A new housing model has been introduced for public flats in prime areas. This new model will be known as the Prime Location Public Housing (PLH). There are new restrictions introduced with the aim of keeping public flats in prime areas affordable as well as reducing the speculative impact on prices of these housing in the resale market.
Here are the set of new restrictions and the implication they will have on the market.
MOP will be extended to 10 years
MOP refers to the minimum occupancy period of public housing. During this period, homeowners are not allowed to rent the entire flat. However, they are allowed to rent out rooms provided for those with 3 rooms or bigger flats provided that homeowners stay in the same flat. Additionally, homeowners are not allowed to sell during this period and they are also not allowed to purchase private property both locally and overseas during this period.
MOP will apply for flats bought from HDB, resale flats bought with or without CPF grant ( from 30 Aug 2010). There are some exceptions to this such as 1 room resale flats without CPF having no MOP period and flats bought under fresh start housing scheme having 20 years MOP period.
With MOP extended to 10 years, it will mean that the buyer could wait as long as 15 years or more before they can purchase private property. This would also mean that the age of the property will be much shorter compared to the current crop of flats with 5 years MOP.
No rental of the whole unit at any point in time.
Currently, homeowners who fulfil the minimum 5 years MOP can rent out the entire flat in. Under the PLPH, homeowners cannot rent out the whole unit even after MOP is over. They will only be allowed to rent out spare bedrooms.
This condition will apply to both the person who buys the BTO from HDB as well as all subsequent buyers in the resale market.
This will mean that homeowners and buyers would have to be prepared to stay in the PLH even if they purchased a private property after MOP. Currently, for families with 2 properties ( public and private), there are many who opt to stay in the private property. With this ruling, this would not be possible as PLH are meant to be owner-occupied.
Tighter rules for buying resale units
The resale of these flats will be restricted to those who meet the eligibility conditions to buy BTO flats. These conditions include meeting a household income ceiling ( currently at $14,000) and being a family nucleus ( such as a married couple).
Additionally, at least one applicant has to be a Singapore Citizen (SC). The future buyers must not have own or have an interest in private property and have not disposed of any in the last 30 months.
The resale restrictions will be in place for at least half of the 99-year lease before a review.
This would mean that the future pool of buyers will be limited to those who fit the current BTO target market. Singles, SPR families and those earning more than $14,000 would not be able to purchase a resale unit.
With a cap in the household income ceiling, prices of these BTO is unlikely to rise exponentially due to limitations in bank loans and the perceived net worth of households with an income ceiling cap. With the restrictions on singles as well as PR families applying for such units, it will also reduce the potential pool of buyers in the future. This would imply a reduction in demand for future resale and utlimately make that pot of BTO gold disappear
Flats in prime areas will have higher market values, as such the units will be priced with additional subsidies, on top of those currently provided for all BTO flats.
Those who sell their flats later will have to pay a percentage of the unit's resale price to HDB. This % will be announced in the November BTO exercise for Rocher BTO project. It may be adjusted for other projects in the future, depending on market conditions and the subsidies needed.
This is effectively an indirect tax on resale properties. Unlike the current seller stamp duties for private properties, these clawbacks do not have an expiry date.
Lower Quota for Priority Scheme
The quota for priority allocation under the Married Child Priority Scheme will be reduced. Current 30% of the BTO is set aside for those who want to live with or near parents or children in the area. The quote for PLH projects will be adjusted according to the location.
Without priority allocation, the chances for getting a BTO base on distance to parents or children will be lesser.
No impact on current BTO in Prime Areas
Pinnacle @Duxton, Skyville@ Dawson and other existing BTO will not be affected by the new ruling.
There is a possibility that these BTO might see an uptick in prices. With fewer restrictions ( lower MOP and the flexibility to rent after MOP), they will be seen as an attractive alternative for those who wish to stay in prime locations
The current PLH model will only be applied to selected public housing projects in prime and central areas. They are defined as the city-centre and surrounding areas, including the Greater Southern Waterfront. At least one PLH is expected a year going forward. The first to be under this scheme will be 960 three and four-bedroom flats and 40 two rooms rental flats at Rocher.
Impact of PLH for future BTO.
With these new restrictions, the lottery effect of PLH has been severely reduced. This is effectively a 'cooling measure' for BTO. As public housing is meant to serve as home-ownership instead of an investment vehicle, this may change the perception of future buyers in regards to buying BTO in prime areas.
As such, BTOs in non-prime areas might see an uptick in interest. Existing BTO around prime areas would benefit as well. Last but not least, buyers may turn to private properties instead of public housing. With a salary cap of $14,000, these buyers could afford a 2 bedroom brand new condo and even a resale 3 bedroom unit. As a result, the private housing market might also see a potential pick up in price.
Is PLH a good buy?
This question will be on everyone's lips after the new slew of measures. If you are looking for the pot of gold via BTO, a PLH would most likely be rank low base on the current measures. The main factors are the drastic reduction in demand due to ceiling cap, restrictions on SPR family nucleus and singles. The longer MOP and the rental restrictions also meant that it will be much longer for one to realise return and to use the property as a rental vehicle respectively.
Before you plan your BTO and would like to see if choosing a Prime Location Housing is a wise choice for a home, drop us a message or make an appointment with us to assess the situation and alternative to PLH.
Sessions are complimentory and we have a limit of 2 consultation slots per day.