Does demand for HDB BTO units in mature estates need tempering?

Mar 13, 2023

YOUNG Singaporean couples are getting more help in owning a home. And the results of the latest Build-To-Order (BTO) exercise by the Housing and Development Board (HDB) indicate application rates have reduced and are stabilising.

The HDB allocates the bulk of BTO flat supply for first-timer families. At least 95 per cent of four-room and larger BTO flats are set aside for first-timer families.

Among first-timer applicants, families with children aged 18 and below, as well as young married couples aged 40 years old and below get an additional ballot for their BTO flat applications starting from the August BTO exercise.

Also, these applicants will be included in the Family and Parenthood Priority Scheme. Up to 40 per cent of BTO supply will be for applicants under this scheme. And first-timer parents and married couples get shortlisted ahead of all other applicants for four-room and smaller flats in non-mature estates.

As young couples find it easier to get a BTO unit, they may see less need to seek pricier alternatives in the resale market.

Still, some homebuyers may worry if they can secure a desirable BTO unit, which may be a flat in a mature estate. In 2022, first-timer BTO applications to mature estates were about 1.6 times that of non-mature estates.

In the latest BTO exercise, the application rate for four-room flats in mature estates exceeded that in non-mature estates.

Draw of mature estates

Despite higher prices for BTO units in mature estates, lower chances of securing such flats, as well as possibly longer wait times, the draw of mature estates remains strong.

A young couple may want to live in a mature estate such as Ang Mo Kio or Toa Payoh because one set of parents lives there. Also, the amenities or transport links are better in some mature estates versus non-mature ones.

Maybe, buying interest in homes in non-mature estates can be boosted by siting more sought-after schools in such estates. Demand for homes in the Tengah new town in the west may rise as Anglo Chinese School (Primary) moves from its current campus in Newton to Tengah come 2030.

The potential capital gains from owning a BTO flat loom large for some applicants.

In the latest BTO exercise, the price range for a four-room flat at Rajah Summit in the mature town of Kallang/Whampoa was S$459,000 to S$631,000, while that for a four-room unit at Jurong West Crystal in the non-mature town of Jurong was S$288,000 to S$372,000.

Compare buying a four-room BTO flat for S$545,000 in a mature estate and S$330,000 in a non-mature estate.

Assume the mark-to-market price is 40 per cent higher for the mature estate unit and 60 per cent higher for the non-mature estate unit. Factor in annual price appreciation of 4 per cent.

After 10 years, the sales prices of the said units in the mature estate and non-mature estate are S$1.13 million and S$782,000 respectively. Excluding grants and transaction costs, the gain for the buyer in the mature estate is S$584,000 versus S$452,000 in the non-mature estate.

In the above scenario, there is a larger dollar gain from buying in a mature estate versus buying in a non-mature estate, even though the percentage gain is higher for the latter.

Should prices of BTO flats in mature estates be steeper to eliminate applicants who opt for such estates because of the profit motive?

On the contrary, there are calls to lower prices of BTO homes in mature estates, so that such homes are kept affordable to many people. However, lowering flat prices in mature estates may lead to even higher application rates for such units and more anxiety on the part of homebuyers.

Also, lower BTO flat prices will add to the deficit HDB incurs in building homes. For financial year ended March 2022, HDB’s deficit in its Home Ownership Programme was S$3.85 billion. This figure far exceeds the revenue from the 1 per cent goods and services tax rise this year.

Tempering gains

Perhaps a disincentive can be introduced for BTO flats in mature estates, which are not sold under the Prime Location Public Housing (PLH) model.

PLH flat owners need to occupy their flats for a minimum occupation period (MOP) of 10 years, before they can sell their flats in the open market or invest in a private home. The MOP is five years for non-PLH units.

While PLH flat owners can rent out spare rooms, renting out the whole flat is not allowed, even after the MOP, whereas renting out the whole flat is allowed after the MOP for non-PLH units.

Also, resale PLH flats are ringfenced for buyers who are eligible to buy flats directly from HDB. And buyers of PLH flats from HDB pay a percentage of the higher of the resale price or valuation to HDB upon the sale of their flats. The clawback amount is 6 per cent for the latest PLH projects – Farrer Park Fields and Ulu Pandan Glades.

Would clawing back resale proceeds from the sale of non-PLH BTO flats in mature estates discourage some people from choosing such units?

The clawback amount can be lower for families with children to encourage couples to have kids. If the amount is 6 per cent, perhaps families with one child pay 4 per cent, while those with two children or more pay 2 per cent.

As mature estates are already built up and available new land is limited, significantly raising the supply of BTO units in mature estates is challenging. Could more en bloc exercises of older HDB flats in mature estates take place so that land use can intensify?

Versus global peers, young couples here are well placed to own a home without being overly stretched financially.

Even as young couples get plenty of help in securing BTO flats, luck may be needed to land a dream unit. And compromises may be required.

Because buying a home is a major commitment, some people may refuse to compromise on their choice of location.

Nonetheless, for some young couples who target a BTO unit in a mature estate, getting a flat in a non-mature estate quicker may work better. As their income rises, the couple can sell the said home post MOP and move to a resale flat in a mature estate of their choice or even a private home.

Ultimately, learning to compromise helps in home buying, just as it does in marriage and parenthood.