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How Will The HDB PLH Model Affect Us? Written March 2022

Introduction


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.


PLH regulations


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.


Second, the minimum occupation period (MOP) of PLH flats is 1O years, instead of the usual 5 years for other HDB flats. The buyers of resale PLH flats are also subjected to the

1O-year MOP.


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$1Q,OOO per month. The buyers of other HDB resale flats are not subjected to income ceiling eligibility criteria.


Objective of the report


This report aims to examine the impact of the PLH model on the private housing and How will the HDB PLH model affect us?



key feature of PLH model

Factors influencing the severity of the impact of PLH Flats


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


The first factor is the number of PLH flats sold by the government over agiven 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. On the other hand, if the PLH flats are concentrated within a small geographical area, for example, in just one HDB estate, the impact of the PLH model on the wider property market will be relatively


Currently, the model could be applied to new HDB BTO flats in central locations such as the city centre and the Creater 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.


The expansion of the geographical areas where the PLH model would apply will also increase the uncertainties of what other locations and which new BTO project could fall under the PLH model in the future. Many homebuyers who are waiting to buy BTO flats in certain popular locations would be hoping that the How will the HDB PLH model affect us?.


1 Effects of housing subsidy clawback


Since August 2O1Q 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 BTO projects. In 2O21, 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.


Therefore, the impact of the housing subsidy clawback is that it could reduce the potential upgrading demand from the owners of PLH flats in terms of the number of upgraders and the size of their housing budgets.


2 Effects of 10 Year MOP


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 1O-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 locationsof their PLH flats.


Furthermore, many first-time homebuyers are young married couples. After 1O 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 school-going children.


The 1O-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.


3 Effects of Rental Restriction of PLH Flats


The owners of PLH flats are not allowed to rent out the entire flat, even after the 1O-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 Creater 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 the 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 asecond property for investment. Some may buy private home for investment, which could be positive for the private residential market.


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.


4 Effects of income ceiling for buyers of PLH resale


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 eligibility criteria for the purchase of resale PLH flats include rules such as the S$1Q,OOO monthly household income ceiling. There is no income ceiling for the buyers of the other HDB resale flats.


This rule could limit the budget of buyers of resale PLH flats, and curb price appreciation of such flats.



The Combined Effects


The combined effects of these Q 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 the PLH resale flats or they may find that the restrictions are too onerous.


As a result, these buyers who are attracted to the prime locations of the PLH flats, 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..




Effects on the EC Market


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 2types 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.


Conclusion


HDB upgraders form the backbone of the demand for mass-market condominiums. If HDB lats 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 resi- dential 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 2O37. The property market conditions and gov- ernment policies could undergo afew rounds of changes before then, resulting in a different market landscape when the PLH flats enter the resale market.

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