Prime, plus, and standard.
These words might seem familiar to you. They describe the newest Netflix subscriptions…
Just kidding.
These are actually the new Housing & Development Board (HDB) classifications in Singapore, as announced by Prime Minister Lee Hsien Loong during the 2023 National Day Rally.
We all know that prime flats located in developed and central areas in Singapore are the “cream of the crop” in terms of convenience and readiness of various amenities, and standard flats are those located in what is now known as non-mature estates. But what is this new “plus” category that differentiates it from prime and standard flats?
Fret not. In this article, we explain all the nuanced differences among prime, plus, and standard properties in Singapore.
If you are a young couple and a prospective first-time homeowner, this is the article for you! With Built-to-Order (BTO) flats adopting this new categorisation system come the second half of 2024, it’s just a matter of months before HDB flats are no longer classified as mature or non-mature.
Understandably, as a young couple, there are numerous financial considerations to carefully think through regarding the financing of your first home – BTO or resale? HDB or private? Holding the property as joint tenants or tenants-in-common? The list goes on and on…
So, with this new impending change, how is your journey towards home ownership affected? Are properties a worthy investment anymore?
Now, let’s first look at each category in detail – what the restrictions are, what they do, what their purposes are, and how they might affect you.
* Scroll to the end of the article for a shareable and downloadable PDF summary of this article! Share it with your fellow young couple friends! *
Prime
Where are prime flats located?
Simply put, they are flats located in the city centre and surrounding towns, including the Greater Southern Waterfront. These are the choicest locations in Singapore. Because of their location and the convenience they provide in terms of availability of amenities and proximity to schools and workplaces, they are highly sought after. Consequently, prices for property in these areas would be extremely high without any government intervention.
As the government has reiterated time and time again, one of their goals in public housing is to ensure high levels of home ownership. By extension, this means making public housing affordable for all. Therefore, as we know it, there are several restrictions placed on prime flats in Singapore. They are as follows:
- Minimum occupancy period (MOP) of 10 years
- No whole flat rental after MOP
- At least one applicant must be Singaporean*
- Income ceiling – $14k for couples, $7k for singles*
- Singles can only buy 2-room flats*
- 30-month wait-out period for private property owners*
- Subsidy clawback of 8% of resale price or valuation
*Note: These restrictions refer to resale buyer eligibility. For prime flats, resale buyer eligibility is equivalent to BTO buyer eligibility. That means that all prior BTO buyer eligibility will still be imposed on resale buyers.
That’s quite a hefty list! But, what do each of these restrictions mean and how do they affect you as a young couple now, and years down the road when family building starts to factor into your financial planning?
First, let’s talk about the MOP. The MOP is the minimum period of time in which you have to reside in this property before you can sell it. During this time, you are also not allowed to rent out the apartment (presumably for extra income) or buy another private property.
This is to prevent ‘flipping’. Simply put, flipping refers to buying a property and selling it within a short period of time to make a profit out of the higher resale price. In prime locations, the price difference can be large, thereby enabling people to make quite a handsome profit when they flip.
It all seems really rosy, but that’s because we’re currently looking at this property from the perspective of a seller. But what about that of the buyer?
To the buyer, they will see that property prices in these highly sought after districts are skyrocketing, forcing them out of the market. This means that housing in these areas will no longer be affordable to the majority of Singaporeans, causing these areas to be a concentration of the wealthy. Both of these outcomes go against the housing goals of the government, thereby prompting their introduction of an MOP of 10 years.
Ten years, or a decade, is a really long time! Within this time, you and your partner might start to think about the changing needs of your households – having children, moving to areas nearer to ‘top’ schools, etc. The original BTO you bought might not be suitable anymore.
So now you’re in a sticky situation. The house you’re currently living in no longer suits your needs, yet you’re unable to move out of it as you have yet to fulfil your MOP requirements.
Then that begs the question: what happens if you do not fulfil your MOP?
According to Minister for National Development Mr Desmond Lee, he said in an oral answer on January 9 2023 that if you do not fulfil your MOP, that constitutes a breach of HDB rules, and you will have to return your HDB flat to the government and not be able to sell it on the open market. Furthermore, HDB might even impose a financial penalty or compulsorily acquire your flat.
Conclusion: make sure you adhere to the MOP!
Second, whole flat rental. After living in your flat for ten years, you might be in a financially comfortable position to think about purchasing another property. You then decide to rent this flat out, thinking that its location could fetch you a pretty sum in terms of rental.
Well…you’re not allowed to. At most, you’re only allowed to rent out part of the apartment, say, one of the bedrooms, or even leave the apartment vacant. This means that you either stay in it with your tenant or leave it there to collect dust.
Third, income ceiling. This refers to the maximum household income of the resale buyer in order to be eligible to purchase a resale prime BTO. That is to say, if you and your partner were to apply for a prime BTO flat, get it, and then sell it after the MOP of ten years, your pool of resale buyers are couples who do not earn a combined income of more than $14,000 and singles who do not earn more than $7,000. Comparing this to if you have gotten a standard BTO flat instead, your pool of resale buyers would be much less restricted due to the absence of an income ceiling.
As such, in the case where you and your partner own a prime flat, the selling price of your flat is likely to be depressed as higher earners – who could probably afford to offer more attractive sale prices, especially in lieu of your flat’s location and convenience – are not included as they do not meet the resale buyer eligibility.
Fourth, the wait-out period. Using again the scenario that you and your partner have purchased a prime flat and are looking to sell it after meeting the MOP, your buyer pool is again reduced due to this restriction, where the wait-out period is longer at thirty months, as compared to fifteen for standard flats. That is to say, all private property owners who have sold their private property in the past thirty months cannot buy your prime flat.
What does this mean for you?
It might mean that those who used to own private property but are choosing to downgrade to a HDB will not downgrade to a prime flat as they can only buy standard flats. This group of buyers are also those who are likely to offer higher prices given that they have more money from the proceeds of selling their private property. As such, when considering if you and your partner should apply for a prime flat, you might want to factor in the possibility of missing out on this sizeable portion of the buyer pool who are relatively well-to-do.
So, the lengthy wait-out period is not ideal. Thus, you would have to carefully consider if the income ceiling and wait-out periods are surmountable restrictions to your buyer pool to justify getting a BTO at a prime location, knowing that the profit you end up turning will now most likely be reduced.
Lastly, subsidy clawback. To help illustrate, let’s use some fictitious numbers. Do note that these numbers only provide a rough guide and do not constitute as financial advice!
Using some rough back-of-the-envelope calculations, assuming a couple earning at the income ceiling of S$14,000 per month, and subject to a mortgage servicing ratio of 30 per cent, obtaining a 80% loan-to-value (LTV) mortgage at 3% interest rate with a 25-year tenure, the maximum possible resale price of a prime location housing (PLH) flat – based purely on what the buyer can afford given the income ceiling – is approximately $1.09 million, but this figure will be reduced to S$1.01 million after the 8% clawback. The most recent PLH BTO in Bukit Merah – Alexandra Peaks – has an average price of $628,000 for a four-room flat. Assuming on a construction period of four years, Alexandra Peaks will meet MOP in 2038. The returns over the 14-year period are a little less than 3%. Do note that these calculations take into consideration interest payments, so the actual amounts for each individual case will differ.
As a young couple, if you’re looking to upgrade to a larger home due to an expanding family, chances are the apartment you’re eyeing will be more expensive than your current one due to the higher square footage. Therefore, whether the profits you earned from the sales of your prime BTO is sufficient, especially after the 8% clawback, is something you have to calculate extremely carefully.
Plus
Plus BTOs, the new category that sent shockwaves through the Singaporean population when it was first announced during the 2023 National Day Rally. Somewhat of a middle child between the well-known prime (or PLH) flats and standard flats, how do plus flats compare to its counterparts?
The most important question: where are plus flats located?
Plus flats are in choice locations within regions, typically characterised by proximity to transport nodes – such as MRT stations – and town centres.
Similar to prime flats, plus flats also have a considerable number of restrictions placed upon them, namely:
- MOP of 10 years
- No whole flat rental after MOP
- At least one applicant must be Singaporean*
- Income ceiling – $14k for both couples and singles*
- 30-month wait-out period for private property owners*
- Subsidy clawback is applicable but less than the 8% imposed on prime flats (PLHs)
*Note: These restrictions refer to resale buyer eligibility. For plus flats, resale buyer eligibility is almost equivalent to BTO buyer eligibility. That means that all prior BTO buyer eligibility will still be imposed on resale buyers.
There are only a couple of differences in the restrictions.
First, the income ceiling for singles is higher at $14,000 as compared to $7,000. This means that singles with higher incomes can opt for plus flats if they are not eligible for prime flats.
Second, the percentage of the subsidy clawback is lower than that of prime flats. This means that you get back a higher percentage of the profits generated from the sale of the flat after living in it for ten years.
Standard
Last but not least, we come to standard flats. Standard flats simply refer to every other flat that is neither classified as prime nor plus. They are thus further away from the city centre and transport nodes like bus interchanges and MRT stations. Certainly, convenience takes a hit, but it is made up in terms of price difference and fewer restrictions. As you can see, restrictions on standard flats differ quite a bit from prime and plus flats:
- MOP of 5 years
- Whole flat rental allowed after MOP
- At least one applicant must be Singaporean or Singapore Permanent Resident*
- No income ceiling*
- 15-month wait-out period for private property owners*
- No subsidy clawback
*Note: These restrictions refer to resale buyer eligibility. For prime and plus flats, resale buyer eligibility is equivalent to BTO buyer eligibility. That means that all prior BTO buyer eligibility will still be imposed on resale buyers.
Therefore, you can see that owners of standard flats are less straddled to their property due to a shorter MOP. Perhaps, five years might be a more appropriate time for a change in housing as it corresponds more closely to changes in your housing needs in relation to growing your family. Plus, rental rules are looser; they can rent the whole flat out after serving the MOP and earn passive income in that manner. However, the $14,000 income ceiling still applies for BTO eligibility.
Now that we’ve given you a comprehensive understanding of what each category of HDB flats the upcoming BTOs will be classified into, we hope that you, as a young couple, are better able to identify your housing needs in the next five, ten, or even fifteen years and beyond, and choose the type of flat that suits these needs accordingly.
Purchasing your first flat can be a daunting task, what with the HDB rules, legalities and conveyancing processes notwithstanding. Therefore, here at Golden Law LLC, we aim to provide you with clear, simple, and concise legal advice on, but not limited to, your purchase matter. We also deal with sales, decoupling, refinancing, and redemption matters, inter alia.
Don’t be afraid to drop us an email to arrange a free consultation if you still have any queries relating to the new HDB classifications and how it might affect you as a prospective homeowner.
Thank you for reading this article all the way to the end! If you choose to appoint us as your solicitor, quote ‘GOLDENPPS’ in email, text, or phone call correspondence to get a preferential fee!
And as promised, here’s the TLDR of this article: Prime, Plus, and Standard.