SINGAPORE (EDGEPROP) - HDB’s latest rollout of a pilot project at Rochor under a new prime location public housing (PLH) model has stoked concerns about more property cooling measures.

Read also: New housing model for prime-location flats; Rochor BTO project to be launched under new model

The PHL model comes with stricter rules aimed at curbing Singaporeans’ investment fervour in the HDB market. The minimum occupation period (MOP) for PHL flats has been doubled to 10 years, compared to five years for typical BTO flats.

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The $14,000 cap on monthly household income and the 30% mortgage servicing ratio (MSR) for HDB BTO buyers will be extended to the buyers of PHL flats in the resale market.

On top of that, there will be a subsidy clawback by HDB upon resale of the PHL flat, although the percentage is not known at this point. A further deterrent is that even after MOP, the owner is not allowed to rent out the entire flat, although individual rooms can be rented out. (Find HDB flats for rent or sale with our Singapore HDB directory)

With the income ceiling in place, demand for PHL resale flats could be reduced, said Marcus Chu, CEO of ERA Realty Network, at the panel discussion of ERA-EdgeProp webinar on Nov 1. The theme of the webinar was “Does it make sense to upgrade now for the future?”

Based on Chu’s case study and assumption that the subsidy clawback is 10%, the gains from the resale post-MOP for a PHL flat is  lower than that of a non-prime BTO flat.

Given that the PHL conditions would not be applied retrospectively, demand could be diverted to HDB resale flats in the Central areas, such as Pinnacle @ Duxton, the Dawson area at Queenstown and Bukit Merah.

While that is a possible scenario, Chu reckons the private residential market could be a beneficiary too.

In the private housing market, prices have been on an uptrend since 2H2017, prior to the recent round of property cooling measures in July 2018, says Doris Ong, COO of ERA Realty Network. This uptrend in prices was in part driven by the collective sale wave from 2017 to 1H2018, with collective sale beneficiaries buying replacement homes or picking up alternative investment properties.

New or resale?

The question most HDB upgraders mull over is whether to buy something new at a project launch or a private resale property. A new project typically fetches a premium over the older properties in the same area. The price gap between new and resale is likely to widen further, says Ong. Recent increases in construction costs — including disruption in global supply chain due to the pandemic, and developers’ record bid prices for land parcels over the past year — point to a continued uptrend in property prices, notes Ong.

The quarterly growth of 0.8% and 1.1% in the private residential property price index in 2Q2021 and 3Q2021, respectively, is indicative of “more sustainable price growth”, she says.

While new projects are more expensive, the strong take-up rate seen at project launches this year shows that people still prefer to purchase new homes, notes Ong. “New homes also mean new designs, new amenities, smart home features, with a one-year defect liability period,” she adds.

Those buying a new home can maximise the use of their Central Provident Fund (CPF) ordinary account. Under the normal progressive payment scheme for new projects, instalments are made according to the stage of construction.

Resale residential property may be cheaper upfront, but the renovation costs could be much higher, she says. What’s more, the amenities of the older condos may be fewer too. On the flip side, some home buyers may prefer older properties for their larger unit sizes. “With work-from-home arrangements, people want bigger homes,” she adds. (Discover insightful data of any Singapore condominium with our condo directory)

Older 99-year leasehold properties, however, run the risk of “lease decay”, which is likely to have an impact on their resale price over the long term, says Ong. She attributes the wide gap in pricing between a new and older 99-year leasehold project to “lease decay”.

However, some may be tempted to purchase old properties for their “en bloc potential”.  Chu says that is equivalent to “the lottery effect — throwing all your money on that one bet”.

Likelihood of cooling measures?

Given the level of activity in the residential property market and price growth this past year, the question of whether there will be more cooling measures may once again be pertinent. “Possibly,” says Chu. “If housing prices rise beyond economic fundamentals.”

He believes private property, especially residential, remains a viable investment. Household income has outpaced the growth in both HDB resale and private housing prices since 2009, he points out.

However, last year, property prices rose faster than economic growth. Is this a source of alarm? Chu does not think so. The property market is cyclical, he says. “Property prices are affected by the economy and other external market forces,” he adds. “Household income generally sees a steady growth, while property prices can temporarily rise faster than household income.”

Changing demographics has fuelled demand for housing too. According to the Singapore Census last year, there are more households made up of singles. The trend towards smaller households of singles or families with fewer children may fuel demand for smaller homes, says Ong.

She sees property being resilient over the long term. “It’s a great hedge against inflation, and a good store of wealth,” she adds.

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