Huttons’ Comments on The Prime Location Public Housing (PLH) Model

Key things to note are the definition of prime locations, additional subsidies for such flats, restrictions upon purchase, claw back of subsidies and restrictions on selling.

HDB has clearly defined prime locations as the city centre and surrounding areas, including the Greater Southern Waterfront. The new public housing model will apply moving forward but not retrospective.

Between increasing the live-in population in the city centre and ensuring such prime locations remain affordable, accessible, and inclusive for Singaporeans, the Government has chosen the latter as having higher priority. While the Government still allows “free play” in the resale market, the invisible hand is now more “visible” with a tax and cap on price gains.

The clawback of additional subsidies from the resale price is akin to a capital gains tax. It is probably the first capital gains tax on properties in Singapore. This may set the stage for wealth taxes in Singapore. Huttons estimate this clawback to between 3% and 5% of the resale price.

Not only there is a tax on the resale price of PLH flats, HDB has imposed an income ceiling on buyers who are eligible to purchase such flats. Together with the MSR of 30%, this creates an artificial price ceiling on PLH flats based on prevailing income ceiling.

Based on historical trends, the income ceiling is adjusted upwards by $2,000 every four years. This works out to a maximum increase of 14% or 3.5% every year in the price ceiling. If we adjust for the clawback, it means a price gain of around 2.25% to 2.75% per year. This appears to be a sustainable price increase for HDB flats. It will also keep the PLH flats prices sustainable for future buyers. It also means your price gains is dependent on the Government revising the income ceiling.

The longer MOP period is expected. With that in place, families will have build bonds with their neighbours, children studying nearby. It will be more difficult to uproot and move hence it increases the stickiness to remain.

HDB will also not allow PLH flats to be rented out whole at any point. This discourages owners who buy with the view of renting as flats in prime locations are known to fetch superior rents. The investment element is also nipped at the bud. It also goes back to the fundamentals of a HDB flat which is meant for stay and not for investment gains.

The new policy has again singled out “singles” as they are not allowed to buy resale PLH flats. This also creates locations with a clear demarcation where prices are artificially suppressed. There will be spillover demand to the neighbouring areas where prices do not have a cap in increases. For example, flats in the recent Telok Blangah BTO opposite the Greater Southern Waterfront (GSW) may see better price gains than those in GSW. That was probably one reason why that BTO saw over-whelming subscription.