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 housing more accessible to higher-income households.

By Romesh Navaratnarajah

With the upcoming general election to be held on 11 September 2015, it isn’t surprising to see the government take steps to help more Singaporeans afford HDB flats and executive condominiums (ECs). After all, housing affordability was one of the hot-button issues in the 2011 election.

Most recently, Prime Minister Lee Hsien Loong announced several new housing policies during his National Day Rally speech, including raising the income ceiling from $10,000 to $12,000 for new flats, while that for ECs will increase from $12,000 to $14,000. This is so that families with higher incomes can also apply for government-subsidised housing. At the same time, additional grants will be given to middle- and lower-income HDB buyers.

Analysts who spoke to PropertyGuru welcomed the government’s moves to make public housing more accessible to Singaporeans.

“The policies have been updated to take into consideration our nation’s changing demographics and lifestyle. Incomes have been moving up and couples are getting married later, and the combination of these factors may make such couples ineligible to buy a Build-To-Order (BTO) flat,” said Wong Xian Yang, Senior Manager for Research & Consultancy at OrangeTee.

But it also raises questions as to whether the changes to income ceilings will increase competition for BTO flats.

Less well-off more vulnerable

Mohamed Ismail, CEO of PropNex Realty, pointed out that households with gross monthly incomes in the range of $6,000 to $8,000 can only afford BTO flats, as their lower incomes are likely to put resale flats, ECs and private properties out of their reach. However, those earning up to $12,000 can now apply for a BTO flat, instead of stretching their budget to buy an EC or private condo.

“The chances of securing a BTO flat among applicants are likely to be lowered due to heightened competition from the expanded pool of eligible buyers. While the more affluent can afford to miss the opportunity, lower-income applicants with fewer housing options may be disadvantaged,” warned Ismail.

There will be more competition for BTO flats launched in better locations such as in mature estates or near MRT stations, Wong reckons. “For BTO flats launched in areas that are relatively less accessible, we may not see much of an impact,” he added.

The income ceiling hike will take effect with the next BTO exercise in September 2015, when the Housing Board launches about 4,860 flats in Bidadari and Punggol Northshore. Another 4,000 balance flats will also be offered to applicants.

ECs still relevant

Over in the EC market, experts have different opinions on the possible impact, now that more buyers can purchase ECs. Ismail foresees a domino effect, similar to the BTO segment, whereby households with a gross monthly income of up to $14,000 have the additional option of purchasing an EC.

This may push prices for ECs up due to the increase in eligible buyers who were previously ruled out due to their higher income levels, he noted. EC prices have crept up from an average of $750 psf at the start of 2013 to over $800 psf since Q3 last year, according to data from the Urban Redevelopment Authority (URA).

However, Wong does not expect developers to price them higher as there are still many unsold units left in the market. URA’s figures revealed that there were 2,391 vacant EC units in Q2 2015, which translates to a vacancy rate of 14.1 percent. This is up almost two percent from the same quarter last year.

Meanwhile, EC sales are expected to pick up due to a number of factors, like the widening price gap between mass market homes and ECs, the availability of housing grants, and the ‘partial exemption’ from the Total Debt Servicing Ratio (TDSR) framework, noted Ismail.

On the partial exemption, he explained that an upgrader’s existing HDB monthly mortgage payment is not factored into TDSR calculations when a bank assesses the loan to grant for an EC unit bought directly from a developer. This is because of an existing rule which states that buyers are required to sell their HDB flat within six months of the EC project’s completion.

According to industry watchers, upcoming EC projects expected to benefit from this new rise in income ceiling are Parc Life, Signature @ Yishun and The Criterion, comprising a total of more than 1,600 units. Many buyers who were previously ineligible to book units at recently launched ECs, such as The Brownstone, The Vales and Sol Acres, can also do so now. The latest project to hit the market, Sol Acres by MCL Land, has already sold 249 units.

EC developers had been anticipating policy changes since March, when National Development Minister Khaw Boon Wan raised the possibility of increasing the income ceiling for ECs for the second time since 2011.

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

Worrisome time for condo developers

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

“Given the price gap between ECs and comparable mass market condominiums, ECs still have good value proposition for buyers who are buying for own occupation. Depending on location, and supply in the vicinity, some demand from mass market condominiums may shift towards the EC market,” he said.

This could prove worrisome for developers who have already seen sales of private units plunge almost 21 percent in the first half of 2015 from a year ago, due to the cooling measures.

However, Ismail believes there will always be buyers looking at either the EC or private condo market to purchase an asset that suits their needs.

“Let’s face it. Housing is a personal lifestyle choice, just like cars. There are many people who aspire to own a private condominium or EC, and some may even opt for a more ‘comfortable’ lifestyle by not loading too much financial burden on themselves and going for a larger BTO flat.

“Those in the $12k to $14k income bracket with higher earning power can usually afford a private home, but may not like the location of the project, and may opt for an EC instead.

“There is also another group of buyers who buy for investment purposes to earn rental income. Although ECs are about 20 to 30 percent cheaper, they are subject to a five-year minimum occupation period (MOP).

“In addition, private home buyers enjoy a higher mortgage threshold of 60 percent TDSR, compared to EC buyers who are subject to a mortgage servicing ratio (MSR) of 30 percent,” he noted.

Building strong families

Given Singapore’s ageing population, the government also implemented a proximity grant of $20,000, up from $10,000 previously, to help foster closer family ties by encouraging young couples to live near their parents.

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

“The proximity grant of $20,000 and the increase of income ceilings will in effect support resale prices. Resale HDB flats will become more attractive to households earning $10,001 to $12,000, as they would now be eligible for a CPF grant of $40,000.

“Given that there is no income ceiling for the proximity grant, it effectively subsidises a resale HDB flat by $20,000, depending on eligibility,” he said.