Implications of higher income ceiling on BTO flats and ECs
By Esther Hoon
/ The Edge Property |
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More households will soon be eligible to buy public housings from the primary market following plans to raise the income ceilings for HDB built-to-order (BTO) flats and executive condominiums (EC) come August or September. This move is likely to benefit the sandwich class most who now have more choices on hand.
Lower-income applicants at a disadvantage
The chances of securing a BTO flat among applicants are likely to be lowered due to heightened competition from the expanded pool of eligible buyers. While the more affluent can afford to miss the opportunity, the lower-income applicants with less housing options, will be disadvantaged. The issue may be addressed by confining the income ceiling hike only to larger units such as 4-room or larger flats.
Double-edge sword for EC market
The higher income ceiling may result in a two-tier EC market. EC projects in popular locations stand to benefit from a bigger pool of eligible buyers. Condo projects in such locations tend to be on a high side and ECs offer a value proposition for eligible buyers. For example, Lake Life was priced 30% to 40% below Lakeville and J-Gateway and 95% of the units were sold on its first day of launch (see Table 1).
Table 1: Lake Life EC offered attractive price points
Source: URA, The Edge Property
Based on caveat records as at June 25, 2015
However, the prognosis is less favourable for EC projects in less attractive locations. First, such projects would face competition from private projects, especially from competitively priced resale condos unrestricted by HDB regulations.
In addition, private home buyers enjoy higher mortgage threshold compared to EC buyers who are subjected to a 30% Mortgage Servicing Ratio (See Table 2). As such, EC developments in less attractive locations may stand to lose out more when the new income ceiling kicks in.
Finally, future BTO projects would ease the EC market some of its potential buyers. There are less households that fall within the higher income brackets. Therefore, if the BTO and EC income ceilings were to be raised, the number of buyers exiting the EC market to buy BTO flats is potentially more than the higher income buyers entering the EC market.
Table 2: Mortgage threshold for ECs and private homes
Source: URA, The Edge Property
Maximum monthly mortgage was based on 30% MSR for ECs and 60% TDSR for private homes.
Maximum loan amount was computed based on an interest rate of 3.5% and 80% loan for 30 years.
This article appeared in The Edge Property Pullout of Issue 684 (July 6) of The Edge Singapore.
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