Rules on new model for prime HDB flats may push some to buy regular flats, condos nearby

THE Singapore government introduced the Prime Location Public Housing (PLH) model in late October 2021.

The objective of this new model for selected Housing & Development Board (HDB) projects is to ensure that new public housing flats built in prime, central locations will remain affordable, accessible and inclusive for Singaporeans.

New HDB flats in the city centre and surrounding areas, including the Greater Southern Waterfront, could be designated as PLH flats.

The buyers of these PLH flats will be subjected to certain rules to ensure that these flats are for owner-occupation and to reduce the incentives to treat these flats as investment properties.

When the first buyer of the PLH flat sells the flat in the resale market, the government will recover part of the initial subsidy from the first buyer as a percentage of the resale price.

Second, the minimum occupation period (MOP) of PLH flats is 10 years, instead of the usual 5 years for other HDB flats. Buyers of resale PLH flats are also subjected to the 10-year MOP.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Third, the owner of the PLH flat is not allowed to rent out the entire flat, even after the MOP. The owner can lease out the spare bedrooms. This rule also applies to the owners of the PLH resale flats.

Fourth, one of the eligibility criteria for the buyer of both the new and resale PLH flats is that his household income cannot exceed the income ceiling, which is currently S$14,000 per month. The buyers of other HDB resale flats are not subjected to income ceiling eligibility criteria.

The severity of the impact of the PLH model on the wider residential property market will depend on a few factors.

The first is the number of PLH flats sold by the government over a given time period. The greater the number of PLH flats, the greater the impact of these flats on the property market.

The second factor is the distribution of the PLH flats. If the PLH flats are spread over a wider geographical area in significant numbers, the impact of these flats on the property market would be greater.

The third factor is the geographical areas where the PLH model would be applied. Currently, the model could be applied to new HDB BTO flats in central locations such as the city centre and the Greater Southern Waterfront. However, if the government were to expand the geographical area of the PLH model to cover other locations, including those that are not near to the city centre, such as the former Police Academy in the Mount Pleasant area, the impact of the PLH model on the rest of the residential property market would be greater.

Many homebuyers who are waiting to buy BTO flats in certain popular locations would be hoping that the PLH model will not apply to the upcoming BTO projects in their preferred locations, given the model's restrictions.

Since August 2014 when the HDB flats in Pinnacle at Duxton started to be sold in the resale market, some of the transactions had set high record prices for resale public housing in Singapore and reaped handsome profits for the owners. This unique public housing project also produced the highest number of million-dollar resale flats transacted compared to all other HDB projects. In 2021, more than one quarter of the million-dollar HDB flats transacted in Singapore were in the Pinnacle at Duxton.

The authorities are keenly aware that the "lottery effect" could be repeated in future new, tall and well-designed HDB flats in prime locations when these flats are sold at relatively high prices on the resale market. Armed with funds from the sale of their flats, the owners could upgrade to private housing more easily than other HDB flat owners. The former could also contribute to higher demand and faster price expansion of private housing.

The objective of the housing subsidy recovery or clawback is to reduce or eliminate the potential super-normal profit that the first owners of PLH flats could reap. Even with the subsidy clawback, these first owners could still make a profit when they sell their flats in the resale market but the profit would not be exceptionally high.

The effect is that the acquisition budgets of the sellers of the PLH flats who plan to upgrade to private housing or an EC, will be reduced by the subsidy clawback. With a smaller budget, they may only be able to afford cheaper mass-market condos, which could be located further from the city area. This could reduce their incentive to sell their PLH flats.

The longer MOP of PLH flats could also potentially reduce the number of households selling their PLH flats to upgrade to private housing.

Some people are creatures of habit. The longer they live in a certain area, the more attached they become to it. Hence, the 10-year MOP could increase the number of PLH flat owners who would be reluctant to sell their flats and move to a different location, especially if the private properties that they can afford in the other locations are not as prime as the locations of their PLH flats.

Furthermore, many first-time homebuyers are young married couples. After 10 years, many of them would likely have children who could be attending schools near their homes. Some PLH flat owners may not want to sell their flats and move away as it could be disruptive for their children.

The 10-year MOP also applies to the subsequent buyers of PLH flats in the resale market. This would reduce the frequency of the trading of resale PLH flats compared to other HDB flats. As the MOP of PLH flats is double the 5-year MOP of other HDB flats, the frequency of trading of resale PLH flats could potentially be half of that of other HDB flats.

Therefore, the number of potential HDB upgraders from a given number of PLH flat owners could be half of that from a similar number of owners of non-PLH flats, other things being equal.

The owners of PLH flats are not allowed to rent out the entire flat, even after the 10-year MOP. Hence, the owners of nearby private homes and normal HDB flats will have an advantage as they can rent out their entire housing units.

When the government starts to offer new PLH flats in certain greenfield locations such as in the Greater Southern Waterfront, they will also develop the infrastructure, amenities and services in those areas.

When the locations are more developed, the leasing demand in those locations will increase, which will primarily benefit landlords of private residential properties and non-PLH public flats within and near the locations of the PLH flats. This will subsequently increase the investment demand for non-PLH properties.

On the other hand, the PLH flat owners who want to continue to live in the PLH flats and invest in real estate, will buy a second property for investment. However, the punitive additional buyer's stamp duty (ABSD) for buying a second residential property, currently at 17 per cent for Singaporean citizens, may cause some of these PLH flat owners to invest in non-residential properties, such as commercial or industrial properties.

The stricter eligibility criteria for the purchase of resale PLH flats could reduce the pool of potential buyers for these flats compared with the number of potential buyers for other HDB flats.

The combined effects

The combined effect of the main regulations is that some of the potential buyers who are attracted to the locations of the PLH flats could find that they are ineligible to buy PLH resale flats or they may find the restrictions too onerous.

As a result, these buyers may instead purchase private housing or non-PLH flats in those locations, which could raise the demand for other types of housing in the prime locations, except the PLH flats.

With the exception of Bishan Loft, all other EC projects are in the suburbs or outside central region (OCR). It is very likely that the government will continue to sell future EC development sites in the OCR only. Hence, the distance between the EC projects and PLH flats would be relatively far, which will diminish the impact of PLH flats on the EC market.

Moreover, some of the rules and restrictions for ECs and PLH flats are different, especially for the resale of these 2 types of properties.

Therefore, the effect of PLH flats on the EC market would be less than the effects on the HDB BTO and resale market.

HDB upgraders form the backbone of demand for mass-market condominiums. If HDB flats in prime locations are not subjected to the more stringent PLH regulations, the owners of these flats could reap higher profits from the sale of their HDB flats and fuel the demand and price expansion of mass-market private housing.

However, it could take several years to observe the impact of the PLH model on the wider residential property market because the number of PLH flats that the government will sell over the next few years is still uncertain.

Furthermore, the flats in the first PLH project in Rochor may only be available for resale after 2037. The property market conditions and government policies could undergo a few rounds of changes before then, resulting in a different market landscape when the PLH flats enter the resale market.

Nicholas Mak is Head of the Research & Consultancy Department at ERA Realty Network