Is a PLH flat for you?
By Lee Sze Teck,
head of research,
Huttons Asia
/ EdgeProp Singapore |
The 960 PHL flats at Rochor, River Peak I and River Peak II, launched for sale in the November BTO exercise (Credit: HDB)
SINGAPORE (EDGEPROP) - The first public housing flats under the Prime Location Public Housing (PLH) model was launched on Nov 17, 2021.
Read also: Sustainability of Singapore’s housing prices
A total of 960 three-room and four-room flats spread across six 47-storey blocks along Weld Road and Kelantan Road have been made available for application. One of the blocks will have 40 units of two-room rental flats. The Built-to-Order (BTO) project is directly connected to the Jalan Besar MRT station.
Prices for a three-room flat start from $409,000 without grants and $582,000 for a four-room flat, without grants.
A recap on the new rules for PLH flats:
· Applies to new BTO flats in areas such as the city centre and Greater Southern Waterfront;
· Clawback subsidy of 6% on the higher of the resale price or valuation price on the first sale;
· Reduced priority quotas under the Married Child Priority Scheme to a maximum of 20% for first timers and up to 2% for second timers;
· Minimum occupation period (MOP) of 10 years;
· Inability to rent out whole flat even after MOP;
· Singles are not able to buy PLH flats in the resale market;
· At least one Singaporean as the applicant for subsequent resales; and
· Cap in the household income ceiling of future buyers of resale PLH flats at $14,000/month
Is the clawback subsidy fair? Can it curb the lottery effect?
There are two ways of looking at the clawback subsidy. One is to look at the potential gains one can make upon sale.
Let’s do a simulation using a BTO project beside the Greater Southern Waterfront which is a future PLH flat location. Telok Blangah Towers, a premium BTO project launched in 2007 and completed in 2013, is now eight years old. The resale prices of the four-room flats that have changed hands range from $820,000 to $975,000 in 3Q2021, translating to a potential gain of 2.4 to 2.6 times the BTO price in 2007.
Assuming similar price gain for PLH flats at Rochor, owners can potentially realise gains of more than $900,000 when they sell. The clawback subsidy of 6% appears low relative to the potential gains. Buyers may still be drawn to PLH flats because of the potential huge gains to be made.
The second way is to compare the additional subsidy that is given upfront and compare to the clawback subsidy. Unfortunately, this additional subsidy has been implicitly priced in with no information given. An educated guess can be made by comparing with other BTO launches.
The prices of the PLH four-room flats at Rochor are very similar to the BTO flats at Kallang during the last BTO exercise in May. This means that HDB has provided additional subsidies to account for the difference in location.
The four-room flats at the Telok Blangah BTO exercise were priced from $602,000. The four-room flats at Rochor are priced from $582,000, which is $20,000 lower than those in Telok Blangah. It can be inferred that the additional subsidies may be more than $20,000 if differences in time, location and flat size are taken into consideration.
The table above estimates a clawback subsidy of $90,000 if the future resale price is $1.5 million. However, if the future resale price of a four-room PLH flat at Rochor reaches only $1 million, owners have to pay back $60,000 to HDB. This estimated clawback subsidy amount of $60,000 to $90,000 appears to be almost similar to the additional subsidy HDB is giving upfront to buyers. (Find HDB flats for rent or sale with our Singapore HDB directory)
Who should consider such flats?
HDB buyers can be broadly separated into two groups – first timers and second timers.
For example, a first-time applicant who is 28 years old will be eligible to sell when he is 44 years old. This leaves him with a maximum loan tenure of 21 years for the next home purchase. Assuming a household income of $14,000, the seller of the PLH flat can qualify for an estimated loan amount of up to $1.5 million for the next property purchase.
If a second timer is 38 years old, he will be 54 years old by the time the PLH flat can be sold. This leaves the buyer with a maximum loan tenure of 11 years for the next home purchase. Assuming a household income of $14,000, the seller of the PLH flat can qualify for a loan estimated at $920,000 for the next property purchase. This amount is lower than the estimated resale price of a PLH flat which means the seller will either have to downsize to a smaller home in the same location or move to a location further away from the city.
First-timers still have the opportunity to upgrade to another property. For young couples who wish to start a family, however, there is only one primary school, Farrer Park Primary School, that is with 1 km of the PHL flats.
For second timers, it will be very difficult to upgrade to another property by the time the PLH flats are eligible for resale.
Another consideration for future homeowners of these PHL flats is the amount of ERP charges they will incur if they choose to drive to and from work.
Go or no go?
For young couples below 30 years old, PLH flats appears to be a strong value proposition because of the potential gains, clawback subsidy notwithstanding. A note of caution here: if the current income ceiling of $14,000 per month is not raised, buyers can only qualify for a $800,000 loan and have to fork out $700,000 cash to purchase a $1.5 million PLH flat with a 25-year loan. Will there be buyers with $700,000 cash?
For second timers, it will be very difficult to move on to the next property because of the very short loan tenure. Their retirement funds will be tied up in the PLH flats. Two options are available currently: they can either cash out and buy a two-room flexi flat in another location using full cash; or age in place by selling a portion of their lease back to HDB.
The leaseback scheme, if applicable for PLH flats, raises a policy concern: Will these buyers of PLH flats be able to cash out of their flats with taxpayers’ money without paying the clawback subsidy. This makes the clawback subsidy irrelevant. Is this a loophole that needs to be plugged?
Lee Sze Teck is senior director and head of research at Huttons Asia (Credit: Huttons Asia)
Check out the latest listings near Telok Blangah Towers, Jalan Besar MRT station
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