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Will the Singapore Property COV Go Down or Up Post the New HDB Regulations?
Our article on What the Raised Income Ceiling Means for the Real-estate Market by Dennis Ng led to a few comments from our readers. Our readers correctly indicated that there was no raising of income ceiling for the purchase of resale flats, but only to be accepted for the CPF grant when purchasing resale terraces.
To be absolutely clear, the HDB rules said on August 15 outline that:
1. The monthly income ceiling for households will be raised from $8,000 to $10,000 for:
a. Purchasing a new flat from HDB
b. Purchasing resale studios with the CPF Housing Grant
c. Getting a HDB loan for the acquisition of a new or resale flat
2. Raising the monthly revenue ceiling to purchase new Executive Condominiums (ECs) from $10,000 to $12,000.
There wasn't any change to the DBSS income ceiling of $10,000.
So will the COV go down or up?
Our reader C.H. Commented: "It is fascinating that Dennis is forecasting a rise in the COVs for HDB resale flats regardless of the increased revenue ceiling for HDB BTO studios and ECs. I assumed this would be certain to cause the COVs to be reduced in the future instead, as envisioned by many industry watchers, as many would go for new HDB apartments or ECs instead of looking for resale flats?"
Reader E.T. further added: "Those earning $8,000 to $10,000 have always been in a position to buy HDB resale properties and this research is flawed. In reality those earning $8,000 to $10,000 can only buy HDB resale, ECs and apartments. The new measures permitted those belonging to this class to think about BTOs due to the increased revenue ceiling and thus the demand on the resale market should drop which will doubtless lead to a LOWER COV instead of higher COV."
If the total requirement for HDB apartments were static, then yes the raising of the revenue ceiling to purchase new flats (BTOs and ECs) should conceptually shift demand from resale flats to new studios.
But the raising of the earnings ceiling to get the CPF Housing grant when buying resale apartments will also shift demand from purchasing mass market private property to resale flats. So it is a question of whether demand from this source will outweigh the movement in demand from resale to new flats, therefore pushing up COVs. It is hard to estimate what the change in demand from non-public property to resale hdb flats will be.
But there are further negative factors to complicate matters. HDB is rapidly increasing flat supply for inexperienced home purchasers, launching 50,000 new studios over 2011 and 2012. The raising of the income ceiling to buy ECs could shift some upgrading demand away from mass market apartments. We also have an erratic market, downgrading of commercial growth, and troubles about a developed world recession and European crisis.
On the positive side, rates are probably going to stay low for a long-lasting period, and the Singapore dollar is seen as a safe harbor by many financiers, who are buying properties in Singapore and pushing up private home costs, which should push some local demand back to resale HDBs.
Thus sorry to disillusion but it isn't clear at about that point whether COVs will go down or up, though on balance my prediction would be they're certain to trend downwards due to the impending supply and current poor sentiment in the property market.
As our reader E.T. Says: "Fundamentally, I would agree with you that whether the shifting of buyers to BTO counterbalanced by the increase in demand of HDB resale will cause an increase or decrease of COVs would be anyone's guess. Actually a grand total of 99,000+ households dropped in the $8,000 to $10,000 class and their real estate needs would be unpredictable." Well said!
Hope that you enjoyed reading this Singapore property market article!
To be absolutely clear, the HDB rules said on August 15 outline that:
1. The monthly income ceiling for households will be raised from $8,000 to $10,000 for:
a. Purchasing a new flat from HDB
b. Purchasing resale studios with the CPF Housing Grant
c. Getting a HDB loan for the acquisition of a new or resale flat
2. Raising the monthly revenue ceiling to purchase new Executive Condominiums (ECs) from $10,000 to $12,000.
There wasn't any change to the DBSS income ceiling of $10,000.
So will the COV go down or up?
Our reader C.H. Commented: "It is fascinating that Dennis is forecasting a rise in the COVs for HDB resale flats regardless of the increased revenue ceiling for HDB BTO studios and ECs. I assumed this would be certain to cause the COVs to be reduced in the future instead, as envisioned by many industry watchers, as many would go for new HDB apartments or ECs instead of looking for resale flats?"
Reader E.T. further added: "Those earning $8,000 to $10,000 have always been in a position to buy HDB resale properties and this research is flawed. In reality those earning $8,000 to $10,000 can only buy HDB resale, ECs and apartments. The new measures permitted those belonging to this class to think about BTOs due to the increased revenue ceiling and thus the demand on the resale market should drop which will doubtless lead to a LOWER COV instead of higher COV."
If the total requirement for HDB apartments were static, then yes the raising of the revenue ceiling to purchase new flats (BTOs and ECs) should conceptually shift demand from resale flats to new studios.
But the raising of the earnings ceiling to get the CPF Housing grant when buying resale apartments will also shift demand from purchasing mass market private property to resale flats. So it is a question of whether demand from this source will outweigh the movement in demand from resale to new flats, therefore pushing up COVs. It is hard to estimate what the change in demand from non-public property to resale hdb flats will be.
But there are further negative factors to complicate matters. HDB is rapidly increasing flat supply for inexperienced home purchasers, launching 50,000 new studios over 2011 and 2012. The raising of the income ceiling to buy ECs could shift some upgrading demand away from mass market apartments. We also have an erratic market, downgrading of commercial growth, and troubles about a developed world recession and European crisis.
On the positive side, rates are probably going to stay low for a long-lasting period, and the Singapore dollar is seen as a safe harbor by many financiers, who are buying properties in Singapore and pushing up private home costs, which should push some local demand back to resale HDBs.
Thus sorry to disillusion but it isn't clear at about that point whether COVs will go down or up, though on balance my prediction would be they're certain to trend downwards due to the impending supply and current poor sentiment in the property market.
As our reader E.T. Says: "Fundamentally, I would agree with you that whether the shifting of buyers to BTO counterbalanced by the increase in demand of HDB resale will cause an increase or decrease of COVs would be anyone's guess. Actually a grand total of 99,000+ households dropped in the $8,000 to $10,000 class and their real estate needs would be unpredictable." Well said!
Hope that you enjoyed reading this Singapore property market article!
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