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Buying a PLH flat in Singapore out of FOMO? Read this first.

In Singapore, balloting for a BTO flat is like buying the lottery. But unlike in 4D and TOTO, the minimum betting sum is S$10. As our population grows on a finite land, many young couples have suffered the fate of balloting and getting rejected many times over. It might even be easier to win a consolation prize at Singapore Pools. As you would imagine, competition for BTO projects in central Singapore is all the more fierce. After all, staying in these neighbourhoods means less time spent on peak-hour commutes. Nowhere else in Singapore is the lottery effect more prevalent - at least until the Prime Location Housing model was launched recently. For young couples who have been disappointed time and again, this new option is an exciting shot at city life. Alas, the PLH model comes with a lengthy list of terms and conditions.

Truth is, some of these have far-reaching implications that are clouded by the market’s FOMO and YOLO sentiments. Let’s put the hype on pause and examine some of them in detail.

Subsidy Recovery

It goes without saying that properties in central Singapore are costly, and the PLH model is no exception. In the spirit of keeping public housing accessible, more subsidies have been made available to applicants. The catch? You may have to return them sometime.

While the subsidy recovery rate for Keppel Bay PLH is undetermined for now, a clawback rate rate of 6% applies to the Rochor and Bukit Merah projects. This applies only to the initial buyer. As a first-time owner, when you sell your flat at S$1 mil after the MOP, you have to return S$60,000 to HDB.

What this means for you:

This rule is obviously meant to deter profiteering, and it will. But even if you aren’t into flipping houses for a windfall upon resale, your profitability may not keep up with the market and stump your next move. You may wish to upgrade to a condominium unit, but find yourself with insufficient funds after HDB recovers the subsidies.

10-Year MOP

Compared to other BTO projects, the PLH projects have a longer waiting time of up to 5 years. After all, they were launched in a time of construction delays. This, compounded with the doubled MOP that PLH projects are subjected to, is perhaps the biggest deal breaker for buyers.

Say, you purchased a unit today and had a baby within the next year. By the time you are free to make your next move in the property market, your child would already be in secondary two.

What this means for you:

Like the subsidy recovery, this is meant to filter out buyers with intentions to monetize and prioritise those who are genuinely in it for long haul occupation. Still, it is a massive commitment through the lens of family planning.

Typically, couples sell their houses at the 5-year mark because it coincides with their children’s enrollment in primary school. Since the PLH model binds you legally for a decade, you may not be able to accommodate your child’s schooling needs. This disrupts Singapore homeowners’ transition of moving as family units evolve simply because they no longer have that freedom.

Even if you do not have children, this contract forbids you from downsizing should your circumstances call for it. If you’re stuck with neighbours from hell - like the infamous man in Hougang - you would have to tolerate them for much longer.

Under the PLH model, you are not just purchasing a flat. You are committed to growing your roots and making a home out of it.

Strict resale and rental rules

Unlike the subsidy clawback, the 10-year MOP follows every buyer of a PLH flat down the line. PLH BTO buyers are also subjected to stricter eligibility criteria than their non-PLH counterparts, including but not limited to an income ceiling of S$14,000. In addition, buyers are not allowed to rent out their entire homes even after the 10-year MOP is up. Rental of a single bedroom, however, is allowed.

What this means for you:

The 10-year MOP and stringent eligibility criteria effectively shrink the pool of buyers available to you a decade later. Your reduced bargaining power, in addition to the subsidy clawback, may make you feel the pinch even more. Furthermore, the rental restriction dashes any hope of milking your BTO for passive income whilst moving into a private home. Clearly, the PLH model leaves no room for buyers with cash cow mentalities.

Think twice before acting

Before you jump on the PLH bandwagon, be very clear about your plans in the next 10-15 years. Consider your family planning efforts, financial circumstances, and upcoming transitions you would have to navigate. Also, whatever move you make, do not lose sight of the spirit of the PLH model for the authorities’ actions will always move in tandem.

Curious about investment opportunities in properties near the PLH projects or existing prime HDBs that are insulated from the above slew of restrictions? Reach out to me (Harvey Chia) for a chat at 9199 9141.


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