HDB PLH Model – New Prime Area BTOs no longer a good Investment ?

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.

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.

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.

Alvin Tay
Associate District Director
HUTTONS ASIA PTE LTD
CEA Licence Number: L3008899K/R050368E
HP: +65 91259978
Email: alvintaykongwei@gmail.com