We experienced the impeding hype in HDB Resale Prices recently starting from second half of 2020. Sellers making huge sums of profits from their BTOs, especially in the downtown region of Singapore. This region is located close and within the future transformation that is now commonly known as the Greater Southern Waterfront.
Despite living in such all luxurious and attractive prime location, majority of HDB buyers simply look at 3 simple things when buyng a home amid the pandemic.
- Space and Layout
- Breathtaking unblock views
- Condition of the Home
Just look at “The Pinnacle @ Duxton”, 4-Rooms have since transacted above one million in 2021. There are even 5-Rooms located along Veersamy Road (Next to Jalan Besar MRT) asking for similar prices in the open market. Therefore, with the recent policy changes on prime location housing (PLH), the BTO eligiblity and conditions are set to change with this new rulings.
As the first Rochor PLH Site launches in November sales of 2021 approaches. What does it mean to own a Prime Location Housing (PLH) model HDB? Does it still make sense for such a property to be an investment? I like to share my opnions on what we know so far.
Under the new condition, owners of PLH flats are subjected to 10 years of Minimum Occupational Period (MOP). That is 5 years more in comparison to the existing BTO policy of 5 years MOP. Imaging ourselves buying a PLH flat at the age of 30, (P.S that’s near my age) including the time of construction which estimates 4 to 6 years now due to delays. By the time, we are eligible to sell our PLH flat, i reckon i would be around the age of 46!
On a note to leveraging since we are talking about age, did you know in most cases the bank calculates your tenure to the age of 65? Should we decide to sell off our PLH flat at the age of 46, don’t expect to recieve a full loan tenure of 30 years. The difference from 65 will be 19 years left to leverage on our next property purchase. This causes the total loan amount to be reduced unless we magically recieve a salary increment so high during the 16 years of working expereience, that it is able to offset the shortfall of age. (I might find it highly unlikely in many cases).
An example of a case study, a Husband and Wife, both 30 years old are earning a monthly household income of $6,000 per month. At 2% interest rate and 30 years age of tenure will grant them a loan amount of $973,975. Assuming they purchased a PLH flat only to recieve the keys 6 years from booking and the couple decided to sell and upgrade to a private after 10 years of MOP. Let’s say that their household income have risen to $12,000 per month, with 19 years left of tenure at the age of 46. Using the same 2% interest rate in comparison, their total loan amounts to $1,364,784. This clearly shows that the difference in loan is not significant, taking into account of Singapore’s property and land prices increment over the years as well.
Will their loan amount be sufficient for an upgrade at the next generation of property prices? Please know that this example takes an increment of 200% in salary from $6,000 to $12,000 of household income, which is uncommon in most cases.
In spite of that, waiting 16 years from the time of booking to selling our PLH flat is insanely long to me. Such restrictions includes the intention to buy a second property for investment untill our MOP is fulfilled. In my own perspective, I feel that once the MOP is fulfilled, it may pose a difficulty for upgraders if that time comes a new stage of property prices in Singapore.
No Renting Out of Whole Unit At All
PLH Owners will not be able to rent out their whole flat even after the 10 years MOP. This applies further to subsequent resale owners of PLH model flats. This means that PLH flats are not practical for owners wishing to rent out their whole flats for rental income in the future. Barred from whole flat rent forever unless there is a change in rules of the PLH model.
Resale Buyers Eligibility
Eligibility conditions have become more retricted for subsequent resale buyers who are interested to purchase a PLH flat. In short, the initial rules to purchase a PLH flat runs with subsequent resale buyer criterias. To summarize the conditions:
- At least one applicant has to be Singapore Citizen (SC), furthermore the minimum household nucleus is a SC and Singapore Permanent Resident (SPR). This means that the ‘non-foreigner spouse scheme’ are not within the audience of a PLH resale flat.
- There must be an eligible family nucleus such as a married couple.etc. Then what about singles above 35? Unfortunately, it does not fall under the audience with the running criterias of PLH resale flats.
- The income ceiling of $14,000 per household limit runs with resale eligibility.
- Remember if you wish to buy a BTO but previously own or just sold your private property? The same condition applies for resale buyers interested in PLH flats. You must not own any private property and have sold it for more than 30 months before buying a resale PLH flat.
The Singapore Goverment has clearly listened to the feedback from the residents and are testing this new model to ensure affordability and location opportunity to local families’ housing needs. This provides a chance for Singaporean households to enjoy the amenities and lifestyle of living in Singapore’s downtown. Although, i am not certain on the running resale buyer criterias which may affect the resale value and further limiting the buyer audience.
Private Downgraders Affected
f we take a closer look on rule 4 of eligibility. This means that Private Downgraders or En-bloc owners are not eligible to buy resale PLH flats. It will surely affect the foreseeable demand of PLH resale flats by excluding this group of buyers who mostly have Cash or CPF available to purchase. (from experience)
There is also a subsidy claw-back from selling PLH flat. Sellers are obligated to pay six (6) per cent of the resale price of the flat back to HDB. With the claw-back, it acts as a capital gain tax measure and can potentially affect the owner’s profits.
It is apparent that the objective to buying a BTO flat in prime areas are for buyers looking for own occupation and long term plans.
The investment approach may not be attractive enough for investors or speculative buyers.
Inspite of the new policies, it will benefit buyers who are genuine to stay in this as a Home for an extended period of time.
Finally, i would consider the holding period of the flat to my future forward plans before commiting to purchase a prime location model BTO flat. The MOP is a really long time in my opinion. Our personal circumstances can change over time. Even unforeseen circumstances may appear as well. There are many “What ifs” cases to be locked, in consideration to the 10 years MOP. The most commonly questions i can think of from living in a HDB and as a family are the following:
- What if we wish to move closer to our children’s school? (or even desired school)
- What if we require a bigger house for more space to work from home or family expansion?
- What happens if we decide to migrate and move jobs overseas midway?
There are so many factors to lock in with the 10 years MOP, not to mention the other rules which can affect price or even whole unit rental flexibility. Things that i will surely look into, will be my future real estate plans then explore all other housing options and at least my value preservation before commiting. If you are just living in one room like my family nucleus, room rentals can cover a portion of the monthly installment as a false savings for sure. Additionally, the subsidy claw-back has not been fully released on the details such as “How much of a percentage do we have to return?” “How much will the additionally subsidy be on top of the BTO subsidy?”. Many of these questions are still unanswered as i write this topic and very much excited to learn more when the first PLH model at Rochor launches soon with further details. Share with me your thoughts by leaving your comments or if you are still uncertain about what your housing options are, feel free to contact me using the form below.