THE Housing & Development Board (HDB) yesterday unveiled policy changes designed to hurt speculators and make it more expensive for non-Singaporeans to buy government-subsidised flats.

The Board also agreed to make a much campaigned-for change: it will now allow buyers to take a second concessionary loan from HDB even if they downsize to a smaller flat or move to a flat of the same size. Previously, only upgraders qualified for a second concessionary loan.

Announcing these and other measures in Parliament yesterday, National Development Minister Mah Bow Tan noted that public housing is an especially hot issue this year.

‘Someone asked me recently if I was feeling the heat and I don’t think he was talking about the weather,’ Mr Mah quipped, beginning his reply after a slew of questions from Members of Parliament (MPs).

Many MPs were concerned that some buyers were using HDB flats to speculate in the property market and driving up prices in the process. HDB resale prices hit a new high in Q4 2009, with prices climbing 3.9 per cent from the previous quarter. The median cash-over-valuation (COV) for all resale transactions doubled to $24,000 in Q4 from $12,000 in Q3.

Data from HDB shows that the proportion of flat owners who sell their units within three years of purchase rose to 8.9 per cent for the first 10 months of last year. And in 2008, 7.9 per cent of buyers sold their units within three years. In comparison, less than 7 per cent of buyers sold their flats within three years from 2005 to 2007.

To reduce the number of people using HDB flats to speculate in the property market, the time that buyers are required to stay in their flats before reselling them (minimum occupation period or MOP) will be increased to three years for all flats bought in the resale market. Currently, the MOP is 2.5 years for buyers who choose to take up an HDB concessionary loan and just one year for buyers who either take a commercial bank loan or do not take any loan.

‘I want to emphasise that HDB flats are provided primarily for owner-occupation and not speculative profit or rental return,’ said Mr Mah.

The decision to remove the upgrading condition for the second concessionary loan, in comparison, is to encourage greater financial prudence and flexibility among homeowners. Feedback from MPs said that by providing the second concessionary loan only to upgraders, some might inadvertently be driven to upgrade even though it may not be prudent to do so.

‘Since we are now seeing a situation of greater economic volatility, the flexibility to right-size will become more important,’ said Mr Mah.

But the new policy comes with strings attached. Currently, cash sales proceeds from the sale of a flat need not be used for the purchase of the next one. But with the change, sellers can only keep the greater of $25,000 or half of the cash proceeds. The remaining cash and CPF balance has to be used to finance the purchase of the next flat if they take up a HDB concessionary loan.

The lifting of the upgrading condition is expected to benefit about 1,000 households a year. Currently, HDB grants about 4,000 second concessionary loans each year, mostly to households upgrading to bigger flats.

Social impacts

HDB also said that 3,800 more elderly lessees will now benefit from its lease buyback scheme which has been revised. The scheme allows the elderly to monetise their flats by selling the tail end of the flat’s lease back to HDB.

Other measures are calculated to have social impacts. To encourage permanent residents (PRs) to take up citizenship, HDB will withhold $10,000 of the subsidies for a household made up of one citizen and one PR when they buy a HDB flat. Once the PR converts to citizenship, or when the couple has a Singapore citizen child, the Board will return the withheld subsidy.

‘These measures will give greater assurance to citizens that they are our priority, and at the same time, encourage our PRs to view citizenship more favourably,’ Mr Mah said.

A quota cap for PR households of 8 per cent in each block and 5 per cent within each neighbourhood was also announced. It will be applied on top of the ethnic integration policy (EIP) but will not apply to Malaysian PRs. The EIP was also tweaked slightly. In line with demographic shifts, the Indian/Others limit was raised from 10 per cent and 13 per cent at the neighbourhood and block levels to 12 per cent and 15 per cent respectively.

Property analysts said that the revision of the MOP to three years and the removal of the upgrading condition will affect the HDB market.

‘By standardising the MOP at three years, the ‘turnover’ rate is slowed down from one year to three years. This has the effect of preventing ‘flippers’ from pushing up resale prices with their short-term objectives,’ said Eugene Lim, associate director for ERA Asia Pacific.

But PropNex chief executive Mohamed Ismail said that there will be little impact from this policy which will, at most, just encourage buyers to adopt a mid-to-long term view when buying their flat. He feels that the most notable measure was the extension of the second HDB concessionary loan to downgraders.

‘We may see an increase in market activity due to an increase in downgraders,’ Mr Mohamed said. But he declined to predict if there will be an increase in resale flat prices as it is ‘too soon’ to assess the impact.

Noted Mr Lim: ‘With this change in policy, Singapore citizen households are likely to be attracted to take loans from HDB, leaving only PR households to take bank loans. Banks may now have to re-package their loans more attractively as they battle for market share.’

ERA has a 41 per cent share of the resale HDB market and based on its transactions, some 50 per cent of buyers use bank loans, another 40 per cent get loans from HDB and 10 per cent pay for their flats using cash.

Source: Business Times, 6 Mar 2010