New Reporter
05-09-23, 11:13
Buying a prime-location HDB flat means stepping off the property ladder, for better or worse
Sep 04, 2023
IN 2015, it was reported that a four-room Pinnacle@Duxton Housing Development Board flat somewhere between the 34th and 36th floor was sold for S$900,000.
The 95 square metre flat was purchased by a Singaporean couple for about S$340,000 when it was launched under the Build-To-Order (BTO) scheme in 2004.
That represents a compound annual growth rate of about 9 per cent, which comes close to the expected returns of equities. Some suggested at the time that the returns were better than winning the lottery.
However, the halcyon days of outsized returns may soon be over. In fact, supplying more flats in prime locations could knock out the early rungs of the property ladder.
At the National Day Rally on Aug 20, Prime Minister Lee Hsien Loong announced that new BTO flats with such favourable locations will be launched under the Prime and Plus classifications.
Prime flats will be located in the choicest and most central locations in Singapore, while Plus flats will be located near sought-after amenities, such as MRT stations.
Similar to the Prime Location Housing (PLH) Model, couples buying these flats will be subject to a subsidy clawback as well as a longer 10-year minimum occupation period (MOP).
They will also be restricted to reselling their flats to couples earning less than S$14,000 per month, the same as the current BTO eligibility limit. Homeowners could soon see a price ceiling form over their flats under these classifications.
Take a PLH flat in the Kallang/Whampoa district – say, one sold in the November 2022 BTO exercise for S$600,000.
Some rough back-of-the-envelope calculations find that the maximum possible resale price of such flats – based purely on what the buyer can afford – stands at about S$1.03 million, after the 6 per cent clawback.
This assumes that the couple, earning S$14,000 per month, is subject to a mortgage servicing ratio of 30 per cent and a 3 per cent interest rate loan with a 25-year tenure.
It also assumes that the couple makes a 20 per cent downpayment in cash. A couple buying property with parental support could afford to pay more in cash, although this is not a given.
Hypothetically, the S$600,000 PLH flat will see a compound annual growth rate of just under 4 per cent when it is sold in 2038 after its 10-year MOP.
This rate of return assumes that people are willing to pay the maximum possible resale price, which leaves the second owner’s potential gains at the mercy of any income-ceiling adjustments that the government could make.
BTO applicants are then left with two potential options:
1) Apply for a Standard flat, which tends to be cheaper, and try to climb the property ladder with a smaller quantum of returns; or
2) Apply for a Plus or Prime flat, which may see more favourable application rates, and possibly see dismal returns on their property.
Senior research director at Huttons, Lee Sze Teck, said in a note on Aug 20 that while the new measures may lead to a stable HDB market in the long run, it could also exacerbate the gap between the haves and have-nots in society.
“It is taking longer for owners of HDB flats to realise substantial capital gains to be able to move up the housing ladder.
“The proportion of buyers with an HDB address buying a private property has declined in recent years, and more are relying on intergenerational wealth transfer to do so,” he said.
Generations of upper middle-class Singaporeans have got to where they are today by selling their HDB flats and rolling those profits into condominiums. They later make a further profit from when they sell the condo down the road and move back into HDB flats to beef up their retirement funds.
This has been the “natural order” for decades, a way to move up in life and gain financial stability.
Yet, the private housing market has seen multiple rounds of cooling measures which should give people some pause as they climb the ladder. Higher-for-longer interest rates could also weigh on sentiment.
In July, overall condo resale prices dipped 0.2 per cent from the month before, while volumes rose 4 per cent over the same period, according to flash estimates from SRX and 99.co.
While many may view housing to be an evergreen investment, it is also subject to cycles, just as equities and other asset classes are. The market may have peaked for now, and it will not be easy to predict how people will be able to roll their BTO profits into other properties later on.
With the new Plus and Prime BTO flats, it appears that people who wish to stay in better locations may have to sacrifice climbing the property ladder.
Potential flat buyers will have to think long and hard about how much they prize these locations versus any investment returns that they could make.
It is challenging to properly predict the potential returns from these flats too because the income ceiling could eventually be updated, but the rate of increase has not been made known.
All we know for certain is that the government wants to keep a lid on prices to ensure that these homes remain affordable for more people, whether they generate any returns or not.
Such flats may well be “forever homes” for their owners – for better or for worse.
https://www.businesstimes.com.sg/companies-markets/buying-prime-location-hdb-flat-means-stepping-property-ladder-better-or-worse
Sep 04, 2023
IN 2015, it was reported that a four-room Pinnacle@Duxton Housing Development Board flat somewhere between the 34th and 36th floor was sold for S$900,000.
The 95 square metre flat was purchased by a Singaporean couple for about S$340,000 when it was launched under the Build-To-Order (BTO) scheme in 2004.
That represents a compound annual growth rate of about 9 per cent, which comes close to the expected returns of equities. Some suggested at the time that the returns were better than winning the lottery.
However, the halcyon days of outsized returns may soon be over. In fact, supplying more flats in prime locations could knock out the early rungs of the property ladder.
At the National Day Rally on Aug 20, Prime Minister Lee Hsien Loong announced that new BTO flats with such favourable locations will be launched under the Prime and Plus classifications.
Prime flats will be located in the choicest and most central locations in Singapore, while Plus flats will be located near sought-after amenities, such as MRT stations.
Similar to the Prime Location Housing (PLH) Model, couples buying these flats will be subject to a subsidy clawback as well as a longer 10-year minimum occupation period (MOP).
They will also be restricted to reselling their flats to couples earning less than S$14,000 per month, the same as the current BTO eligibility limit. Homeowners could soon see a price ceiling form over their flats under these classifications.
Take a PLH flat in the Kallang/Whampoa district – say, one sold in the November 2022 BTO exercise for S$600,000.
Some rough back-of-the-envelope calculations find that the maximum possible resale price of such flats – based purely on what the buyer can afford – stands at about S$1.03 million, after the 6 per cent clawback.
This assumes that the couple, earning S$14,000 per month, is subject to a mortgage servicing ratio of 30 per cent and a 3 per cent interest rate loan with a 25-year tenure.
It also assumes that the couple makes a 20 per cent downpayment in cash. A couple buying property with parental support could afford to pay more in cash, although this is not a given.
Hypothetically, the S$600,000 PLH flat will see a compound annual growth rate of just under 4 per cent when it is sold in 2038 after its 10-year MOP.
This rate of return assumes that people are willing to pay the maximum possible resale price, which leaves the second owner’s potential gains at the mercy of any income-ceiling adjustments that the government could make.
BTO applicants are then left with two potential options:
1) Apply for a Standard flat, which tends to be cheaper, and try to climb the property ladder with a smaller quantum of returns; or
2) Apply for a Plus or Prime flat, which may see more favourable application rates, and possibly see dismal returns on their property.
Senior research director at Huttons, Lee Sze Teck, said in a note on Aug 20 that while the new measures may lead to a stable HDB market in the long run, it could also exacerbate the gap between the haves and have-nots in society.
“It is taking longer for owners of HDB flats to realise substantial capital gains to be able to move up the housing ladder.
“The proportion of buyers with an HDB address buying a private property has declined in recent years, and more are relying on intergenerational wealth transfer to do so,” he said.
Generations of upper middle-class Singaporeans have got to where they are today by selling their HDB flats and rolling those profits into condominiums. They later make a further profit from when they sell the condo down the road and move back into HDB flats to beef up their retirement funds.
This has been the “natural order” for decades, a way to move up in life and gain financial stability.
Yet, the private housing market has seen multiple rounds of cooling measures which should give people some pause as they climb the ladder. Higher-for-longer interest rates could also weigh on sentiment.
In July, overall condo resale prices dipped 0.2 per cent from the month before, while volumes rose 4 per cent over the same period, according to flash estimates from SRX and 99.co.
While many may view housing to be an evergreen investment, it is also subject to cycles, just as equities and other asset classes are. The market may have peaked for now, and it will not be easy to predict how people will be able to roll their BTO profits into other properties later on.
With the new Plus and Prime BTO flats, it appears that people who wish to stay in better locations may have to sacrifice climbing the property ladder.
Potential flat buyers will have to think long and hard about how much they prize these locations versus any investment returns that they could make.
It is challenging to properly predict the potential returns from these flats too because the income ceiling could eventually be updated, but the rate of increase has not been made known.
All we know for certain is that the government wants to keep a lid on prices to ensure that these homes remain affordable for more people, whether they generate any returns or not.
Such flats may well be “forever homes” for their owners – for better or for worse.
https://www.businesstimes.com.sg/companies-markets/buying-prime-location-hdb-flat-means-stepping-property-ladder-better-or-worse