Is HDB still affordable or is it getting too expensive?

Public housing has played an important role in holding Singapore’s society together.

Based on 2018 survey, more than 78.7 per cent of resident households live in HDB flats.

Built-To-Order (BTO) provides new public housing units at concessionary prices to eligible households.  BTO helps to fulfill the needs of low and middle income households. Or those whose household income does not exceed $14,000, it was raised from $12,000 in Sep 2019.

For Executive Condominium, the income ceiling is also raised  from S$14,000 to S$16,000.

HDB MARKET OVERVIEW

According to URA reports, the number of resale applications in 1^st quarter of 2020 dipped slightly (about 7%) against the last 3 quarters. This means there are fewer resale transactions in 1^st quarter.

But the resale property index recorded no change in 1^st quarter and last quarter of 2019. It stayed at 131.5

Resale HDB transactions has been trending up since beginning of 2019, also partly because of the new HDB guidelines.

1. Revised income ceiling for BTO application
2. Enhanced Housing Grant  EHG.

Ensuring housing remains affordable has been a key priority for the Singapore Government. By implementing many rules, they regulate the demand and supply of HDB flats. Although HDB is getting more expensive relatively, the government hopes to keep new flats affordable.

NEW INCOME CEILING

The income ceiling restriction is effective in filtering off those who do not qualify, and it can allow more targeted household to enjoy this public housing subsidies.

The income ceiling for HDB has been raised from $12,000 to $14,000 in Sep 2019.

This income ceiling revision benefitted the Sandwiched group most, because previously they can only buy EC and is kept out of the more affordable BTO market.

This policy of income ceiling has been applied since 1964 to ensure public housing eligibility is broadbased and adjustments has been made periodically to reflect the changing market conditions.

Another interesting research by the Department of Statistics, URA Realis and HDB resale data. It show the price-to-annual income ratio of buyers of new or resale HDB.

The chart shows a healthy level of affordability.  To buy a new BTO or resale,  a household need to save 4 years of income including CPF contributions. And to buy a private non landed property , the buyer needs to save for 7 years.

Enhanced CPF Housing Grant

The affordability of HDB is further boosted by the new grant, Enhanced Housing Grant  EHG.

Previously, grants are given through Additional CPF Houing Grants AHG and Special Housing Grants SHF, and it is given to help families make partial payments in their purchase of new flats.

These two grants are now replaced by a new Enhanced CPF Housing Grant EHG. This grant is linked to the income of first time applicants families and they range from $5,000 to $80,000.

The Enhanced CPF Housing Grant or EHG can be used for both new or resale HDB flats, and it places no restrictions on the buyers choice of flat types or its location. Under Enhanced CPF Housing Grant, families can get up to S$80,000 in grants when they buy a new BTO, and up to S$160,000 in all grants when they buy a resale flat in the open market

To qualify, your income ceiling is cap at $9,000, this is higher than the ceiling cap of AHG ($5000 ) or SHG ($8500). And SHG has restriction to the flat type of 4Room or smaller in non matured estates.

The new rule ensure that Singaporeans can live comfortably in their homes that can last them for life. Hence, the new rule states that flat buyers can only get the full EHG grant if the flat lease can cover them and their spouses to the age of 95.

BUILD TO ORDER BTO MARKET

From the supply side, BTO flats comes with concessionary pricing schemes , it is subsidized by the government. The amount of subsidies varies and depends on what flat type, this is to ensure smaller flats buyers will get more subsidies.

Also, the government has delink the prices of BTO with HDB resale flats in 2011, Now, HDB sets new BTO flat prices based on a simple cost plus basis.

This is an effort to stabilise the BTO price against the effects of  price volatility in the resale market.

By doing the supply and demand curbs, HDB aims to keep BTO flat prices affordable.

National Development Minister Lawrence Wong said more BTO flats will be built in 2020 to meet higher demand of public housing.

There will be between 16,000 and 17,000 Build-to-Order (BTO) flats in 2020, much more than the 14,600 in 2019.

Even with this new BTO units available in the market, it may not dampen the resale HDB market as the government policies have help it, and new private properties have been increasing lately. Among the buyers, many of them are HDB upgraders and they will likely sell their HDB to recover the ABSD paid outfront.

Hence, the overall HDB market is still well controlled and regulated.

And property prices of BTO or Resale  HDB is well managed and make affordable to all via grants and supply.

RESALE HDB MARKET

The number of HDB resale flats changing hands increased by 2.7% to 23,714 units in 2019 as compared to 23,099 flat units in 2018.

The cumulative effects of various new policies such as greater flexibility in using CPF to buy older flats, enhanced CPF housing grants, and increased income ceiling, have all proved effective to overcome the concerns around lease depreciation and economic conditions.

With HDB resale flats, you might get more housing grants than a BTO.

Eg. If you buy a HDB 4Room BTO in Woodlands it is $212,000 or in Toa Payoh $350,000 ( Feb BTO prices ). But if you buy a resale in Sembawang , $306,000 ( HDB resale Apr 2020),

• If you are both SC , First Time Applicants earning combine income $7000
• You get $50,000 from Family Grant
• EHG, $7000 income gives you a grant of $25,000
• Proximity Grant if you buy near parents, gives you a grant of $30,000
• That makes your resale as good as BTO prices. ($306k – 105k= $201k, is better than BTO $212k)

For 2020, the resale prices started higher, it saw HDB resale prices

• increase by 0.5% in January 2020 over December 2019.
• increase by 0.7% in February 2020 over January 2020
• decrease by 0.3% in March 2020 over February 2020

The Housing Board resale market started this year on a promising note with more HDB flats changed hands in January compared with December.

• Overall, there were 1,920 HDB resale flats sold in Jan, which translates into a 3.3 per cent increase over December,
• Fewer HDB resale flats changed hands in February as compared with January, and prices also increased by 0.7 per cent.  In total , there were 1,668 HDB resale flats sold in February 2020, it was 13.1 per cent fewer than in January.
• In March 2020, Housing Board resale prices fell by 0.3 per cent amid the Covid-19 outbreak. But according SRX research, more resale flats were transacted in March, with a 16.8 per cent higher than February. In total, there were 1,948 HDB resale flats sold in March 2020.

With new LTV rules restricting loan to 75% of price of private property, this 25% cash input can mean a lot to the prospective buyers. But if they buy resale HDB, they can use HDB concessionary loans which can finance 90% of the flat price with remaining 10% using either cash or CPF or both.

This reduce amounts of cash means a lot, and it may push them to seek for a resale HDB instead of condo , especially if they have tried repeatedly to apply balloting for BTO.

We expect this lower cash outlay advantage will continue to attract many first time buyers, and upgraders thus keeping demand for HDB resale flats from falling.

HDB will continue to look expensive especially with so many media news of high price transactions. Million dollar HDB transaction will continue and in fact may increase as many newly built HDB in matured estates are approaching the 5 year MOP.

A record number of HDB resale flats were sold above $1 million for the whole of 2018,  in total there were 71 units that were sold above $1 million dollars. This is indeed an significant jump from just 2 units in 2014 and 46 units in 2017.

• The most expensive resale flat in Dec 2019 was a four-room flat at The Pinnacle @ Duxton, which was sold for $1.06 million.
• The most expensive resale flat that changed hands in January 2020 was an executive apartment unit in Lorong 2 Toa Payoh, which sold for $1.025 million.
• The most expensive resale flat sold in February 2020 was a five-room type unit in Commonwealth Drive, it was sold for $1.1 million.
• The most expensive resale flat done in March 2020 was a five-room type unit at The Pinnacle@Duxton,  it was sold for $1.2 million.

CONCLUSION :

HDB is still a much controlled and regulated form of public housing.

Prices of HDB price is always monitored and managed by the Government through various policies or rules implemented.

HDB will still continue to be affordable ( although it may have risen quite a fair bit ) . It is measured against our income level and hence should still be affordable and within the reach of most Singaporeans.

To know more about whether you can qualify for HDB grants or what type of HDB resale property suits you, do contact Rick Fok, at 91092177  for a casual discussion.

Article by Rick Fok

Rick Fok is a realtor with OrangeTee & Tie Pte Ltd. He has been in this real estate business for 10 years.  He is very focus in helping his clients rent properties and he does help many customers to buy new projects according to their needs.  His interest include sports such as running and soccer besides just real estate work. He loves to connect with people to discuss properties related issues and gets enormous satisfaction in helping them fulfill their needs.  If you have any queries on this topic or other , please do give Rick a call and he can meet and discuss this over a cup of coffee.

Other Articles to read

How much does it cost to upgrade from HDB to condo?

When should I sell my Executive Condo?

Is Your HDB an asset ?

Is it better to buy an EC than a condo ?

Sell HDB and buy 2 condos

Buying a new launch or a resale property. Which is a better property for investment?

Do you keep or sell your HDB , when you upgrade to a condominium.

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