How might more PLH flats affect the HDB market?

When the Ministry of National Development (MND) and the Housing & Development Board (HDB) first announced the launch of the Prime Location Housing (PLH) model in October 2021, it was stated that the PLH model would apply to flats built in prime, central locations such as the city centre and the Greater Southern Waterfront.

The first PLH BTO project was in Rochor and fit the bill of flats built in the prime city centre. Three-room flats at River Peaks I / River Peaks II start from S$409,000 while 4-room flats start from S$582,000. Meanwhile, existing flats in the city centre continue to command a premium, as can be seen from transactions at Pinnacle@Duxton.

As at May 24, 2022, Pinnacle@Duxton accounts for the largest number of million-dollar flats sold across the island. Some 27.2 per cent or 188 out of 691 million-dollar flat transactions are at Pinnacle@Duxton. Bishan is next, accounting for 16.5 per cent of such transactions, while Queenstown comes third with 13.9 per cent.

The next PLH BTO project was in Kallang/Whampoa at King George’s Avenue in February 2022. Prices of flats at this BTO launch were slightly lower than River Peaks I / River Peaks II, probably to account for the off-city centre location.

In May 2022, HDB announced that 2 BTO projects at Bukit Merah and Queenstown will be PLH flats. The prices of 3-room flats at Bukit Merah Ridge started from S$377,000 while 4-room flats started from S$540,000. Meanwhile, Ghim Moh Ascent 3-room flats started from S$369,000 while 4-room flats started from S$511,000.

When these locations were announced, some market watches asked why Toa Payoh, a more central location, was not picked. Was it because flats in Bukit Merah and Queenstown are more likely to see million-dollar transactions? 

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As at May 27, 2022, HDB has launched 4 PLH BTO projects with a total of 1,023 3-room flats and 3,067 4-room flats.

Would a popular estate like Bishan also soon see a PLH project? After all, Bishan is a very popular area and has the second largest number of million-dollar flat transactions in the market.

When asked on May 25 whether areas like Bishan could fall under the PLH model, National Development Minister Desmond Lee noted that the model will be applied to projects in the city centre as well as HDB towns in the city area. Bukit Merah and Queenstown are within the town boundaries that potentially fall under the prime location housing model, he said. But even in those areas, the authorities will look at specific locations and the attributes of a site before deciding whether it should come under the PLH, he added.

Implications of building more PLH flats

In the short term, when a PLH BTO project is announced in a particular location, buyers who want to avoid the restrictions may opt to buy neighbouring HDB flats. This will drive up demand and prices, and brings the possibility of more million-dollar flat transactions.

On the other hand, some buyers will try their luck for PLH flats as they know that HDB is applying more generous subsidies to make such flats more accessible. The current application rate for PLH flats bears testament to this. Furthermore, the impression is that such flats are going to be worth more than a million dollars in the future.

Similarly, if rental demand stays strong, rents of flats in the prime location may stay elevated because new supply of flats for rent is constrained under the PLH model.

In the long run however, things may change.

When these PLH flats are eligible for resale after the 10 years minimum occupation period (MOP), the sale of such flats will introduce fresh supply into the market. The current income ceiling to purchase a PLH flat in the resale market is set at S$14,000 per month. The current mortgage servicing ratio allows for a maximum of 30 per cent of the monthly income to be used to service the loan. Using these parameters and assuming a potential buyer takes the maximum 30-year loan, the highest price a potential buyer can offer would be S$1.247 million. Sellers can choose to ignore the price cap but it means buyers have to top up the difference in cash.

This will have a knock-on effect on other flats in the area, especially if the other flats without sale restrictions are older. All things being equal, flats with shorter leases may not be able to sell at a higher price than newer flats. When this happens, it may have a cooling effect on the market, especially for flats in mature estates.

Outlook

The million-dollar flat trend will become more prevalent in the years to come. Huttons estimates that more than 1 per cent of HDB resale flat transactions in 2022 will be S$1 million or more. Based on current trends, HDB might launch at least 2 PLH BTO projects with around 1,000 units every year.

In the short term, building more PLH flats is unlikely to impact the market. The greater impact will be felt when the PLH flats are eligible for sale 15 to 16 years down the road.

The writer is senior director (research), Huttons Asia