SINGAPORE - The stricter resale restrictions for Build-To-Order (BTO) flats in choicer locations would go some way towards blunting windfall gains that come with selling such homes in the long run.

Yet, in the more immediate term, demand could shift to flats without such conditions, observers said.

Housing Board flats will be reclassified into three categories – Prime, Plus and Standard – from the second half of 2024, Prime Minister Lee Hsien Loong announced in his National Day Rally speech on Sunday.

They will replace HDB’s current framework of classifying estates as mature or non-mature, which has been in place since 1992. The new framework will not affect existing home owners or those who have already booked flats, as BTO projects that have been launched will not be reclassified.

Property analysts told The Straits Times that the introduction of Plus – a new category of flats in attractive locations within each region – should deter speculative buyers who view their flat as a short-term investment.

That is because the resale conditions for these homes, which could be near MRT stations or town centres, would be stricter than those for Standard flats. The tightest restrictions will apply to Prime flats in the most central locations.

For instance, Plus flats will come with a 10-year minimum occupation period (MOP) before they can be sold, and a subsidy clawback, under which flat owners return subsidies to HDB upon selling their flats.

There will also be an income ceiling for resale buyers.

Mr Lam Chern Woon, head of research and consulting at real estate firm Edmund Tie, said the new controls could mitigate the so-called “lottery effect” of such BTO flats.

“Conditions like income ceiling for buyers of resale Plus and Prime flats would moderate the price appreciation of such flats in the secondary market, with corresponding price-capping effects in the Standard flats,” he said.

“This would ensure a gradual appreciation of public housing prices, although the effects would likely be seen only in a decade’s time, when such flats go on sale in the secondary market.”

Standard flats, which will form the bulk of housing supply, come with the standard five-year MOP and no significant restrictions on the pool of resale buyers.

The effects of the latest public housing moves could also be felt in the private property sector.

Ms Christine Sun from property firm OrangeTee & Tie noted that flat owners who have gained a windfall from selling their flats were primarily driving demand for private homes, especially in the suburbs.

This has pushed up prices of new private homes, so it is necessary to manage demand from this group, said the senior vice-president for research and analytics.

She said the number of flats sold within two years of their MOP jumped by an eye-watering 733 per cent, from 743 units in 2014 to 6,189 units in 2022.

There were also more million-dollar transactions among flats sold upon reaching their MOP.

“Lengthening the holding period of a property can delay the lottery effect and reduce the number of people purchasing flats in prime locations for short-term gains,” she said.

Professor Phang Sock Yong, an economist at the Singapore Management University, said the new classification would allow HDB to price flats in Prime and Plus locations such that they are more affordable to lower-income groups.

“HDB estates have been socially designed to be diverse and inclusive in ethnic and income mix at the outset.”

Even so, the analysts said the resale conditions for Plus and Prime flats could redirect market attention to existing and Standard flats.

Economist Walter Theseira from the Singapore University of Social Sciences said Standard and legacy flats with location and other attributes similar to Plus and Prime flats would likely draw a lot of market attention because they have no significant resale controls.

“If the economy goes well, they will likely continue to set sale-price records.”

It would be impossible, he added, for HDB to perfectly predict the areas where flat prices would appreciate considerably. Thus, it is inevitable some Standard flats would end up giving owners windfall gains.

Mr Lee Sze Teck of real estate firm Huttons Asia said the longer MOP means there could be fewer homes on the resale market in Plus areas, which may drive up prices.

The senior director of data analytics said the resale restrictions may also create difficulties for home owners to scale the housing ladder.

Mr Ismail Gafoor, chief executive of property firm PropNex, said buyers of Plus and Prime flats would potentially be tied to their homes for about 14 years, including the wait for their homes to be built.

They have to therefore consider carefully their plans to have children, the school they wish to enrol them in, and their home-upgrading aspirations.

Dr Theseira said: “I would have actually preferred more restrictions on clawback and resale, rather than such a long MOP, because I think the consequences of a long MOP restriction are harder to foresee.”

Mr Nicholas Mak, chief research officer of property search portal Mogul.sg, pointed to the possibility there would be limited or no five-room flats in Plus and Prime locations. In the past few years, there has been a lack of such flats within BTO projects in attractive locations.

“This could contribute to a rise in the prices of existing five-room flats in attractive locations,” he said.

Undergraduate Amanda Lim hopes the new classification would improve her chances of snagging a Plus or Prime flat. She has failed twice at getting BTO flats under the current Prime Location Public Housing model (what will be known as Prime in future).

“The 10-year MOP may be off-putting for some, but if I get a BTO flat, I would live in it for the long term,” said the 24-year-old.

“If I end up profiting from selling it, it’s a plus but not a priority.”