiveness, National Development Minister Desmond Lee discussed the possibility of regulating the reselling of future Build-To-Order (BTO) flats located in prime locations.
National Development Minister Desmond Lee PHOTO: MCI
This announcement should not come as a surprise. In March this year, the previous Minister of National Development, Mr Lawrence Wong, had already highlighted in Parliament the need to curb “social stratification” that may arise due to the relatively high prices of resale Housing Development Board (HDB) flats in mature estates and prime locations, as shown below.
Data taken from hdb.gov.sg
This may come as a surprise. Didn’t we just see in the news that HDB home prices have been dropping in the past 2 years? It seems that with the startling number of million-dollar and above resale HDB flats sold last year and in the first 10 months of 2020. The government has decided that it needs to firmly clamp down on the number of expensive resale HDB flats in prime locations being sold.
Before we can go into the exact details that Minister Lee highlighted, we might ask,
What’s the problem with these Resale HDB flats being sold at high prices?
Average Price per Sqft of resale HDB flats in CCR vs OCR regions in the past 15 years
It’s an undeniable fact that houses located within the Core Central Region (CCR) are relatively more expensive to their Rest of Central Region (RCR) and Outside Central Region (OCR) counterparts, for reasons such as surrounding amenities and their convenient locations.
[psst: still not sure what exactly the CCR, RCR and OCR are? Check out our super short video that succinctly explains these regions here.]
Why, then, is the government trying to interfere with the free market?
This is because the original goal of HDB flats being accessible to all members of the public at affordable prices has been skewed.
Minister Lee stressed that, as the purpose of public housing was to allow Singaporeans of all backgrounds to live in their desired regions, the “principle of fairness” was of utmost importance.
Data taken from squarefoot.com.sg
He explained this further by establishing that while BTOs in prime locations are sold to homeowners at a highly subsidised price through ballots to ensure that flats in all locations are made affordable to all hopeful applicants, in the future, the price of such flats undergo steep appreciation, allowing past homeowners to earn large profits with low initial cost.
From the table, the hefty profits are earned by all sellers. BTOs in prime locations and mature estates reap far greater profits than their non-mature estate counterparts.
After these flats undergo a few rounds of buying and reselling, it is highly likely that “only wealthy people can afford this type of housing”, limiting the diversity of households living in prime locations.
Thus, he has announced that the Ministry of National Development (MND) will be implementing cooling measures in the near future to prevent prices from soaring.
So what measures are being implemented, exactly?
Adopting a two-pronged approach, Mr Lee stated that the MND will continue to purposefully include two-room flats for elderly occupants and rental flats for lower-income households. Even in future estates located in the CCR, so as to boost inclusivity within estates. Furthermore, the MND may be rolling out new policies to curb the growing prices of resale HDB flats in the near future.
In a Facebook post made on 11 December, he notes that as the government has been taking feedback from the general public. The MND has received various suggestions to introduce “some restrictions on the resale conditions for future prime area projects”. However, he does not specify the exact measures that will be implemented.
Prediction
So, can we predict some of the measures that will be rolled out?
Let’s go through four measures that many speculate may be implemented.
- Increasing Minimum Occupation Period (MOP): The government may choose to extend the current compulsory 5-year MOP. Forcing homeowners to stay in their BTO for another few years before they can sell their flat. However, many speculate that this would simply delay the inevitable sale of flats at windfall prices for a few years. Moreover, this would inconvenience those who genuinely need to sell their flat after the usual stipulated MOP period.
- Shortened lease: The government may choose to shorten the lease of HDB flats in prime locations. While interested parties may still end up buying these resale flats. They might do so at a lower price as they believe the value of the house has dropped. However, this may put those who bought the flat for the sake of staying in it for as long as possible at a disadvantage.
- Resale to HDB: Some have speculated that HDB may enforce a rule stating that any flat in the CCR can only be sold back to HDB, who buys it at a set price based on the years left on its lease. HDB will then be the sole seller of any resale HDB flats in the CCR, at more affordable prices. While this may seem practical on paper, such a policy may cause dissent amongst homeowners as they are forced to sell their own flats at a price that they cannot control.
- Limiting Final Price: Some have suggested that the government put a cap on the selling prices of flats in prime locations. However, this measure may simply backfire as it simply invites more buyers to buy the house at the maximum price. In other words, the price ceiling may simply turn into a fixed price floor.
Preparation
Taking into account these potential measures, How should we prepare ourselves for any policy changes?
While nothing will be confirmed until the MND officially implements any policies. We should begin viewing investment properties with increased prudence, and prepare ourselves for drops in the prices of resale HDB flats. Especially those in the CCR region, or larger flats in mature estates.
Most importantly, as buyers, we will have to consider our options with even more cautiousness. As we may see the future prospects of potential flats be severely limited in the near future.
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In the meantime, as usual, life goes on. If you’re looking to sell your house and want some professional input, or find that your property is taking a little too long to sell, we’d be happy to help you out! Similarly, if you have any questions or opinions regarding this article, we’d love to hear them as well.
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