New Reporter
22-08-23, 10:10
HDB changes rightly emphasise homes are for living, but don’t snuff out wealth creation
Aug 21, 2023
SINGAPORE’S public housing is the envy of many countries. Around nine in 10 Singaporeans are homeowners, and about eight in 10 Singaporeans live in Housing and Development Board (HDB) homes.
Constant refinements to the public housing model over the years have helped the HDB meet changing aspirations. At this year’s National Day Rally, Prime Minister Lee Hsien Loong unveiled a new public housing framework to keep homeownership affordable for all income groups, maintain a good social mix in every town and region, and keep the system fair for all.
Starting in the second half of 2024, HDB will classify build-to-order (BTO) projects as Standard, Plus or Prime, according to locational attributes. HDB will do away with its current classification by mature and non-mature estates.
The bulk of BTO flat supply will be Standard flats, where buyers are subject to a minimum occupation period (MOP) of five years before they can sell the flat or buy private property.
Plus flats will be in choicer locations such as being close to the MRT station or town centre within each region islandwide, while Prime flats will be in the choicest locations, usually closer to the city centre. Plus flats will be housed in sought-after mature estates such as Bishan, Bukit Merah, Kallang/Whampoa, Queenstown and Toa Payoh, where current resale prices are among the highest.
BTO buyers of Standard flats will receive standard subsidies, while buyers of Plus flats will receive more subsidies and buyers of Prime flats will get the most subsidies.
In turn, BTO buyers of Plus flats will be subject to tighter conditions and those of Prime flats face the tightest conditions. For example, buyers of Plus and Prime flats will pay a proportion of the resale price, if they sell their flats later on. The subsidy recovery rate imposed on Plus flat buyers will be lower than the recovery rate for Prime flats.
Lower windfall gains
BTO buyers of Plus and Prime flats will be subject to MOP of 10 years. The resale of Plus and Prime flats is also restricted to those who meet the BTO eligibility income ceiling of S$14,000 per month for couples.
Going forward, windfall gains could be mitigated for buyers of BTO flats in choice locations. Many people will take comfort on hearing that the changes will reduce the lottery effect of a lucky BTO applicant snaring a well-located HDB home and making much more gains than others.
In contrast, windfall gains may increase for existing owners of HDB flats located near projects with Plus or Prime flats. Potential resale flat buyers who bust the BTO income ceiling may pursue existing well-located HDB flats where no income restriction applies.
Impact on private housing
In the longer term, the new HDB model can profoundly affect the private housing market and the use of housing as a major tool of wealth creation.
Take two persons who get married at 30 years old. If the couple collects the keys to their new Plus or Prime BTO flat at age 33, they have to wait until they are at least 43 years old before they can possibly sell their BTO unit and buy a private home.
The couple’s ability to buy private housing is curtailed in various ways.
First, the profit from selling the Plus or Prime flat is reduced because of the clawback of resale proceeds and the restrictions on eligible buyers of the resale flats. With a smaller pool of resale buyers and the exclusion of some high-income buyers, Plus and Prime flats may fetch less frothy resale prices.
Second, a home buyer may have less borrowing capacity due to age. The loan-to-value (LTV) limit is 75 per cent for a private home buyer with no outstanding housing loans, provided the loan tenure does not exceed 30 years and the loan period for the borrower does not extend beyond 65 years of age. Otherwise, a lower LTV limit of 55 per cent applies.
Third, a couple who owns a Plus or Prime flat may hesitate to trade the said flat for a private home, as they could find it difficult in future to buy back a centrally located HDB flat. That couple might be caught by restrictions applicable to buyers of Plus or Prime resale flats.
Giving more subsidies to BTO buyers of Plus and Prime flats will certainly help to ensure that lower-income buyers are not deterred from buying such units. Young couples, who are focused on securing a well-located home to live in, may have no objections to a longer MOP. Also, a new four-room HDB flat of over 90 square metres can adequately cater to the needs of a couple with two children for many years.
Climbing the homeownership ladder
Many people of my generation who started working in the 1990s have viewed climbing the housing ladder as an integral part of wealth creation. Get a BTO home, sell it shortly after five years and move to a larger or better located resale HDB flat, or a private home. In the process, see one’s real estate portfolio grow in value.
A new generation may transact homes less frequently and chase condominium ownership dreams less feverishly. This can be positive in reducing stress among people and shifting focus away from property investment to more economically productive activities.
The effects of having a potentially smaller pool of HDB upgraders moving into condos may not be felt for easily a decade or more. Still, some potential condo buyers may start to factor a possible shrinkage of HDB upgrader demand into home-buying decisions.
Singapore’s stability, good infrastructure and rule of law have helped underpin capital appreciation of homes here. But recent policy changes have lessened the investment appeal of homes.
Non-owner-occupier residential property tax rates rose this year and will rise further next year. Property tax rates for owner-occupiers of pricier homes have also risen and will rise more in 2024.
Hefty Additional Buyer’s Stamp Duty rates apply to locals buying second and subsequent homes, as well as foreigners buying any homes.
Could a situation ever arise in Singapore like that in many parts of China today, where people are reluctant to buy homes, and a weak housing market in turn creates stress for the financial system as well as the wider economy?
Let’s hope that while policy in Singapore rightly emphasises homes here are for living, owning homes can continue to be a positive source of wealth creation. In an era of higher inflation and longer life expectancy, having homes that grow in value or generate recurrent income can help a large homeowning population age with dignity.
https://www.businesstimes.com.sg/opinion-features/hdb-changes-rightly-emphasise-homes-are-living-dont-snuff-out-wealth-creation
Aug 21, 2023
SINGAPORE’S public housing is the envy of many countries. Around nine in 10 Singaporeans are homeowners, and about eight in 10 Singaporeans live in Housing and Development Board (HDB) homes.
Constant refinements to the public housing model over the years have helped the HDB meet changing aspirations. At this year’s National Day Rally, Prime Minister Lee Hsien Loong unveiled a new public housing framework to keep homeownership affordable for all income groups, maintain a good social mix in every town and region, and keep the system fair for all.
Starting in the second half of 2024, HDB will classify build-to-order (BTO) projects as Standard, Plus or Prime, according to locational attributes. HDB will do away with its current classification by mature and non-mature estates.
The bulk of BTO flat supply will be Standard flats, where buyers are subject to a minimum occupation period (MOP) of five years before they can sell the flat or buy private property.
Plus flats will be in choicer locations such as being close to the MRT station or town centre within each region islandwide, while Prime flats will be in the choicest locations, usually closer to the city centre. Plus flats will be housed in sought-after mature estates such as Bishan, Bukit Merah, Kallang/Whampoa, Queenstown and Toa Payoh, where current resale prices are among the highest.
BTO buyers of Standard flats will receive standard subsidies, while buyers of Plus flats will receive more subsidies and buyers of Prime flats will get the most subsidies.
In turn, BTO buyers of Plus flats will be subject to tighter conditions and those of Prime flats face the tightest conditions. For example, buyers of Plus and Prime flats will pay a proportion of the resale price, if they sell their flats later on. The subsidy recovery rate imposed on Plus flat buyers will be lower than the recovery rate for Prime flats.
Lower windfall gains
BTO buyers of Plus and Prime flats will be subject to MOP of 10 years. The resale of Plus and Prime flats is also restricted to those who meet the BTO eligibility income ceiling of S$14,000 per month for couples.
Going forward, windfall gains could be mitigated for buyers of BTO flats in choice locations. Many people will take comfort on hearing that the changes will reduce the lottery effect of a lucky BTO applicant snaring a well-located HDB home and making much more gains than others.
In contrast, windfall gains may increase for existing owners of HDB flats located near projects with Plus or Prime flats. Potential resale flat buyers who bust the BTO income ceiling may pursue existing well-located HDB flats where no income restriction applies.
Impact on private housing
In the longer term, the new HDB model can profoundly affect the private housing market and the use of housing as a major tool of wealth creation.
Take two persons who get married at 30 years old. If the couple collects the keys to their new Plus or Prime BTO flat at age 33, they have to wait until they are at least 43 years old before they can possibly sell their BTO unit and buy a private home.
The couple’s ability to buy private housing is curtailed in various ways.
First, the profit from selling the Plus or Prime flat is reduced because of the clawback of resale proceeds and the restrictions on eligible buyers of the resale flats. With a smaller pool of resale buyers and the exclusion of some high-income buyers, Plus and Prime flats may fetch less frothy resale prices.
Second, a home buyer may have less borrowing capacity due to age. The loan-to-value (LTV) limit is 75 per cent for a private home buyer with no outstanding housing loans, provided the loan tenure does not exceed 30 years and the loan period for the borrower does not extend beyond 65 years of age. Otherwise, a lower LTV limit of 55 per cent applies.
Third, a couple who owns a Plus or Prime flat may hesitate to trade the said flat for a private home, as they could find it difficult in future to buy back a centrally located HDB flat. That couple might be caught by restrictions applicable to buyers of Plus or Prime resale flats.
Giving more subsidies to BTO buyers of Plus and Prime flats will certainly help to ensure that lower-income buyers are not deterred from buying such units. Young couples, who are focused on securing a well-located home to live in, may have no objections to a longer MOP. Also, a new four-room HDB flat of over 90 square metres can adequately cater to the needs of a couple with two children for many years.
Climbing the homeownership ladder
Many people of my generation who started working in the 1990s have viewed climbing the housing ladder as an integral part of wealth creation. Get a BTO home, sell it shortly after five years and move to a larger or better located resale HDB flat, or a private home. In the process, see one’s real estate portfolio grow in value.
A new generation may transact homes less frequently and chase condominium ownership dreams less feverishly. This can be positive in reducing stress among people and shifting focus away from property investment to more economically productive activities.
The effects of having a potentially smaller pool of HDB upgraders moving into condos may not be felt for easily a decade or more. Still, some potential condo buyers may start to factor a possible shrinkage of HDB upgrader demand into home-buying decisions.
Singapore’s stability, good infrastructure and rule of law have helped underpin capital appreciation of homes here. But recent policy changes have lessened the investment appeal of homes.
Non-owner-occupier residential property tax rates rose this year and will rise further next year. Property tax rates for owner-occupiers of pricier homes have also risen and will rise more in 2024.
Hefty Additional Buyer’s Stamp Duty rates apply to locals buying second and subsequent homes, as well as foreigners buying any homes.
Could a situation ever arise in Singapore like that in many parts of China today, where people are reluctant to buy homes, and a weak housing market in turn creates stress for the financial system as well as the wider economy?
Let’s hope that while policy in Singapore rightly emphasises homes here are for living, owning homes can continue to be a positive source of wealth creation. In an era of higher inflation and longer life expectancy, having homes that grow in value or generate recurrent income can help a large homeowning population age with dignity.
https://www.businesstimes.com.sg/opinion-features/hdb-changes-rightly-emphasise-homes-are-living-dont-snuff-out-wealth-creation