Buying an HDB flat in a prime district can be likened to striking the lottery, especially if your unit is one that can be sold on the open market for a high price.
Some of these prime-district HDB flats can even be sold for over a million dollars. In 2017 alone, there were a whopping 71 million-dollar prime-district HDB flats sold; it then dipped to 42 in 2018, rose back up to 64 in 2019 — and in 2020, hit a new high of 82 (despite bearing the full brunt of the COVID-19 pandemic last year).
What is The “Lottery Effect”?
Those who buy Build to Order (BTO) flats, aka public housing, enjoy subsidised rates. And after the 5-year minimum occupancy period, or MOP, these homeowners are free to sell their flat on the open market, usually at a higher price.
The “lottery effect” occurs when the selling prices, usually of HDB flats in prime districts, are way, way higher than what they paid initially.
Take for example, the famous Pinnacle@Duxton flats at Tanjong Pagar, known for the iconic skybridge on the 50th storey for panoramic views of Singapore’s central business district. With an initial launch price of about $340,000 for a 4-room flat in 2004, the first units were sold for over $900,000 when the property reached MOP in December 2014. Today, there are tons of listings where the million-dollar range for this development has become the norm.
Next up are the flats at 9B and 10A Boon Tiong Road, within the Tiong Bahru View development in the estate of the same name. Having just reached MOP in 2019, a 5-room unit was sold for $1.2 million. Granted, the flats were priced slightly over $700,000 (during a sales of balance flats exercise in 2016) which is still more than what typical first-time HDB homeowners can afford. But for those who managed to afford a unit are probably reaping the benefits of this “lottery effect”.
What Will The Government Do?
Seeing how the prime districts are more or less fixed, as long as you “aim” a HDB project there and successfully ballot for it, will you be able to sell for a million dollars? Is it like a get-rich-quick scheme?
Yes and no. It really depends on a lot of factors, such as type of flat, market demand and even government measures.
Before you jump on the bandwagon, remember how the government introduced property cooling measures to control rising property prices and to keep homes affordable? So, you can be sure that Singapore’s Big G is surely looking into the “lottery effect”.
According to National Development Minister Desmond Lee in an interview with Lianhe Zaobao: “We may need a series of other measures to ensure that if resale is permitted for these flats, that they remain affordable for generations to come.”
He added: "People will, of course, pay what they believe the market can bear in order to get these very good flats and very good locations. So some of these measures would have to cover all these fronts."
Read more about our primer on the upcoming Greater Southern Waterfront, an up-and-coming prime-district area.
It’s anyone’s guess what these new measures will be, but there have been some hints on Minister Desmond Lee’s Facebook page.
He cited the possibility of more subsidies for HDB projects in prime locations, in order to keep housing affordable. The ministry, he said, also received suggestions such as the introduction of some restrictions on the resale conditions for future prime-area projects.
More diverse HDB flat types might be built in these prime districts, such as 2-room Flexi flats and rental housing where possible.
There is a need to address the issue of “fairness” if additional subsidies are given, especially if it means buyers could have greater capital gains when selling their prime location HDB flat on the open market after MOP.
Another concern is the need to preserve the character of public housing, especially its inclusiveness and diversity — for example, ending up with HDB neighbourhoods that are gentrified and populated only by the wealthy, leading to a divided Singapore.
As Minister Desmond Lee put it: “If it’s going to be sold and transacted at high resale prices, then there is a risk that only well-off Singaporeans can buy (flats in) those estates. And then of course, the character of the estates will change and it may be priced beyond the reach of ordinary Singaporeans.”
Analysts have also given their 2 cents worth on the matter, saying measures such as a shorter lease period, a longer MOP, resale buyer income cap, selling-back to HDB, resale levies or taxes – or a combination of these measures – could be considered to mitigate the “lottery effect”.
How Does This Affect Homeowners and Buyers?
It’s indeed a delicate situation, because increasing public housing prices could also impact private property prices. Measures introduced also need to be clearly defined, such as the cut-off points for an income cap, or what is defined as a prime location.
In any case, these new measures will take time to formulate. If you happen to be sitting on a prime location flat and intend to use your HDB as a stepping stone to upgrade to a private property — the market conditions right now seem favourable, given the pent-up demand from 2020.
However, with these new property measures on the horizon, don’t rush to sell your prime-district HDB as fast as possible. Evaluate your housing needs and your financials before making a decision.
As for potential homeowners, you still need a roof over your heads nonetheless. So go for a balanced decision based on the amenities of the HDB town, its location and how much you can afford; instead of only banking on striking it rich thanks to the “lottery effect” (which might cease to exist in the future).
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This article was written by Mary Wu, who hopes to share what she’s learnt from her home-buying and renovation journey with PropertyGuru readers. When she’s not writing, she’s usually baking up a storm or checking out a new cafe in town.