The Ministry of National Development (MND) and the Housing & Development Board (HDB) announced the new Prime Location Public Housing model details on Oct 27 last year. The joint effort aims to curb rising housing costs and keep “public housing in prime locations affordable, accessible and inclusive for Singaporeans”.
Although the government’s PLH model is an excellent move to curb rising HDB prices while creating more affordable housing for its citizens, there are certain pitfalls to be aware of before investing in one of these BTOs.
We list the top eight issues you could face under this recently introduced model.
1. Mandatory 10-year minimum occupancy period
Current BTO projects come with a five-year MOP, and owners have to move into their flats before selling them.
The new model introduces a 10-year MOP, doubling the duration to deter those looking to gain from resale profits, plus cater to those with genuine housing needs. The right to housing must be guaranteed for all. irrespective of where the flats are located.
Essentially, new PLH flat owners will have to wait 10 years before selling or investing in private property. So, even if you needed money urgently, you cannot sell the property in this period.
2. Rental of the entire home is not possible
Along with this extended duration, it is also important to note that homeowners cannot rent out their entire flat at any time, either during or after the MOP. They can only rent out spare bedrooms.
3. A shorter loan term for upgraders in the future
The new model can attract more investors to the resale market, thereby increasing its demand. Upgraders, however, might want to think twice about purchasing a PLH flat because of the extended MOP. Let’s look at these two case studies below to see how this extended MOP will affect upgraders:
Case Study 1
Let’s look at an example of a couple in their mid-30s wanting to purchase a PLH BTO:
Age during purchase: 35
BTO waiting time: 5 years
New MOP: 10 years
Age eligible for upgrade to private property: 50
According to this, they would already be in their 50s before they will be eligible for an upgrade. As explained in the next point, we must also remember that HDB will receive a percentage of the resale price.
Now, let’s analyse the scenario and the monthly instalments using the assumption that each property is worth $1m at the time of purchase, with the bank interest being 1.5 per cent per year and the loan being 75 per cent. By upgrading after 15 years, the couple’s loan tenure will be significantly shorter due to their age, resulting in a high monthly payment.
Case Study 2
As mentioned above, homeowners are not allowed to rent out the entire home at any point in time, be it during or after MOP. They can only rent out spare bedrooms.
Those hoping to keep the PLH BTO and upgrade while generating passive income via rental in the meantime may find this a significant decrease monthly.
Let’s say you have three bedrooms in your flat, but you can only rent out two of them. Based on the assumption that the average monthly rent for the master bedroom is $1,500 and $1,000 for another room, the owner will receive a total of $2,500 per month. Therefore, if left empty, the remaining space could lose $1,000 per month.
Due to such drawbacks, many may opt for other types of private property, such as condominium apartments and landed properties.
4. Lower quota for Married Child Priority Scheme
The eligibility criteria for BTO flats in prime areas will be the same as other locations. In contrast, the Married Child Priority Scheme will see its allocation quota reduced from 30 per cent to 20 per cent. This will be reviewed and adjusted according to the location of sites under the PLH model.
5. Inconsiderate neighbours? Complete the 10-year MOP or rent out spare bedrooms
Some of us may have neighbours from hell. When you come across such neighbours, renting out your PLH BTO’s vacant rooms is your only option if you want to “escape” before the 10-year MOP. However, it can hinder the rental yield for those moving to a greener pasture as it will not be as high since at least one room must remain unoccupied.
6. There are additional subsidies but proceed with caution
Although this model has its pitfalls, there is still a silver lining, especially for those not looking to upgrade. One can expect a higher price for flats built in prime locations. What’s more, additional subsidies will be applied to PLH flats, making them affordable.
While other BTO owners may not benefit from this subsidy, upgraders should keep in mind that HDB will charge a percentage of the resale price of PLH flats to recover the additional subsidy.
7. Fewer buyers due to stricter eligibility requirements
Of course, there are eligibility requirements for those interested in purchasing them to prevent resale PLH apartments from becoming unaffordable as prices rise. These include being an eligible family nucleus, such as a married couple, and having a current income limit of $14,000. More stringent rules apply for private property.
With the additional conditions, owners looking to sell their property after the 10-year MOP will face even more difficulties other than the typical ethnic quota concern, which can end up shrinking an already small pool of buyers.
8. Locations applicable to PLH
Specific housing projects in prime and central locations such as the city centre and its surrounding area, including the Greater Southern Waterfront, will be based on the model. Rochor, along Kelantan Road and Weld Road, will be the first such project under this model. It will consist of 960 rental apartments ranging from three to four rooms and 40 two-room units.
Furthermore, it is important to note that as property prices reflect demand and supply, there is no guarantee that future prices will not rise to reflect subsidy recovery. Also worth noting is that implementing such models can help regulate prices for some flats.
Those looking for the lottery effect might be wondering: “What is the next best solution now that prime area BTOs are no longer an option?” To find out the next best step for you, contact Origin Property.
Meanwhile, as the PLH model will be worked on subsequently to develop the best parameters to align with HDB’s goals, we look forward to seeing the changes it will bring to the property market.
About Origins Property
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For more information, visit www.theorigins.com.sg.