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AFTER several quarters of escalating prices in public housing resale flats, a third round of cooling measures descended on the market in August 2024.

Loan limits were tightened, with the Loan-to-Value (LTV) limit for HDB loans lowered from 80 per cent to 75 per cent, bringing it in line with loans granted by financial institutions for HDB flats.

Beyond the lower LTV limit, HDB also rolled out its new classification for Build-To-Order (BTO) flats in October, with changes designed to keep housing in popular areas accessible, rein in resale prices, and curb the “lottery effect” of BTO flats.

The new framework categorises flats as Standard, Plus and Prime rather than in terms of the mature and non-mature estate dichotomy. It builds on the Prime Location Public Housing (PLH) model announced in 2021.

Buyers of Plus and Prime flats are subject to a minimum occupation period (MOP) of 10 years, and a subsidy clawback of between 6 per cent and 9 per cent on resale. The BTO eligibility income ceiling of S$14,000 per month also applies to resale buyers of Plus and Prime flats, which also have curbs on rental.

Rising numbers of million-dollar flats

There is clearly concern about rising numbers of so-called “million-dollar flats”, even though such high-value deals are a small fraction of the overall resale market.

Seeing million-dollar flat sales in the market leads flat owners to seek higher prices, feeding into a cycle of higher transacted prices all round and boosting the lottery effect.

Huttons Data Analytics tracked the change in prices of four-room, five-room and executive flats and the number of such million-dollar flats across HDB towns, from 2014 to September 2024.

Six HDB towns – Bishan, Bukit Merah, Central Area, Kallang/Whampoa, Queenstown and Toa Payoh – had a substantially higher number of million-dollar transactions and recorded an average increase in price of more than S$250,000 in the 10-year period studied. More than 200 flats from four-roomers to executive flats in these towns had changed hands for S$1 million or more.

In towns that had more than 50 but less than 200 million-dollar sales, resale flats saw an average increase in price of around S$200,000.

And in towns with less than 50 million-dollar flats, the average price gain was around S$180,000.

The three HDB towns – Choa Chu Kang, Jurong West and Sembawang – which have had no million-dollar flats so far, saw an average increase in price of less than S$150,000.

It should be noted that the average increase in price of 5-room and executive flats was higher than that of four-room flats. This could be due to buyers’ desire for larger space and the limited new supply of five-room and executive flats, particularly in the Central Region of Singapore.

Stripping out million-dollar flat sales from the data, the average increase in price turns out to be almost similar across the various towns, at around S$160,000 or S$16,000 every year.

The compounded annual growth rate (CAGR) in HDB resale prices excluding million-dollar flats is about 2.8 per cent, which is in line with the CAGR in median household income.

Hence, the presence of million-dollar flat transactions can overstate overall gains in HDB resale flats, and give the impression of fast rising prices in HDB flats.

That said, resale prices in coveted locations are already at high levels.

Four-room flats at Pinnacle@Duxton, a well-known example of public housing in a very prime location, transacted at between S$1.13 million and S$1.45 million in 2024. Four-room flats at City Vue @ Henderson, a Bukit Merah project rebuilt and improved by HDB under its Selective En Bloc Redevelopment Scheme (SERS), sold at between S$813,000 and S$1.2 million this year. At another SERS project, Kallang Trivista, resale prices of four-room flats similarly ranged from S$868,000 to S$1.2 million in 2024.

Could the new classification actually enhance the lottery effect?

It is plausible that the lottery effect may be stronger with the new BTO framework in place, as it creates an even clearer delineation of expensive and affordable clusters.

Furthermore, the longer MOP of 10 years will create a supply vacuum for some years.

There is a period of five to 10 years when there is no new supply of flats to the resale market in the Plus and Prime areas, as most of the projects will fulfil their MOP in 2038 and the few Standard BTO projects in the vicinity will complete their MOP between 2028 and 2033.

Will the sudden influx of supply stabilise resale prices? Probably not. Demand may build up to a level to be able to absorb the new supply.

Due to the supply vacuum, asking prices of Plus and Prime flats in 2038 will likely be higher than current prices of up to S$1.2 million for a four-room flat. This will still give a sizeable gain for sellers even after factoring in the subsidy clawback, from the estimated average price of S$600,000 to S$630,000 for a four-room Plus and Prime flat in Bukit Merah and Kallang/Whampoa.

In fact, the additional subsidies for Plus and Prime flats have resulted in a price anomaly in the market.

Some four-room flats in Standard BTO projects are priced very close to or higher than Plus projects. For example, a four-room flat in Costa Riviera I/II, a Standard BTO in Pasir Ris, is similar to Central Trio @ AMK, but higher than Kembangan Wave, a Plus BTO in Bedok.

With these slight differences, some buyers may opt to apply for Plus flats over Standard or Prime flats and enjoy the best of both worlds – having more subsidies than Standard flats and lower subsidy clawback than Prime flats. Such demand may increase the lottery effect in Plus flats.

Will the new classification reduce the lottery effect in the long run? Only time will tell.

Mark Yip is CEO and Lee Sze Teck is senior director of Data Analytics at Huttons Asia