New policy measures will hit private residential market

Many more Singaporeans will be applying to buy Housing and Development Board (HDB) Built-to-Order (BTO) flats and Executive Condominiums (EC) now that the monthly household income ceilings for these types of homes have been raised to S$12,000 and S$14,000, respectively.

Based on data from the Department of Statistics, 6.3 per cent of the 1.2 million households headed by Singapore citizens and permanent residents earned between S$12,000 and S$13,999 a month last year. This translates to 75,600 households that earn between S$144,000 and S$168,000 — rounded up to the nearest thousand — a year from work.

As 22 per cent of resident households earn more than S$168,000 a year from work, these households newly eligible for ECs are above the 70th percentile of income earners in Singapore. Even the households that now qualify to buy new flats straddle the 70th percentile: 8.3 per cent of families, or 99,600, earn annual incomes of S$120,000 to S$144,000 from work.

Affordability measures will improve

Henceforth, the affordability measure of BTOs will drop to about 3 to 4 times the annual household income once we allow these upper income families to apply for new flats. As for ECs, affordability may improve to between 4 and 5 times annual income, down from the current 6 to 7 times. But such a skew on overall statistics does not make a positive difference to lower-income households who need to comfortably shelter their families.

It is my belief that the HDB will keep a lid on the pricing of new flats. However, it does mean that should HDB choose to raise the prices of BTO flats — for example, in matured estates, larger units — it can still clear the stock of new flats to the higher-income families.

On the other hand, ECs are built by private developers who have to earn profits for their shareholders. The inclusion of higher-income families will likely help push EC prices up through the inclusion of additional facilities, higher per sqf prices or larger average apartment sizes.

Mass market private housing takes a hit

With higher income ceilings, and generous grants for first-time home buyers, the new policy will swing many would-be buyers of mass market private homes to consider ECs instead. As of July, there are more than 5,000 ECs available for sale in the pipeline. Raising the income ceiling will definitely help clear some of this stock, and consequently let the government increase the supply of land for sale.

Similarly, some buyers previously considering ECs may now switch to buying BTOs instead. According to a parliamentary statement earlier this year, there are about 10,000 new HDB flats that will be sold under the Sale of Balance Flats scheme.

Although most BTO launches had been significantly oversubscribed, these Balance Flats, representing about 10 per cent of the 100,000 BTOs launched in the last four years, were returned to the HDB for various family and financial reasons.

The new policy also means that the lower-income families will face stiffer competition now that the pool of applicants for BTO flats has become much bigger. Unless balloting ratios are capped for the high-income households, the concept and the basic principles of public housing for Singapore should be re-examined.

Meanwhile, in the immediate term, the already oversupplied mass market private residential segment will take a hit as developers compete harder to clear the current unsold stock of almost 13,000 apartments and houses.

Burden on taxpayers

In addition to the HDB Balance Flats and the 5,000 ECs in the sales pipeline, the large supply of private residential units is putting the housing market under strain: Declining rentals, rising numbers of vacancies, sagging prices and bankruptcy sales increasing on the back of higher interest rates.

The past two years of data have shown a large number of ECs are bought purely for investment. The number of vacant ECs persisted at more than 1,000 units in the past two years, even though these newly completed EC projects were fully sold when launched five years ago. Of the 12 projects completed in the last two years, from Esparina to Twin Waterfalls, more than 100 listings for rentals can be found on just one of the more popular property websites. All these projects are still under the five-year Minimum Occupancy Period (MOP).

Still, 2,391 EC units remain vacant as at the end of the second quarter. With an MOP of five years required of EC buyers, 14.1 per cent of total stock being vacant indicates an unusually high proportion of investors in all the recently completed ECs. Used by investors for the purpose of enriching their asset wealth, these ECs do not serve their basic function as a form of public housing.

The fact is, while policymakers position ECs as a higher class of public housing to satisfy the aspirations of young families with high income and upgraders, private developers, property agents and investors view ECs as an investment product for asset enhancement.

Since the last time income ceilings were raised for new HDB units and ECs in 2011, more than 21,000 families have benefited from that revision, the Ministry of National Development and the HDB said. And if we simply assumed 30 per cent of these families — with annual household incomes of between S$96,000 and S$144,000 — took an average of S$30,000 in grants, these would amount to S$189 million supported by taxpayers.

Raison d’etre for public housing, more questions

While we do not yet know how many families will take advantage of the increased income ceilings this round, a 10 per cent figure on the total 175,200 households that earn between S$10,000 and S$14,000 a month or S$120,000 to S$168,000 a year implies that taxpayers may need to fork out S$525.6 million of grants for these middle-high income earners. And many who purchase ECs do so for profit, not for shelter and physical comfort for their families.

So, what exactly is the raison d’etre for public housing in Singapore? Have we totally satisfied the housing needs of the lower-income groups such that we now have the luxury of allowing middle-upper income earners to buy public housing, without displacing a single lower income family?

Given the demand on Singapore’s limited public funds to improve the bus fleet, to improve the performance of the mass rapid transit system, to increase capacity in hospitals, to improve education facilities and standards, and so on, is subsidising the 70th percentile of income earners a good way to apply taxpayers’ funds?

Will the increased competition from a wider pool of investors-cum-public-housing-buyers benefit aspiring home buyers below the 50th percentile? Knowing that developers need to answer to shareholders, should we not reasonably expect profits from EC projects to increase on the back of a larger pool of rich applicants?

ABOUT THE AUTHOR: Ku Swee Yong is a licensed real estate agent and the CEO of Century 21 Singapore. He recently published his third book “Real Estate Realities – Accommodating the Investment Needs of Today’s Society”.