Social and Fiscal Impact from Introduction of Plus and Prime HDB Flats

Mr Xie Yao Quan asked the Minister for National Development given the recent policy shifts announced in Budget 2023 and the National Day Rally 2023, how much more does the Government expect to spend each year on housing subsidies and grants to support home ownership for (i) Plus BTO projects (ii) singles in any BTO location across Singapore and (iii) resale HDB flats, respectively.

Mr Xie Yao Quan asked the Minister for National Development given the lower subsidies that will be applied to Plus BTO flats compared to Prime BTO flats, whether the Government will consider further calibrating the Minimum Occupation Period (MOP) of Plus flats to shorter than 10 years to set a clearer distinction in sale and resale conditions between Plus and Prime flats.

Mr Xie Yao Quan asked the Minister for National Development (a) in light of the policy shift to allow singles to own two-room BTO flats in all locations, whether there will be more two-room flats offered in future Plus and Prime BTO projects; (b) if so, how will the Government ensure sufficient supply of bigger flats for couples and families in these projects; and (c) what are the Government's principles and parameters towards providing a fair chance for all Singaporeans to own Plus and Prime BTO flats.

Mr Lim Biow Chuan asked the Minister for National Development (a) whether it is projected that changes to the framework for HDB BTO projects will result in (i) lower sale prices for flats categorised as Prime flats and (ii) buyers of such flats enjoying a larger gain when the Prime flats are sold; and (b) whether the age limit for singles to buy HDB BTO flats can be reduced.

Sir, my response will also cover matters raised in the questions by Mr Kwek Hian Chuan Henry1, Mr Gerald Giam and Mr Pritam Singh, which are scheduled for a subsequent Sitting. I invite Members to ask clarifications, if need be and if the questions have been addressed, it may not be necessary for them to proceed with the questions for future Sittings.

At the National Day Rally, Prime Minister Lee announced a new framework for new public housing flats. From the second half of 2024, Build-To-Order (BTO) projects will be offered under Standard, Plus or Prime models based on their locational attributes, rather than whether they are in mature estates or non-mature estates. This new framework reflects the Government’s commitment to achieve affordable homeownership, a good social mix, and a fair system. These objectives were affirmed through our engagements with more than 16,000 Singaporeans over the past year as part of our Forward Singapore Housing Conversations.

Under the new framework, we will launch Standard, Plus and Prime flats. Standard flats are public housing flats built all over Singapore – the BTO flats we know today. They will come with the Housing and Development Board (HDB)’s standard subsidies and standard restrictions. Plus flats are in choicer locations within a region and will have more subsidies and tighter restrictions than Standard flats. Prime flats are in the choicest and most central locations in Singapore, will have the most subsidies and the tightest restrictions. Let me elaborate on how this new framework keeps public housing affordable, maintains a good social mix and keeps the system fair.

Sir, first, the new framework keeps homeownership affordable. As Mr Lim Biow Chuan had asked, HDB keeps BTO flats affordable by pricing them with significant discounts off their market value. However, flats in choice locations come with higher market values due to their attractive locational attributes. Without additional subsidies over and above that for flats in other locations, the prices of such choice flats would be higher and would be out of reach for some Singaporeans.

We heard many suggestions during our engagements, including imposing a hard price cap on Prime and Plus flats as suggested by Mr Xie Yao Quan. But setting a hard cap can be distortionary, as prices may then not fully reflect the attributes of the flats. Instead, we will provide additional subsidies on top of the significant market discounts already provided for Standard flats, to make these choice flats more affordable to Singaporeans from a wider range of incomes. On top of these market discounts, we provide progressive grants through the Enhanced CPF Housing Grant (EHG) to eligible first-timer homebuyers, to provide more support to those who need it most.

Second, the new framework seeks to maintain a good social mix in HDB estates across Singapore. Given that Plus and Prime flats come with higher subsidies, we will impose tighter restrictions on these flats. These restrictions include an income ceiling upon resale. In response to Mr Chong Kee Hiong's question, the income ceiling applied upon resale takes reference from the prevailing BTO income ceiling at the time of resale. Today, this is $14,000 for families and covers eight in 10 Singaporean households. The Government regularly reviews the BTO income ceiling over time to account for income growth.

We will also offer a variety of flat types across Prime and Plus projects to meet the different budgets and needs of Singaporeans. To ensure that our neighbourhoods remain inclusive, we will continue to build rental flats in integrated blocks where possible, as suggested by Mr Xie Yao Quan, including in future Prime and Plus projects. In fact, we did this for River Peaks I, which is the first Prime Location Public Housing project that we had launched in November 2021.

Some have asked if this new framework might cause our society to stratify further. In fact, on the contrary, this new framework seeks to achieve quite the opposite. Without the new framework, flats in choice locations will likely become more expensive and out of reach for many Singaporeans over time because of their good location and good attributes. By launching them as HDB Prime or HDB Plus flats, the additional subsidies and tighter restrictions, including the income ceiling upon resale, will help to moderate demand for such flats and keep prices affordable to Singaporeans from a wider range of income levels. Alongside a mix of flat types, these measures enable us to maintain a good social mix.

Let me provide an example of how the Plus model will help to make BTO flats more affordable. In today's market conditions, a choice 4-room flat in a central region may be priced at around $650,000 under the current BTO model. This is after significant market discounts, but the price is before grants. For a family earning a combined income of $7,000, which is below the median resident household income, this may not be within their reach. They receive an EHG of $25,000 but would still need to make an additional top-up of $52,000, either in cash or CPF, and pay a monthly cash outlay of $399 or some 29% of their income after the top-up.

Under the Plus model, due to tighter restrictions and additional market discounts, the price comes down to around $550,000 before grants. The family earning $7,000, the same family, would continue to receive $25,000 in EHG, but the $52,000 that they needed to put in terms of additional top-up is now, under the Plus model, reduced to zero. They now pay slightly more than a quarter of their monthly household income, 27%, and a monthly cash outlay of $273 versus $399 under the BTO model. This flat is now more within their reach.

Third, the new framework seeks to keep the system fair. This is because unlike Standard flats with standard market discounts, we will be providing additional subsidies to keep Prime and Plus flats more affordable.

To be fair to those who buy Standard flats that come with standard market discounts, we will impose tighter restrictions on buyers of Prime and Plus flats. In addition to the tighter restrictions, we will also impose a subsidy recovery rate for the first buyer upon first resale, which will be commensurate with the extent of the additional market subsidies given.

Because Plus flat buyers enjoy lower additional subsidies than Prime flat buyers, their subsidy recovery rate will also generally be lower. Similar to Prime flats, Plus flat owners will also have a longer Minimum Occupation Period or MOP of 10 years and will not be able to rent out their flat at any time. This is to ensure that these flats are primarily for owner occupation and not for speculative investment or rental yield.

In our Forward Singapore housing conversations, many Singaporeans shared their views on the length of the Minimum Occupation Period. Many supported imposing a longer MOP because they felt that HDB flats should primarily be for owner occupation.

Mr Xie Yao Quan asks whether Plus flats can come with an MOP of shorter than 10 years. We had considered this carefully. Plus flats are in choice attractive locations. We think that an MOP of 10 years seeks to strike a balance between strengthening the intent for owner occupation on the one hand and giving home owners the flexibility of moving home for genuine reasons.

Today, the vast majority of our flats come with a five-year MOP but most Singaporean households stay in their HDB flat for 10 years or more before selling it. For those who genuinely need to move out before the end of their MOP, HDB will assess their appeal on a case-by-case basis.

Members have also asked about the potential impact of the new housing framework on the broader property resale market. This will depend on many factors, including home buyers' preferences, market conditions, such as the prevailing economic outlook, supply, demand, financing and so on. Analysts and researchers also have a diverse range of views on potential impact on resale prices in the wider market and many agreed that the overall impact might not be so straightforward.

In the near term, Singaporeans who are looking for more affordable public housing in central or choice locations may wait for these new Prime and Plus flats to be launched on the market, if they are able to, while others who have more immediate needs or who prefer flats without these new restrictions may choose to purchase existing flats in the resale market.

In addition, Prime and Plus flats will only come onto the resale market in about 15 years' time. In the longer term, we expect that the tighter restrictions will moderate the resale prices to some extent so that the flats are kept affordable for a wider group of Singaporeans. Nevertheless, we will monitor the impact of the new housing framework on the broader resale market closely and review them when necessary.

Sir, we are committed to support and keep home ownership affordable. In FY 2021/2022, HDB recorded a deficit of around $3.85 billion in its Home Ownership Programme. Over the same period, HDB disbursed $372 million in grants for flats purchased directly from HDB and $849 million in grants for resale flats and Executive Condominiums.

In response to Mr Xie Yao Quan and Mr Pritam Singh, as Prime and Plus flats will come with more subsidies, the total fiscal impact is anticipated to be higher than if we keep to the status quo. The actual anticipated fiscal impact will depend on a number of factors, including market conditions at each launch, housing demand, the locational attributes of the sites and more.

In deciding which model to launch new flats under, we take into account various factors, such as their specific locational attributes, affordability for buyers and the need to provide a range of different options for Singaporeans. We will continue to set aside the vast majority of our new flat supply for first-timer families.

Under the new framework, across all BTO projects, first-timer families will receive two ballot chances, and first-timer parents and married couples or what we call the FTPMC, will receive three ballot chances and additional priority under the Family and Parenthood Priority Scheme. More details on the specific prioritisation and quotas for different groups will be announced when ready.

We are also taking steps to enhance housing access for singles who will be able to purchase new 2-room Flexi BTO flats islandwide in Standard, Plus or Prime projects from the second half of 2024. To meet the housing demand from singles and the elderly who are looking to right size, we will be launching more 2-room Flexi flats. Over the next three years, from 2024 to 2026, we will launch up to 14,000 2-room Flexi flats, an increase of about 30% over the past three years from 2021 to 2023.

We have also been working hard to catch up on delays and have done so for 70% of our delayed flats. The median waiting time is about four to four and a half years because of the COVID-19 impact and we are pressing on to bring it down to three to four years by next year.

Mr Lim Biow Chuan has asked if we can lower the age floor to allow singles to apply for BTO flats at an earlier age. Sir, with the changes that we are already going to make, we can expect housing demand from singles to go up significantly. Our priority now is to build enough flats over the next few years to address this demand before we decide whether to make any further changes.

Having said that, we have been engaging singles on their housing aspirations and heard many suggestions on new housing typologies, such as co-living and inter-generational housing, and we are actively studying them. These broad changes reflect the Government's commitment to ensure that home ownership remains affordable, maintains a good social mix in every town and region and keeps the system fair. We will continue to engage Singaporeans on these changes and announce further details on the specific policy moves when we are ready.