Raised income ceiling a game changer for property market

BTO flats and ECs are expected to become more popular after the government introduced new limits to make public housingmore accessible to higher-income households.

By Romesh Navaratnarajah

With the upcoming general electionto be held on 11 September 2015, itisnt surprising to see the governmenttake steps to help more Singaporeansafford HDB flats and executive condominiums(ECs). After all, housingaffordability was one of the hot-buttonissues in the 2011 election.

Most recently, Prime Minister LeeHsien Loong announced several newhousing policies during his National DayRally speech, including raising theincome ceiling from $10,000 to $12,000for new flats, while that for ECs willincrease from $12,000 to $14,000. Thisis so that families with higher incomescan also apply for government-subsidisedhousing. At the same time,additional grants will be given to middle- andlower-income HDB buyers.

Analysts who spoke to PropertyGuruwelcomed the governments moves tomake public housing more accessibleto Singaporeans.

The policies have been updated totake into consideration our nationschanging demographics and lifestyle.Incomes have been moving up andcouples are getting married later, and thecombination of these factors may makesuch couples ineligible to buy aBuild-To-Order (BTO) flat, said WongXian Yang, Senior Manager for Research& Consultancy at OrangeTee.

But it also raises questions as towhether the changes to income ceilingswill increase competition for BTO flats.

Less well-off morevulnerable

Mohamed Ismail, CEO of PropNexRealty, pointed out that households withgross monthly incomes in the range of$6,000 to $8,000 can only afford BTOflats, as their lower incomes are likely toput resale flats, ECs and private propertiesout of their reach.However, those earning up to$12,000 can now apply for a BTO flat,instead of stretching their budget to buyan EC or private condo.

The chances of securing a BTO flatamong applicants are likely to be lowereddue to heightened competition from theexpanded pool of eligible buyers. Whilethe more affluent can afford to miss theopportunity, lower-income applicantswith fewer housing options may bedisadvantaged, warned Ismail.

There will be more competition forBTO flats launched in better locationssuch as in mature estates or near MRTstations, Wong reckons. For BTO flatslaunched in areas that are relatively lessaccessible, we may not see much of animpact, he added.

The income ceiling hike will takeeffect with the next BTO exercise inSeptember 2015, when the HousingBoard launches about 4,860 flats inBidadari and Punggol Northshore.Another 4,000\ balance flats will also beoffered to applicants.

ECs still relevant

Over in the EC market, experts havedifferent opinions on the possible impact,now that more buyers can purchaseECs. Ismail foresees a domino effect,similar to the BTO segment, wherebyhouseholds with a gross monthly incomeof up to $14,000 have the additionaloption of purchasing an EC.

This may push prices for ECs up dueto the increase in eligible buyers whowere previously ruled out due to theirhigher income levels, he noted. EC priceshave crept up from an average of $750psf at the start of 2013 to over $800 psfsince Q3 last year, according to datafrom the Urban Redevelopment Authority(URA) (refer to Figure 1).

However, Wong does not expectdevelopers to price them higher as thereare still many unsold units left in themarket. URAs figures revealed that therewere 2,391 vacant EC units in Q2 2015,which translates to a vacancy rate of14.1 percent. This is up almost twopercent from the same quarter last year(refer to Figure 2).

Meanwhile, EC sales are expected topick up due to a number of factors, likethe widening price gap between massmarket homes and ECs, the availability ofhousing grants, and the partial exemptionfrom the Total Debt Servicing Ratio(TDSR) framework, noted Ismail.

On the partial exemption, heexplained that an upgraders existingHDB monthly mortgage payment is notfactored into TDSR calculations when abank assesses the loan to grant for anEC unit bought directly from a developer.This is because of an existing rulewhich states that buyers are required tosell their HDB flat within six months ofthe EC projects completion.

According to industry watchers,upcoming EC projects expected tobenefit from this new rise in incomeceiling are Parc Life, Signature @ Yishunand The Criterion, comprising a total ofmore than 1,600 units. Many buyerswho were previously ineligible to bookunits at recently launched ECs, such asThe Brownstone, The Vales and SolAcres, can also do so now. The latestproject to hit the market, Sol Acres byMCL Land, has already sold 249 units.

EC developers had been anticipatingpolicy changes since March, whenNational Development Minister KhawBoon Wan raised the possibility ofincreasing the income ceiling for ECs forthe second time since 2011.

In fact, a Q2 survey conducted bythe National University of Singapore(NUS) and the Real Estate DevelopersAssociation of Singapore (REDAS),which tracks the sentiment of developers,found that 54.8 percent of respondentsfelt the income ceiling of $12,000for ECs was inadequate.

Worrisome time for condodevelopers

With more home buyers turning theirattention to ECs, Wong feels new private condo sales could be affected,as a portion of potential buyers in bothsegments would overlap.

Given the price gap between ECsand comparable mass market condominiums,ECs still have good valueproposition for buyers who are buying for own occupation. Depending onlocation, and supply in the vicinity, somedemand from mass market condominiumsmay shift towards the EC market,he said.

This could prove worrisome fordevelopers who have already seen salesof private units plunge almost 21percent in the first half of 2015 from ayear ago, due to the cooling measures.

However, Ismail believes there willalways be buyers looking at either theEC or private condo market to purchasean asset that suits their needs.

Lets face it. Housing is a personallifestyle choice, just like cars. There aremany people who aspire to own aprivate condominium or EC, and somemay even opt for a more comfortablelifestyle by not loading too muchfinancial burden on themselves andgoing for a larger BTO flat.

Those in the $12k to $14k incomebracket with higher earning power canusually afford a private home, but maynot like the location of the project, andmay opt for an EC instead.

There is also another group ofbuyers who buy for investment purposesto earn rental income. Although ECsare about 20 to 30 percent cheaper,they are subject to a five-year minimumoccupation period (MOP).

In addition, private home buyersenjoy a higher mortgage threshold of60 percent TDSR, compared to ECbuyers who are subject to a mortgageservicing ratio (MSR) of 30 percent,he noted.

Building strong families

Given Singapores ageing population,the government also implementeda proximity grant of $20,000, up from$10,000 previously, to help foster closerfamily ties by encouraging young couplesto live near their parents.

Wong says this is a move in theright direction, and may also havepositive spillover effects on the
resale HDB market.

The proximity grant of $20,000 andthe increase of income ceilings will ineffect support resale prices. Resale HDBflats will become more attractive tohouseholds earning $10,001 to $12,000,as they would now be eligible for a CPFgrant of $40,000.

Given that there is no income ceilingfor the proximity grant, it effectivelysubsidises a resale HDB flat by $20,000,depending on eligibility, he said.

			This article was first published in the print version The PropertyGuru News & Views. Download PDF of full print issues or read more stories now!

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