HDB PLH Model – New Prime Area BTOs no longer a good Investment ?
Are you still expecting a lottery effect and excessive windfall gains when you are looking at the latest New BTO HDB Flat that are going to be released in Prime and central locations, such as the city centre and surrounding areas, including the Greater Southern Waterfront ?
In the Latest Announced by HDB, Buyers of future Housing Board (HDB) flats in certain locations will be subject to tighter buying and selling conditions under a new prime location public housing (PLH) model.
The PLH model is aimed at keeping future HDB flats in prime, central locations affordable and inclusive.
The model came as a record number of HDB flats have changed hands for at least $1 million this year, with The Pinnacle @ Duxton having most of such transactions, although such units are not exclusively located in the central area.
“If left to the forces of the private market, it is likely that these attractive locations would likely become very expensive and exclusive locations, with housing that only the well-to-do can afford,” said National Development Minister Desmond Lee on Tuesday (Oct 26).
So what will be the impact of the new model ? Perhaps, let start by understanding the new model.
The flats in these prime areas will “naturally command higher market values”, the units will be priced with additional subsidies, on top of those currently provided for all BTO flats.
“This will keep flat prices affordable for a range of Singaporeans,” accordingly to HDB.
But those who sell their flats later on will have to pay a percentage of the unit’s resale price to HDB, to allow authorities to “fairly recover the extent of the additional subsidies” initially given.
Mr Lee said this will address concerns over extra subsidies leading to “excessive windfall gains” and whether it would be fair to BTO buyers in other parts of Singapore.
Accordingly to HDB, The subsidy recovery rate will reflect the extent of additional subsidies provided at launch and the same rate will apply regardless of when the flat is resold in the future and the details will be announced in the November BTO exercise. The percentage may be adjusted for other projects in future, depending on market conditions and the subsidies needed.
LOWER QUOTA FOR PRIORITY SCHEME
To buy BTO units in prime areas, the eligibility criteria will be the same as that for buying BTOs elsewhere. But the quota for priority allocation under the Married Child Priority Scheme will be reduced. Currently, the scheme sets aside up to 30 per cent of BTO units for those who want to live with or near their parents or children in the area. Moving forward, quotas for PLH projects will be adjusted depending on their location.
10-YEAR MINIMUM OCCUPATION PERIOD
PLH flat owners will have to fulfil a 10-year MOP before they can sell their flats in the open market or invest in a private residential property. In addition, owners will not be able to rent out their whole flat at any point in time, even after the MOP is over. They will only be allowed to rent out spare bedrooms. These conditions will apply to both the person who buys the BTO unit from HDB, as well as all subsequent buyers on the resale market.
“These policies will help to strengthen the owner-occupation intent of public housing and also seek to deter speculative demand and moderate resale prices,” said Mr Lee. He added that appeals by those who genuinely face extenuating circumstances will be reviewed on a case-by-case basis.
TIGHTER RULES FOR BUYING RESALE FLATS
On top of that, the resale of these flats will be restricted to only those who meet eligibility conditions to buy BTO flats. These conditions include meeting a household income ceiling, currently set at S$14,000, and being an eligible family nucleus, such as a married couple.
“Without such restrictions, the resale prices of these homes in prime locations may rise beyond the reach of many Singaporeans over time.
“So we will maintain the resale restrictions for at least half of the 99-year tenure of each prime location flat, before we consider whether to review them,” said Mr Lee.
The PLH model will apply to selected public housing projects in prime and central locations, such as the city centre and surrounding areas, including the Greater Southern Waterfront, said HDB.
The first project to be launched under the PLH model will be at a site in Rochor.
Located along Kelantan Road and Weld Road, it will feature 960 units of three-room and four-room flats, and 40 two-room rental flats which will be incorporated within the same blocks.
After understanding the Prime Location Public Housing (PLH) Model, let see whether there are still possibility of lottery effect and excessive windfall gains when owners sell their PLH flats in the open market.
Let us look at the Scenario. Assuming a buyer bought QueensTown 4 Bedroom at S$540K (Recent August 2021 BTO of Queen’s Arc To note, the PLH Model don’t applied to them).
First on the additional subsidies, we do not know how much at the moment for the subsidy crawback (It will be determine base on project and location determined by HDB and will be likely known when upcomg Rochor BTO is out), so just take it as “C” Value.
Second, the 10 years MOP. This mean within these 10 years + Construction Period, you as the owner will not be able to but any private properties so likelihood will be the lost of opportunities or what we called “Opportunity Cost” which is unable to quantified. Next on to the value, assuming a growth of 3 % Per annum, the HDB Property worth S$790k (Current Resale Value) *(1+ 0.03*10) = 1.027M.
Therefore as a Seller, you might want to sell your unit at 1.027M + “C” Value. However, will there be any buyer who is eligible to buy and can afford them ?
We have to look at the next criteria on the tighter rules which buyer must have at least one SC and income must be S$14,000 or below. Using MSR of 30% on S$14,000 on 30 years tenure (HDB Loan is up to 90% and 25 years Tenure), the max property price the buyer whose income is S$14,000 is about 1.25M with capital outlay of S$312,500 (Cash/CPF). Therefore, the affordability for next buyer is there just whether they have the capital outlay. And also whether they are willing to buy ? Perhaps yes, if the location and the unit is really good but I supposed not as an investment. (The rules repeat even after second buyer) .
On the note about whether authorities would prevent BTO buyers from bumping up their future selling price to factor in the subsidy recovery, HDB said the resale market functions on a “willing buyer, willing seller basis”, and sellers will need to have “realistic expectations”.
In conclusion, you might still see a “Gain” on unit bought under PLH but at the cost of 10 years ‘Opportunity Cost” and also face limited pool of eligible buyers pushing the demand low. So probably no more lottery effect and excessive windfall.
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