The goal of public housing (i.e. HDB flats) is to provide an affordable place to live for Singaporeans, particularly for lower income segments of society.
These days, however, HDB flats have taken on a much broader definition.
The phenomenon of “million dollar HDB flats” has garnered attention in recent years. Usually located in prime areas, these HDB flats enjoy such a dramatic appreciation in value after their Minimum Occupation Period (MOP) is over that their owners are often able to sell them at a huge profit.
For instance, a five-room unit at The Pinnacle @ Duxton, located a short walking distance from the Central Business District (CBD), was sold for a record-breaking $1.258 million in September 2020.
Unsurprisingly, there are concerns that public housing in prime areas is becoming accessible only to affluent households, and that lower income groups will get pushed to farther-flung suburbs. Some lament that the wealth gap is widening due to disproportionate capital appreciation of HDB flats in prime areas.
Here is a short video of Mr Desmond Lee, Minister for National Development of Singapore, speaking on the issue:
A public survey was conducted from 28 May to 30 June 2021 to gain some insight into public views on a possible new housing model for BTO flats in prime areas.
11 possible policies were outlined based on these suggestions, aiming to improve affordability, minimise cases of large resale profits and ensure a balanced mix of Singaporeans from different socio-economic backgrounds in prime locations.
In case you missed it, here are the 11 policies the Government sought feedback on.
| To Improve Affordability | Possible policies: Longer Minimum Occupation Period, additional subsidies for lower-income buyers, build more small (and thus more affordable) flats, offer flats with shorter leases |
| To Minimize Large Profits | Possible policies: Mandate that all resale profits to be paid into CPF SA, only allow these flats to be sold back to the Government at a fair price, a clawback on subsidies, capital gains tax |
| To Ensure a Balanced Mix of Singaporeans in Prime Areas | Possible policies: Disallow renting out of whole flat, impose BTO eligibility conditions on resale buyers, remove the Married Child Priority Scheme |
To Improve Affordability of Prime-District HDB Flats
As the prices of HDB flats in prime locations creep upwards, more and more households are getting priced out of the market and forced to settle for homes in less central locations. This can give rise to wealthy enclaves in more sought-after areas, which goes against the HDB’s goals of inclusivity.
1. Implement Longer MOPs
The MOP is currently five years. HDB flat purchasers must live in their flat for the full MOP before being able to sell or rent out the entire unit.
One suggestion has been to impose a longer MOP on flats in prime areas. This would discourage buyers from treating the flats as an investment rather than a home.
However, on the downside, a longer MOP might make it difficult for owners who genuinely need to move, for instance due to a growing family.
Related article: Upgrading After Minimum Occupation Period (MOP): 8 Confusing Questions Answered
2. Additional Subsidies to Help More Afford Prime HDBs
Some respondents have suggested offering additional subsidies when purchasing HDB flats in prime areas, thereby making them more accessible to people of a wider range of income levels. The subsidies could then be recovered upon resale of the flat.
Related article: HDB’s New Enhanced CPF Housing Grant (EHG) and Higher Income Ceilings: What You Need to Know
3. Build Smaller Flats
Building smaller flats in prime areas or dedicating a larger proportion of units to smaller flat types could lower the average per-unit price and make the flats more affordable for buyers.
However, that would have the effect of attracting smaller households, singles and retirees to prime areas and discouraging larger families.
Related article: Just How Much Smaller Are New Condos and HDB Flats Getting?
4. Offer Flats with Shorter Leases
New HDB flats usually come with 99-year leases. Some respondents have suggested shortening the leases of new flats in prime areas, which would make them more affordable.
However, this raises the question of whether the leases will be sufficient to meet the needs of subsequent buyers, who might outlive their flats.Just How Much Smaller Are New Condos and HDB Flats Getting?
Related article: 5 Ways The Government Can “Save” Ageing HDB Flats in Singapore
To Minimise Cases of Large Resale Profits
Prime flats are often resold by owners at astronomical prices, netting them huge profits and giving rise to a phenomenon known as the “lottery effect”.
5. Resale Proceeds to be Paid into CPF Special Account (CPF SA)
In order to combat the issue of buyers treating their flats as investments, it has been suggested that a portion of resale proceeds be compulsorily paid into the CPF Special Account, rather than pocketed in cash by the seller.
This would combat the “lottery effect” experienced by buyers of flats in prime locations and discourage people from flipping their property. However, it would be difficult to determine what would be a fair amount to be paid into the CPF Special Account.
Related article: How to Balance the Use of CPF for Property and Save Up for Retirement
6. Government Buyback
Instead of letting owners sell their prime flats on the open market, it has been suggested that they only be allowed to sell them back to the HDB, which can then resell them to the public at an affordable price.
However, it would be difficult to determine what a fair buyback price would be, as well as to justify why only prime HDB flats would have their selling prices capped. Imposing a set buyback price might also be seen as guaranteeing the value of the flats and perceived as unfair by the rest of the population in a market downturn.
Related article: Is The Lease Buyback Scheme Worth It?
7. Recovery of Additional Subsidies Provided
Offering additional subsidies to buyers of prime flats can make them more affordable, but for the sake of fairness, it has been suggested that such subsidies be clawed back by the government when the flat is sold in order to ensure fairness, as the first owners of such flats would benefit disproportionately from subsidies compared to later buyers.
For instance, the government might mandate that additional subsidies be repaid upon sale of the flat. This way, the subsidies will benefit the first owners who do not intend to sell the property, and ‘penalize’ those who want to sell or ‘flip’ the property.
Related article: CPF Housing Grant Eligibility in Singapore: How Much BTO, Resale Flat and EC Buyers Can Get
8. Implement Capital Gains Tax
Singapore has no capital gains tax, which means that people can profit unbridledly from any gains in value when they sell their property.
Imposing a capital gains tax would attenuate the “lottery effect” of flats in prime areas by limiting the profits earned by sellers and discouraging them from flipping their property.
Related article: Singapore Property Tax Guide: What Are The Rates And How to Calculate Them
To Ensure A Balanced Mix of Singaporeans in Prime Locations
One of the aims of the HDB is to enable a diverse mix of Singaporeans of different income levels to live together. As flats in prime locations get snapped up by affluent households, this diversity is being eroded.
9. Disallow Renting Out of Whole Flat
Affluent households are more likely to upgrade to private property and then rent out their HDB flat for passive income. Disallowing renting out of the entire flat, even after expiry of the MOP, would discourage people from purchasing a flat just for rental income. However, short of requiring the owner to live in the flat, it would be difficult to enforce this rule.
Related article: Rental Income Tax Guide in Singapore (Including 5 Tax Deduction Examples)
10. Limit Resale Buyers Only to Those Who Meet the BTO Eligibility Conditions
In order to depress resale prices of flats in prime locations, one suggestion has been to limit the pool of resale buyers to those who meet Build-to-Order (BTO) flat eligibility conditions, which have a lower income ceiling. This would, however, be detrimental to buyers who have exceeded the BTO income ceiling but still qualify for a resale flat.
Related article: BTO Eligibility, Resale Criteria and the Available Schemes
11. Remove the Married Child Priority Scheme
The Married Child Priority Scheme offers subsidies to married people who wish to purchase a flat near their parents’ homes. This means that those whose affluent parents can afford to live in prime areas often find it easier to continue living in the area. Getting rid of the scheme would put flat buyers on equal footing.
Related article: Married Child Priority Scheme & Multi-Generation Priority Scheme: What You Should Know if You Want To Increase Your BTO Ballot Chances
Stay Tune for Updates
The public survey has closed and the Government is reviewing the feedback. So far, no new policies or updates have been announced.
That said, the Government did release some information on their findings. According to a TODAY report, the Government collected feedback from over 6,500 members of the public. Many respondents support the idea of additional subsides, as well as a ‘clawback’ clause mandating that some of the subsidies previously enjoyed must be paid back upon sales of the flat.
The conversation on prime HDB flats dates back to 2015, with talks intensifying in 2019 when Prime Minister Lee Hsien Loong announced that they will be building HDB flats where Keppel Club is.
More FAQs on Prime HDB Flats
Where Are Some Prime Areas For HDB Flats?
Prime areas tend to be near the CBD and city centre. These include areas like Tanjong Pagar, Outram Park, River Valley and Bukit Merah.
Where Can You Find Prime HDB Flats for Sale?
PropertyGuru has one of Singapore’s biggest databases of HDB flat listings. You can filter HDB flats for sale by your preferred district(s) and/or price(s).
What Are Some Examples Of Million Dollar HDB Flats?
Flats at The Pinnacle @ Duxton is the most famous of million-dollar transactions. Various DBSS units and HDB flats in Dawson Road as well.
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