Should the new HDB incentives worry private developers?

New HDB flats along Sumang Walk in Punggol. (Yahoo News Singapore file photo)

By Abdul Hadhi

SINGAPORE — Fresh incentives by the Singapore government to make public housing more affordable may have a less than positive impact on the private residential market, some market experts caution.

The incentives, which took effect on 11 September, include raising the household income ceiling for HDB flats and Executive Condominiums (EC) by $2,000, to $14,000 and $16,000 respectively; and replacing the current grant schemes with the Enhanced CPF Housing Grant, which comes with a higher income cap and no restrictions on flat size or location.

The former increases the pool of potential buyers for public housing, while the latter widens the choices available while also making them more affordable.

While the incentives are positive for both new and resale HDB flats, they “may shift volumes away from the private market,” Jefferies Equity Research analyst Krishna Guha said.

When similar incentives were offered in 2015, some 1,565 of the 6,500 newly eligible households took advantage of the higher grants and income ceiling to purchase HDB units, Guha noted.

The potential reduction in the pool of first-time buyers for new condominiums comes at a time of already subdued demand for private property.

Real Estate Developers’ Association of Singapore (Redas) president Chia Ngiang Hong recently said that lacklustre new home sales amid abundant supply remains a key concern for developers.

Despite the small 1.5 per cent uptick in second-quarter private home prices since last July's cooling measures, some 35,500 units, or 66 per cent of the estimated 54,000 uncompleted private homes with planning approvals remain unsold, according to Urban Redevelopment Authority (URA) data.

But not all expect the public sector to draw buyers away from private property.

“The most popular units in private condominiums tend to be the smaller one-bedroom or two-bedroom apartments, indicating the motive is for investment while the buyers of HDB flats tend to buy to live in,” Savills research and consultancy executive director Alan Cheong said. With little overlap between the two pools of buyers, he does not expect demand for private property to be significantly impacted by the incentives.

Others suggest there could be a silver lining for private developers in the EC space. ECs are a hybrid of public and private housing, built and sold by private developers, but at prices lower than private homes as land costs are subsidised by the government.

Lower sales of private homes may be partly mitigated by likely higher sales of ECs which will benefit from the higher income cap, Guha said.

“In 2015, EC (sales) volumes almost doubled after the income ceiling for ECs was raised from $12,000 to $14,000,” he explained.

Public housing should get a boost from increased liquidity

Meanwhile, the Enhanced CPF Housing Grant, which replaces the Additional CPF Housing Grant (AHG) and the Special CPF Housing Grant (SHG), will make it more affordable for new households to purchase built-to-order and resale HDB flats. That “may lead to increased stability for Singapore’s property market in the medium term” as more transactions smooth out price fluctuations, DBS Group Research analysts Derek Tan and Rachel Tan wrote in a report.

The EHG now provides up to $80,000 in grants without restrictions on the type of flat bought. Previously, the grants were based on the type of flat, with BTO buyers eligible for the AHG and SHG while resale flat buyers could tap on the CPF Housing Grant and AHG.

The EHG also makes it more affordable for first-time home buyers to purchase a bigger home for family planning purposes, and to live closer to parents in mature housing estates, according to the DBS research report. Previously, the grant was only applicable to 4-bedroom or smaller flats in non-mature estates.

The DBS analysts estimate that an additional 40,000 residential households will qualify for public housing grants, and expect the EHG grant to drive more transactions within the HDB resale market, particularly in mature estates.

There are also expectations of a recovery in the HDB resale market as transactions pick up. In the second quarter, the property price index for the HDB resale market declined 0.2 per cent from the previous quarter, continuing a downward trend that began in 2013.

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