Increasing the household income ceiling for executive condos and HDB flats will further enlarge the pool of buyers who qualify for these schemes. Will this help ease fears of a housing glut?

In his SG50 National Day Rally speech on Aug 23, Prime Minister Lee Hsien Loong announced some changes to the housing policies. One of the changes is the highly anticipated increase in the income ceiling for buyers of HDB flats and executive condominiums (ECs). This is the second time the income ceiling has been raised; the first was in August 2011.

Specifically, the income ceiling for those buying new or resale HDB flats with a housing grant will be raised from $10,000 to $12,000, and the income ceiling for those buying ECs will be bumped up from $12,000 to $14,000. The $2,000 increment for both categories of subsidised housing schemes is similar to the rise in 2011, when the income ceiling for HDB flats was raised from $8,000 to $10,000, and for ECs, from $10,000 to $12,000.

In 2014, about 99,600 households had monthly incomes ranging from $10,001 to $12,000, according to the Department of Statistics. They accounted for 8.3% of the total number of residential households in Singapore. Prior to the recent announcement, those within the $10,000- to-$12,000 household income bracket were only eligible to purchase resale HDB flats, new ECs or private housing. They were not allowed to buy subsidised HDB flats from the government. Therefore, if they had wanted to buy new and uncompleted residential properties, the lowest in terms of absolute price were the ECs, notes Nicholas Mak, executive director of research and consultancy at SLP International.

With the new income ceiling for HDB flats, those whose incomes fall within the $10,000- to-$12,000 range will now qualify to purchase the new subsidised flats and ECs.

Before the announcement, those earning more than $12,000 were excluded from buying new ECs in the primary market. They could only buy HDB resale flats or private housing.

With the increase in the monthly household income ceiling for ECs to $14,000, an additional 75,600 households in the $12,000-to- $14,000 bracket are now eligible to buy a new EC from developers. They account for 6.3% of total resident households in Singapore.

Win some, lose some
Although the EC primary market could potentially gain new buyers amounting to 6.3% of the total resident households in Singapore, it could also potentially lose some buyers from the $10,000-to-$12,000 bracket that make up 8.3% of the resident household population, as they now have the option of buying HDB flats as well, says Mak. This implies that ECs could lose instead of gain more buyers with the latest increase in income ceilings.

“Assuming the worst-case scenario, where all the households in the $10,000-to-$12,000 income group choose to purchase HDB flats instead of ECs, the net effect would be a loss of 24,000 potential EC buyers or 2.0% of the total resident household population,” says Mak.

In the short term, however, the demand for new ECs is likely to increase, he reckons. This is because the pool of potential EC buyers has expanded from 61.3% to 67.6% of the total resident household population, excluding households without any income from work. In the next few months, the increase in potential demand for new ECs will translate into a rise in new EC sales, especially when a new project is launched. However, the rise in buying demand is expected to be fairly short-lived.

In the medium- to long-term, the raised income ceiling would likely be a zero-sum game. The EC primary market risks losing more potential buyers to HDB flats than the number of new buyers it might gain following the introduction of the new income ceiling, argues Mak. After the initial surge in developers’ sales of EC units, the substantial supply of new EC projects yet to be launched would satisfy the increase in demand and the EC primary market would eventually reach a new equilibrium.

“In the long run, the potential benefits that EC developers could reap from this round of income ceiling adjustments would depend significantly on the purchasing pattern of the households whose incomes range from $10,000 to $14,000,” he says. “The type of housing that each individual household selects will depend on a variety of factors, including personal preference, price, quality and the location of the EC and HDB flats.”

Timely boost?
This is a timely boost for the EC segment of the market as demand has waned over the recent quarters. The number of unsold units was an unprecedented 5,200 as at July, according to Desmond Sim, head of CBRE Research for Singapore and Southeast Asia. “The raised income ceiling will increase the slice of the demand pie for the EC market and, hopefully, improve the take-up rate of this segment. It also reinforces the government’s continual support for home upgrading for the citizens.”

Generally, ECs can only be sold to first-time homebuyers and second-time HDB owners who are citizens and form a family nucleus. ECs have a minimum occupation period of five years and will only be fully privatised after 10 years from the date of completion.

The question many are asking now is whether developers of EC projects will use this as an opportunity to increase their prices? “I don’t think so,” says Eugene Lim, key executive officer of ERA. “I think developers’ priority now would be to clock in more sales first.”

While the developers of ECs and marketing agents in the EC and HDB resale market may be cheering following the announcement, those handling the mass-market private-homes segment may have to relook their marketing strategy. “I believe the mass-market residential segment will be hit pretty significantly,” says Ku Swee Yong, CEO of Century 21 Singapore. Furthermore, raising the income ceiling eligibility for HDB and ECs will create greater competition for those whose income levels limit them to subsidised flats as the pool of applicants is now enlarged, he adds.

The concern is the ramp-up in new supply in recent years in addition to a series of property cooling measures to curb demand, for instance the hike in additional buyer’s and seller’s stamp duty, imposition of the total debt ser vicing ratio of 60% for private property as well as a 30% cap on the mortgage servicing ratio for public housing and ECs. These measures have substantially cooled the property market, leading to a significant drop in transactions from 2013 to 2014, as well as a decline in prices, which has extended to the first six months of this year.

According to the Ministry of National Development (MND), current housing stock stands at about 1.28 million housing units. Of these, 960,000 (75%) are HDB flats and 320,000 (25%) private homes. By early 2018, housing stock would have grown to 1.43 million units, an increase of 11%. In 2016 and 2017, 25,000 new flats will be completed annually. Meanwhile, close to 4,800 new ECs will be completing in 2016, and another 2,500 units, in 2017.

On Aug 15, Khaw Boon Wan, Minister for National Development, said the government would continue to monitor the situation and external environment closely as a soft landing “may suddenly become a hard landing”.

Proximity housing scheme
In its latest housing policy changes, the government did not stop at new HDB flats or ECs. To further help lower- and middle- income households, the Special CPF Housing Grant for those buying HDB flats has also been increased. The new maximum SHG amount has been doubled from $20,000 to $40,000, while the income ceiling will be raised from $6,500 to $8,500. As part of its initiative to make Singapore a more inclusive society, the government has also revealed more details on its two new schemes — the Proximity Housing Grant (PHG) and the Fresh Start Housing Scheme.

The PHG is meant to help Singaporeans buy a resale flat together with, or enable them to live near, their parents or married child for mutual care and support. With ef fect from Aug 24, all eligible Singaporeans who buy a resale flat to live with or near their parents or a married child will receive a grant of $20,000. Singles will get a PHG of $10,000 if they buy a resale flat with their parents.

According to the MND, the PHG will be given to all Singaporeans once in their lifetime, regardless of household income or whether they own a private home or have taken subsidised housing loans before. Those who do own a private home will, however, need to dispose of it within six months, as stipulated under the current regulation. However, the grant comes with a condition: recipients and their parents must continue to stay near each other for at least five years.

ERA’s Lim believes this could boost the resale HDB market, especially in mature estates. Many elderly parents live in these estates and would prefer to continue doing so. “We envisage that many families will make use of this to buy a resale flat close to their parents,” he says. “We may well expect transaction volume to increase in the coming months.” However, he does not expect resale prices to spike in the short term as negot iations focus more on prices that were transacted in recent months rather than on future prices.

As for the new Fresh Start Housing Scheme, the MND will be working with HDB to study how to help families with young children who are currently living in HDB rental flats to start afresh with a two-room flat if they are committed to make the effort.

One suggestion is to offer these families a two-room flexi flat on a shorter lease and with stricter resale conditions. The MND and HDB say they are prepared to consider a new Fresh Start Housing Grant to help these families pay for the flat if they are prepared to put in the effort to remain in employment and put their children in school.

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This article appeared in the City & Country of Issue 692 (Aug 31) of The Edge Singapore.