There’s an an HDB rule that has been a key deciding factor in the successful balloting of a BTO; the ethnic quota.
It’s been a HDB mainstay since March 1989. The ethnic quota when it was first introduced was a novel idea meant to keep the peace among the races by having a percentage distribution of the races within the blocks of flats in an estate to maintain not just a kampong culture but also to help foster racial tolerance in a burgeoning Singapore.
Whether the rule is no longer valid or in need of updating is a topic for another day. With your property purchase, it pays to keep this rule in mind, especially if you’re in the minority race groups.
With these quotas, there are limits set on the total percentage of a block or neighbourhood that may be occupied by a certain ethnicity. The quotas are updated on the 1st of every month and you can check them out on HDB’s website here.
For the Chinese, it’s largely a non-issue as it’s rarer for one to encounter this rule due to the larger percentage allocated. The minority groups however, will often deal with this, especially when it comes to selling their property. Due to the racial quota, it is likely that a minority race will only be able to sell to a buyer also classified as a minority in Singapore.
However, there are districts that are more popular to a race group and as such, a Chinese may also find it difficult to sell, due to the ethnic quotas having been fully maximised. In such a case, even if a member of another race is interested in purchasing, they won’t be able to do so if the quota for that race is filled. No price reduction will alleviate the issue and there is a limit to how low an owner can justifiably reduce the price anyway.
This is a problem even for minorities selling to other minorities in a block and neighbourhood where the quota is maxed out. One of the tell-tale signs of the rule in effect is reflected in the number of people interested in the home. If quotas are filled up elsewhere, then the pool of buyers visiting your house will be small.
But the biggest way this rule rears its head is through the pricing. It is seen almost as a commonality nowadays for a non-Chinese buyer to score a unit at a significantly reduced price from another minority race because of the smaller pool and the loss of time on the seller’s side.
For example, a flat in Bedok on the fourth floor purchased in November 2015 was sold at SGD670,000 to a Chinese family. Just four months later, in February 2016, a minority couple bought the opposite unit at under valuation from the original Malay owners at SGD580,000. The original owners had difficulty moving their unit and in the end, had to swallow a lower deal than the SGD620,000 they had initially asked for, just to sell.
The seller may part with their unit unhappily, and at a price their Chinese neighbour wouldn’t deign to sell at. However, the buyers go off happy, knowing that they bought the unit at a steal thanks to the quota.
However, when it comes time for the new owner to sell, they may find themselves in a similar predicament as their predecessor.
What you can do
Like CPF, there’s not a whole lot you can do other than deal with it. Unlike CPF however, HDB has not shown any interest in tweaking or updating the quota past its established percentages. For a minority buyer, the rule can work to your favour when you strike at a good time. Typically, people struggle to sell their units toward the end of the year right up to Chinese New Year (CNY) and for minority sellers, this can be doubly problematic. Not a whole lot of people want to move during year end or before CNY so there is a higher chance of buying a unit at a reduced price if you attempt during this period.
However, buyers need to be mindful also of what they ultimately choose because when it comes time for them to sell, things like the floor number, the orientation of the unit, the layout and cleanliness of the home will contribute to how potential buyers may take to your asking price.
Basically, all this boils down to the tried and true adage of buying low and selling high, but only if the timing and the price are right.
In Singapore’s case, if you’re part of a racial group that is given a smaller percentage, then the ethnic quota is a third, often unspoken, component to consider.