Why HDB Income Ceiling Should Not Be Revised Again

Just recently someone made a comment and asked for the HDB income ceiling to be revised again.

There may be merits to the case but I feel that the HDB income ceiling should not be revised for the following reasons:

• Developers of Executive Condominiums (ECs) benefit

By increasing the income ceiling, developers benefit as the pool of prospective buyers is enlarged. Prices in the property market now are constrained by many factors notably the Mortgage Service Ratio (MSR) and Total Debt Servicing Ratio (TDSR). Even with the MSR, prices of ECs can theoretically be priced at $1,000 psf if there are buyers (see my earlier post in October 2014 - How High can EC Prices Go?). If the income ceiling is raised, it means that more of the household income can go towards housing and gives the developers more room to raise EC prices when the market is buoyant. For the buyers, it is back to square one again as they will be squeezed by the higher housing loan.

• Housing is a personal lifestyle choice

Let's face it. Housing is a personal lifestyle choice. Similarly for cars. There are many people who aspire to own a private condominium or EC. I have seen many people with a household income of $6,000 to $8,000/month applying for an EC. And they apply for the largest or best (ie. top level or best view) unit they like. These units cost between $1 and $1.3 million. Some of these people own a car and maybe have a domestic helper to help. This group of people are likely to stretch their spending to the max and complain that the cost of living is very high. I shudder at the thought of what will happen to their family when there is a loss of income.

• The beneficiaries are a small pool of people

By raising the income ceiling, you are benefiting a small group of people. Worse still, you allow the higher income people to compete for public housing. The increased demand for public housing will put a strain on public resources which can be better channelled towards social spending.

• Contrary to some Government policies

The Government is encouraging people to get married earlier and has been controlling the housing prices to lower the stress on families. Couples who apply for a HDB flat before age 30 need only put a downpayment of 5% for their flat. By increasing the income ceiling, couples may put off their wedding to a later date since there is more room for their income to rise. Getting married later will affect the chances of conceiving although having a baby or babies are personal choices. So it is not in line with other Government policies.

• Repercussions on Government subsidies

Many if not most of Government subsidies are based on income for example housing grant, childcare etc. With the revision in income ceiling, should all the income ranges for these subsidies be revised as well? If yes, where will the money for these expenditures come from? More taxes - direct and indirect?

• Upsetting the balance in the property market

While the group of beneficiaries from a revised income ceiling is small, it can upset the balance in the property market. More people will try to apply for a BTO flat instead of buying from the HDB resale market, EC or private market. Some sellers of HDB resale flats might have to reduce their asking prices to sell. If HDB resale prices weaken further, existing owners will not be happy and this affects their ability to upgrade. The other spectrum of the property market like EC or private property gets affected as well. It will further affect the weak property market.


The revision in income ceiling can be a vicious circle. It may increase property prices, put a strain on public resources and possibly upset the balance in the property market. It should not be done and I hope the Minister for National Development does not consider it.

How High Can EC Prices Go?

Last week I discussed about the high return rate among Executive Condominium (EC) buyers. Today I shall look at how high can an EC unit on a per sq ft (psf) basis be priced.

The latest EC project to open for e-applications or e-Apps is Lake Life at Taman Jurong. On 6 Oct 2014, it was reported that 1,200 applications was submitted for the 546-unit project. The strong turnout was no doubt aided by the Government plans for the Jurong Lake district.

But what was eye-popping was the psf quoted for the EC project. At $880-$890 psf, this will be the most expensive EC project to-date.

Type	Size (sf)	Quoted Price Range (psf)	Estimated Price (Top Range)
5 bedroom	1,604-1,711	$880-$890	$1.42-$1.52 million
4 bedroom	1,195-1,701	$880-$890	$1.06-$1.51 million
3 bedroom	1,023-1,711	$880-$890	$0.91-$1.52 million
2 bedroom	743-969	$880-$890	$0.66-$0.86 million

Source: Lake Life e-brochure, news reports, Real Property Advisory Singapore


Can a family with an income ceiling of $12,000/mth afford the EC?

For a couple age 30 years, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	30 years	30 years	30 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$1.04 million	$869,000	$695,000
Purchase Price (80% loan)	$1.30 million	$1.09 million	$869,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf	$1,271	$1,065	$849

Source: Real Property Advisory Singapore


For a HDB upgrader, with more equity on hand, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	20 years	20 years	20 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$745,000	$620,000	$497,000
Purchase Price (70% loan)	$1.06 million	$886,000	$710,000
Purchase Price (60% loan)	$1.24 million	$1.03 million	$828,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf (60% loan)	$1,212	$1,007	$809

Source: Real Property Advisory Singapore


Looking at the numbers above, theoretically the developer can price their project at above $1,000 psf if there is no mortgage service ratio (MSR) and maximum loan tenure limit.

To afford the most expensive unit, the family has to have plenty of liquidity so as to fulfill the MSR.

Whatever it is, the applicants will be busy calculating how much cash they can afford to put for the downpayment so that they can catch the potential upside from the rejuvenation of Jurong Lake district.

High Return Rate Among Executive Condominium Buyers - No Cause for Concern

Early last month, The Straits Times ran an article on high return rate among Executive Condominium (EC) buyers. Reasons given range from inability to secure loan, lower mortgage servicing ratio (MSR), cancelled marriage plans and so on.

Based on my experience, returning units due to financing issues and not meeting Minimum Occupation Period (MOP) is highly unlikely.

When I registered my application or e-Apps for Lush Acres on 14 July 2013, I have to submit my income statement. If you exceed the maximum income ceiling of $12,000 a month, you cannot register your application.

If I am an existing home owner, the agent will ask me to login to MyHDBPage and check whether I have fulfilled the five years MOP.

As for loans, there are bank staff around to assist. Furthermore there is usually a one month period after e-Apps before you are invited to select an unit (I was invited to select an unit on 17 August 2013 but I opt not to). This period is long enough for you to determine your maximum loan for the unit.

The more likely reasons could be cancelled marriage plans (but I have heard of people not cancelling the agreement and find another spouse over the next three years), loss of income and perhaps jitters over the current property market conditions.

So buyers could have chose to give up the purchase because they think prices will ease further down the road.

My advice is don't give up the purchase. EC prices are unlikely to ease. Simply because of the 15 months rule imposed by the Government. This has unwittingly created a period where there are no launches of EC projects resulting in pent up demand. But down the road, the property market is expected to stabilise.

That being said, I feel that the application rate for new EC projects are likely to hover around 2 as there is a steady supply of Build-to-Order flats and softness in the HDB resale market.


Next I will explore how much higher can a developer price their EC projects.

Supply, More Supply, Surprised?

The Government just released the statistics on the property market today. The numbers confirmed what analysts have been saying since June 2013 when a tighter TDSR was imposed.

1. Private property prices continued to appreciate albeit at a slower rate because developers adjusted their price expectations after the tighter TDSR rules kicked in.
2. HDB resale flat prices have started to ease as a result of HDB easing more rules to allow people to buy direct from HDB.

I am not going to harp on that issue. Let the newspapers tomorrow report on that.

Minister Khaw posted an interesting statistic (see picture below). He did not elaborate since the numbers are self explanatory.

Laymen who read the picture below will think that 2016 will see the most number of homes completed. Unfortunately that might not be the true picture.

Let me shed some light.

For every development, we know there is a estimated completion date ie. when the developer must complete the project and apply for temporary occupation permit (TOP). There is also a date for statutory completion. Do you ever wonder how the developer set those dates?

If the developer buys the land parcels from the Government to build executive condominiums (ECs) or private housing, there is a stipulated project completion period. This is the latest date the developer must complete the project and gets the TOP otherwise the Government will take back the land.

• For private housing, the project completion period is 60 months or five years from the date of acceptance of the tender bid by the Government
• For ECs, it is 48 months or four years

Then the developer has to obtain the certificate of statutory completion (CSC) within three years. This three years period is set by the Government too.

How about HDB flats you may ask?

HDB operates differently from the private sector. HDB will give you an estimated completion date and an estimated delivery possession date which is something like one year after the estimated completion date. The delivery possession date is the latest HDB must hand over the unit to the buyer. 

If the HDB flats are under the Design, Build and Sell Scheme (DBSS), the flats will be completed much earlier than the estimated completion date as it is being built by private developers. Just look at Trivelis and the BTO project beside it. The time difference between the launch of these two projects is a few months. Yet Trivelis is already 50-60% completed while the BTO has just started foundation works.

So the numbers below are based on TOP dates for ECs and private housing and estimated completion date for HDB flats. How accurate are these dates? Not very.

As this is the latest latest date the developer must complete the project, you can bet your last penny that the project will be completed much earlier than that. Whereas for HDB flats, there can be delay up to one year. If it is DBSS, it will be completed earlier.

A rough estimation is that around 20-30% of projects will be earlier than expected. So the peak in completion is likely to be in 2015 instead.

So those who have committed to a property must be prepared to take possession early. For HDB upgraders, be prepared to sell your HDB flat if you need to. As it is now, resale HDB flat prices are moderating. Coupled with mortgage interest rates that is estimated to creep up in late 2014 (if the US Federal Reserve starts to taper its Quantitative Easing), HDB upgraders must brace themselves for higher mortgage repayments by then.

Source: MND

Further Tightening of the HDB Market - MSR and Loan Tenure

Apparently someone up there thinks that the screws are not tight enough and they have to tighten it more to screw HDB owners up.

After achieving some initial success with the Mortgage Service Ratio (MSR) and shorter loan tenure which resulted in HDB resale transactions and cash-over-valuation (COV) falling, the Ministry for National Development (MND) decided to cut the MSR (35% to 30%) and loan tenure (30 years to 25 years).

What will happen next? Your guess is as good as mine.

Resale transactions and COV will continue to ease thereby making it more affordable for first time home buyers. The latest median transacted COV is $20,000.

With a shorter loan tenure and MSR, buyers have to fork out more cash if they buy a more expensive or big HDB flat. There will be lower demand for 5-room and bigger flats.

Sellers will curse their luck. As it is, I have seen advertisements for the same HDB flats for more than a month without success. The seller was only asking $20,000 COV. Two weeks ago, the advertisement changed to View To Offer (VTO) with no mention of COV. It is going to get more chilly for HDB resale flat sellers. There are going to be more transactions where COV is zero or even negative depending on how desperate the seller is.

Those borderline HDB upgraders who committed to a private condominium or executive condominium in 2010 will be the first to get hit HARD, real hard! When I say borderline, I mean those who need to sell off the HDB flat as they do not want to rent out their HDB flat and have no ability to service two loans. Their condominium or EC is going to obtain its TOP in 2014.

But as it is, our Government always try to balance out the market. To maintain a steady rental market for those wanting to hold on to their HDB flats, the Government has directed that the new Permanent Residents (PR) ie. those who get PR status for less than three years rent them. If I am a PR, I will be mad.

Already with the Additional Buyer's Stamp Duty (ABSD), a PR have to pay additional 5% for their first property purchase. Many are putting off the purchase of a property. Now they have to wait even longer. Who knows if the ABSD rate might go up?

Despite the Government trying to keep the HDB rental market steady, we doubt it will help much. First, approvals for PR status have been falling year after year since the Government tightened the criteria. We don't see it easing soon. Second the number of HDB upgraders who are holding on to their flats and renting them out is increasing. The 2Q 2013 subletting cases rose 6% from 1Q 2013. While HDB flat rentals have been holding steady, it is near the tipping point.

The mass market condominium will experience a knee jerk reaction but the fall in transactions will not be glaring. MND chose a nice month to announce new measures. It is the Lunar Seventh Month afterall and transaction volumes are expected to be low anyway.

Hopefully investors will be more sane after absorbing the new cooling measures and not pay ridiculous prices for a mass market condominium unit.

First EC Site at Jurong Breaks Price Record

Land prices for Executive Condominium (EC) sites went through the roof in July 2013 when the tender for the first EC site in Jurong closed.

The site saw enthusiastic participation from developers and attracted a top bid of $418.53 psf ppr. The breakeven price is estimated to be between $700 and $750 psf. This means that to maintain their profit margin, the developer has to launch the project at around $840 psf.

This estimated selling price is another record for EC. No EC launches has ever crossed the $800 psf mark. Sea Horizon at Pasir Ris will test that when it opens for e-apps in August 2013.

At this selling price, is EC still affordable to the first timer families earning up to $12,000 a month?

Assuming an average unit size of a 3-bedder to be 1,100 sq ft and a unit price of $850 psf, the price will be $935,000. The couple will need cash and CPF amounting to $187,000 for the 20% downpayment. This is not a small amount.

We further assume that the loan amount is 80% of $935,000, an interest rate of 1.5% and a loan tenure of 30 years. The monthly mortgage payment works out to be $2,582.

If the couple earns a combined income of $12,000 a month, they will contribute $2,100 to their CPF Ordinary Account (OA). This means they have to come up with cash of $482 every month. If the interest rate goes up, they have to cough up more cash monthly.

Another point of concern is the CPF monies for retirement. As all their CPF monies have been used to service the loan, their OA is likely to stay near zero until they repay their loan or they cash out and buy another property.

DBSS Not Worth the Buy

Introduction

The Design, Build and Sell Scheme (DBSS) have been suspended by the Housing and Development Board (HDB) since July 2011. Pending the outcome of the review, where do “wannabe” owners of a DBSS flat turn to now that the scheme is suspended? Do they rush into the remaining DBSS projects, buy a resale HDB flat, wait for a Build-to-Order (BTO) flat or an Executive Condominium (EC) unit? This article examines the popularity behind DBSS flats and the likely flat options “wannabe” owners of DBSS flats can consider.

  

Housing Stratums in Singapore Public Housing

The public housing market under the HDB has evolved over time to suit the aspiring needs of home owners. From the very early days of providing a simple roof over the head, public flats now come with better quality designs and finishes and has taken the form of Premium Flats, Executive Flats, DBSS flats and EC units to suit different classes of purchasers. The HDB has also upgraded some of the older flats to enhance the living environment of the residents. DBSS flats sit in between EC units and standard/premium flats.

The idea of EC was proposed by then Prime Minister Goh Chok Tong in 1995 as a means to shorten the queue for HDB executive flats and to meet Singaporeans' demand for affordable, private property. EC are comparable in design and facilities to private condominiums as they are developed and sold by the private developers but they are subject to HDB’s eligibility conditions such as minimum occupation period and income ceiling. Eastvale, located at Pasir Ris Drive 3 was among the first EC development. The EC scheme was put on hold in 2004 and resumed in 2010. As of October 2011, a total of 35 EC sites have been sold.

The halt in sales of EC sites in 2004 left a void in the public housing market and forced potential buyers of ECs to enter either the private condominium market or HDB Build-to-Order (BTO)/resale market.

Even so, there still exists a group of buyers who want condominium finishes but not a condominium address hence the introduction of DBSS in 2005.

According to the HDB, the DBSS was introduced to the public housing market to offer greater choice and wider variety to meet the housing aspirations of higher income flat buyers for better design and finishes. Under the DBSS, the developer tenders for the land and enjoys flexibility in designing, pricing and selling the flats subject to the relevant legislation and rules to preserve the character of public housing and ensure building quality and safety.

Flats sold under the DBSS come with a 99-year lease and will be offered to buyers under similar HDB eligibility conditions like flats developed by the HDB. Upon completion of the building, the developer will hand over the entire development site to HDB for lease administration, and to the Town Council for maintenance of the common areas and car parks.

Before the suspension of the DBSS in July 2011, a total of 13 DBSS sites have been sold.

 Location and Pricing of DBSS Flats

When the DBSS concept and site was first introduced, it was a relative untested product and this was reflected in the cautious bids placed for the first site at Tampines Avenue 6.

However the 616-unit project was a sell-out success, receiving almost 6,000 applications within two weeks. This sent a strong signal to the market that there is untapped demand for public housing projects with condominium finishes.

Subsequent bids for DBSS sites improved, varying between $137 per sq ft per plot ratio (psf ppr) and $281 psf ppr depending on the location of the sites and market conditions. The last DBSS site sold before the scheme was suspended was at Pasir Ris Central/Pasir Ris Drive 1 which is across the Pasir Ris MRT station.

Most of the successful bidders for DBSS sites tend to be builders for HDB flats with varying degrees of experience in condominium projects.

Of the 13 DBSS sites sold, two developers, a Hoi Hup joint venture and Sim Lian Land Pte Ltd account for almost half or six projects.

  

Table 1: Details of DBSS Sites Sold

Date Awarded	Location	Gross Floor Area (sq ft)	Successful Tenderer	Tender Price	Project Name
June 2011	Pasir Ris Central/Pasir Ris Drive 1	440,997	Singxpress Land (Pasir Ris) Pte Ltd and Kay Lim Holdings Pte Ltd	$123,880,009 ($281 psf ppr)	Pasir Ris One
March 2011	Clementi Avenue 4	825,298	EL Development Pte Ltd	$224,000,000 ($271 psf ppr)	Trivelis
January 2011	Yuan Ching Road	684,574	Hoi Hup Realty Pte Ltd, Sunway Developments Pte Ltd and SC Wong Holdings Pte Ltd	$131,600,000 ($192 psf ppr)	Lake Vista @ Yuan Ching
December 2010	Upper Serangoon Road	753,473	Kwan Hwee Investment Pte Ltd	$155,228,998 ($206 psf ppr)	Parkland Residences
November 2010	Bedok Reservoir Crescent	502,362	CEL Development Pte Ltd	$112,688,000 ($224 psf ppr)	Belvia
August 2010	Tampines Avenue 5/Tampines Central 8	682,379	Sim Lian Land Pte Ltd	$178,128,000 ($261 psf ppr)	Centrale 8 @ Tampines
May 2010	Yishun Avenue 11/Yishun Central	828,028	Guthrie (DBP) Pte Ltd and SK Land Pte Ltd	$148,888,888 ($180 psf ppr)	Adora Green
August 2008	Lorong 1A Toa Payoh	1,242,322	Hoi Hup Realty Pte Ltd, Sunway Developments Pte Ltd and Hoi Hup JV Development Pte Ltd	$198,822,000 ($160 psf ppr)	The Peak @ Toa Payoh
June 2008	Simei Road	380,327	Sim Lian Land Pte Ltd	$52,000,000 ($137 psf ppr)	Parc Lumiere @ Simei
February 2008	Bishan Street 24	573,336	Qingdao Construction Group Corporation (Singapore Branch)	$135,888,777 ($237 psf ppr)	Natura Loft @ Bishan
December 2007	Ang Mo Kio Street 52	632,507	Greatearth Developments Pte Ltd	$134,180,000 ($212 psf ppr)	Park Central @ AMK
June 2007	Boon Keng Road	728,146	Hoi Hup Realty Pte Ltd, Sunway Concrete Products (S) Pte Ltd and Oriental Worldwide Investments Inc	$170,200,000 ($234 psf ppr)	City View @ Boon Keng
January 2006	Tampines Avenue 6	723,334	Sim Lian Land Pte Ltd	$82,222,000 ($114 psf ppr)	The Premiere @ Tampines

Based on information released by DBSS developers, a potential buyer can expect to pay between $374 and $728 psf[1] for a unit in a DBSS project. According to developers of DBSS flats, the prices depend on a combination of factors like location, finishes, design, resale HDB flats prices and market conditions.

The latest DBSS launches, Trivelis and Lake Vista @ Yuan Ching have an estimated price range between $500 and $728 psf according to information provided by the developers. The nearest comparables for these two DBSS projects would be the September 2011 BTO launch at Jurong East. Compared to the September 2011 BTO launch, a DBSS unit can cost as much as $250 to $350 psf or 50% higher than a BTO unit, a significant premium to pay for the location, design and finishes.

Table 2: Prices of DBSS Flats and Apartments/Condominiums

Project Name	Location	Estimated Price Range	Jurong East BTO Price Range*
Trivelis	Clementi Avenue 4	$580 to $728 psf	$220 to $365 psf
Lake Vista @ Yuan Ching	Yuan Ching Road	$500 to $585 psf

* Prices of standard flats

From Table 3, it is observed that some DBSS projects are priced very close to the prices of ECs at the time of launch. Bearing in mind that a DBSS flat is not neither an EC nor an apartment/condominium, developers have to be mindful not to encroach onto the boundaries of private residential developments when pricing a DBSS flat. In fact if a buyer does not mind buying resale ECs or apartments/condominiums, good bargains can be found in the private resale market.

Table 3: Prices of DBSS Flats, ECs and Apartments/Condominiums

Project Name	Location	Type	Estimated Price Range	Release Date	Median Price of EC in Vicinity at Time of DBSS Launch	Median Price of Leasehold Apartments/Condominiums in Vicinity at Time of DBSS Launch
Pasir Ris One	Pasir Ris Central/Pasir Ris Drive 1	3-, 4- and 5-room	$389,000 to $760,000 ($556 to $672 psf)	April 2012	$697 psf	$902 psf
Trivelis	Clementi Avenue 4	3-, 4- and 5-room	$375,000 to $770,000 ($580 to $728 psf)	October 2011	No Comparables	$893 psf
Lake Vista @ Yuan Ching	Yuan Ching Road	3-, 4- and 5-room	$360,500 to $680,400 ($500 to $585 psf)	October 2011	$673 psf	$942 psf
Parkland Residences	Upper Serangoon Road	3-, 4- and 5-room	$359,000 to $738,000 ($498 to $612 psf)	January 2012	No Comparables	$887 psf
Belvia	Bedok Reservoir Crescent	3-, 4- and 5-room	$395,000 to $670,000 ($549 to $593 psf)	October 2011	No Comparables	$960 psf
Centrale 8 @ Tampines	Tampines Avenue 5/Tampines Central 8	3-, 4- and 5-room	$389,000 to $778,000 ($592 to $667 psf)	June 2011	$631 psf	$877 psf
Adora Green	Yishun Avenue 11/Yishun Central	3-, 4- and 5-room	$310,000 to $650,000 ($430 to $541 psf)	April 2011	$651 psf	$655 psf
The Peak @ Toa Payoh	Lorong 1A Toa Payoh	3-, 4- and 5-room	$355,000 to $722,000 ($471 to $573 psf)	April 2009	No Comparables	$647 psf
Parc Lumiere @ Simei	Simei Road	4- and 5-room	$378,000 to $575,000 ($374 to $482 psf)	April 2009	$497 psf	$657 psf
Natura Loft @ Bishan	Bishan Street 24	4- and 5-room	$490,000 to $739,000 ($479 to $572 psf)	October 2009	$682 psf	$715 psf
Park Central @ AMK	Ang Mo Kio Street 52	4- and 5-room	$433,000 to $689,000 ($447 to $534 psf)	July 2008	$490 psf*	$693 psf
City View @ Boon Keng	Boon Keng Road	3-, 4- and 5-room	$349,000 to $727,000 ($477 to $568 psf)	December 2007	No Comparables	$520 psf
The Premiere @ Tampines	Tampines Avenue 6	2-, 4- and 5-room	$138,000 to $450,000 ($256 to $367 psf)	October 2006	$345 psf	$442 psf

* Only 1 transaction

Why DBSS and not BTO, Resale or EC?

Given that DBSS flats are much more expensive than a BTO flat and comparable in prices to some resale HDB flats, EC and private apartment/condominium units at the time of launch, one cannot help but wonder what the reasons for buying a DBSS flat are.

Broadly speaking, the key differences between a DBSS unit and a BTO flat would be the location, price, design and finishes. In fact these are oft mentioned reasons by buyers of DBSS flats, with location coming up tops.

Looking at the location of the DBSS sites, most of them are less than 1km away or within 10 minutes’ walk to the nearest MRT station. Also most of the DBSS sites are in mature HDB estates, meaning the necessary infrastructure and amenities are already present providing added convenience to the buyers.

The recent strong interest in the Sales of Balance Flats by HDB where applications outnumbered the number of flats by 6:1 serves to highlight the fact that buyers prefer mature estates. Comparatively a BTO exercise in the same period saw only a subscription rate of 1.6 as most of the BTO flats will be built in new towns such as Sengkang and Punggol.

Table 4: Location of DBSS Flats

Project Name/Location	Tender Price	Estimated Price Range	Estimated Distance to Nearest MRT (m)	Nearest MRT
Pasir Ris One	$281 psf ppr	$556 to $672 psf	100	Pasir Ris
Trivelis	$271 psf ppr	$580 to $728 psf	500	Clementi
Lake Vista @ Yuan Ching	$192 psf ppr	$500 to $585 psf	2,200	Lakeside
Parkland Residences	$206 psf ppr	$498 to $612 psf	1,300	Hougang
Belvia	$224 psf ppr	$549 to $593 psf	3,000	Bedok
Centrale 8 @ Tampines	$261 psf ppr	$592 to $663 psf	800	Tampines
Adora Green	$180 psf ppr	$430 to $539 psf	900	Yishun
The Peak @ Toa Payoh	$160 psf ppr	$471 to $573 psf	800	Toa Payoh
Parc Lumiere @ Simei	$137 psf ppr	$374 to $482 psf	650	Simei
Natura Loft @ Bishan	$237 psf ppr	$479 to $572 psf	1,300	Bishan
Park Central @ AMK	$212 psf ppr	$447 to $534 psf	800	Ang Mo Kio
City View @ Boon Keng	$234 psf ppr	$477 to $568 psf	550	Boon Keng
The Premiere @ Tampines	$117 psf ppr	$256 to $367 psf	950	Tampines

Also buyers of DBSS flats are price sensitive as evidenced by the recent negative reaction to a DBSS project where the most expensive units were initially priced above $800,000 but subsequently lowered below $800,000 during launch. Other DBSS launches appeared to have taken the cue and priced their most expensive units below $800,000. The $800,000 price tag have become the “so-called ceiling” for new DBSS flats.

Another reason why some buyers chose DBSS flats over resale HDB flats is the high cash over valuation (COV) demanded by some sellers and the age of the resale flats. Comparatively the amount of cash downpayment for a DBSS flat can be lower than the COV for a resale HDB flat. Furthermore for a similar or lesser cash amount, buyers are getting a new flat if they choose a DBSS development.

Table 5: Prices of DBSS Flats versus Resale HDB Flats

Project Name/Location	Estimated Price Range	Resale HDB Flat Prices in 2011*
Pasir Ris One	$389,000 to $760,000 ($556 to $672 psf)	$303,000 to $565,000 ($315 to $442 psf)
Trivelis	$375,000 to $770,000 ($580 to $728 psf)	$288,000 to $765,000 ($393 to $723 psf)
Lake Vista @ Yuan Ching	$360,500 to $680,400 ($500 to $585 psf)	$253,000 to $533,000 ($332 to $465 psf)
Parkland Residences	$359,000 to $738,000 ($498 to $612 psf)	$244,000 to $610,000 ($358 to $475 psf)
Belvia	$395,000 to $670,000 ($549 to $593 psf)	$267,000 to $680,000 ($351 to $682 psf)
Centrale 8 @ Tampines	$389,000 to $778,000 ($592 to $667 psf)	$289,000 to $550,000 ($332 to $490 psf)
Adora Green	$310,000 to $650,000 ($430 to $541 psf)	$260,000 to $520,000 ($281 to $447 psf)
The Peak @ Toa Payoh	$355,000 to $722,000 ($471 to $573 psf)	Not Available
Parc Lumiere @ Simei	$378,000 to $575,000 ($374 to $482 psf)	Not Available
Natura Loft @ Bishan	$490,000 to $739,000 ($479 to $572 psf)	Not Available
Park Central @ AMK	$433,000 to $689,000 ($447 to $534 psf)	Not Available
City View @ Boon Keng	$349,000 to $727,000 ($477 to $568 psf)	Not Available
The Premiere @ Tampines	$138,000 to $450,000 ($256 to $367 psf)	Not Available

* at time of launch/September 2011

Therefore we can infer from buyers’ preferences that location and price are the key factors behind their decision in buying a DBSS unit with design and finishes secondary.

  

Grab One before it’s All Gone?

Given that the DBSS has been suspended pending a review, does it mean that it will become a rarity and buyers should jump in to grab one if the location and price are right?

Not necessarily so.

First the pricing of DBSS flats have been pushing the boundaries so much that they are now not far off from the prices of new EC projects under development. According to caveats lodged with the URA, the price range for new EC projects in 2011 is from $501 to $820 psf and the median price for EC units is around $700 psf.

The price gap between DBSS and EC units are perhaps around $100 to $150 psf, meaning ECs are a compelling alternative to DBSS flats in the current market.

Table 6: New EC Projects for Sale

EC Project Name	Location	Nearest MRT	Median Transacted Price
Blossom Residences	Segar Road	Choa Chu Kang	$702 psf
Arc at Tampines	Tampines Avenue 8	Tampines	$734 psf
Belysa	Pasir Ris Drive 1/ Elias Road	Pasir Ris	$696 psf
RiverParc Residences	Punggol Drive/ Punggol East	Punggol	$696 psf
Prive	Punggol Field/ Punggol Road	Punggol	$697 psf
Austville Residences	Sengkang East Avenue/ Buangkok Drive	Buangkok	$717 psf
The Canopy	Yishun Avenue 11	Yishun	$656 psf
Esparina Residences	Compassvale Bow	Buangkok	$762 psf

Second the revision in income ceiling on 15 August 2011 from $8,000 to $10,000 for BTO and DBSS flats and $12,000 for EC units means that buyers have more choices. However there is a catch.

Even though a couple earning a combined income up to $10,000 per month can qualify for a DBSS flat, they are not eligible for a HDB concessionary loan if their combined income exceeds $8,000 per month. Comparatively the couple can qualify for a HDB concessionary loan if they decide to go for a BTO flat. If they decide to take a bank loan because of the lower interest rate, then they can consider an EC as well since the price gap between an EC and DBSS flat is not far off.

Table 7: Eligibility for HDB Concessionary Loan

	Income Ceiling
Flat Type	Below $8,000 per month	$8,001 to $10,000 per month	$10,001 to $12,000 per month
BTO	HDB/Bank Loan	HDB/Bank Loan	Does not qualify to buy BTO
DBSS	HDB/Bank Loan	Bank Loan	Does not qualify to buy DBSS
EC	Bank Loan	Bank Loan	Bank Loan

The difference between a HDB concessionary loan and a bank loan at the current interest rate can offset the price difference between a DBSS flat and an EC unit giving buyers more options.

 Table 8: Mortgage Installments for DBSS Flat and EC Unit

	Estimated Price	Cash (5%)	Downpayment (20%)	Fixed Interest Rate	Mortgage Installment (30 year loan)
DBSS	$650,000	$32,500	$130,000	2.6% (HDB)	$2,081.76
EC	$750,000	$37,500	$150,000	1.6% (Bank)	$2,099.63

Assumed flat size of 1,130 sq ft, Maybank 1-year Locked-In Variable Rate loan at 1.28%, 1.38% and 1.98% for first three years

Thirdly even though the DBSS is suspended for now, it is possible that the scheme may be revived in the future when market conditions necessitate it as evidenced by the reintroduction of EC scheme in 2010.

  

Conclusion

The DBSS may have served its purpose for the past few years where it catered to a particular group of buyers who wanted condominium finishes without a condominium address.

Location was a key consideration among buyers when they made their decision to purchase a DBSS flat over a BTO flat with affordability next in mind. However if a BTO project is in a good location, they are likely to attract more buyers too.

For example, the Dawson Estate BTO in 2009 was six times oversubscribed with 9,865 applications for 1,718 premium units. Another good example would be the Pinnacles@Duxton in 2004. Thou not a DBSS development, the Pinnacles@Duxton was a BTO development designed by private sector architects. The subscription rate was 2.7 times with 4,953 applications for 1,848 units.

Hence the key differentiating factor between a DBSS and a BTO is the location. If you have a DBSS project in a good location, there will be more applications for the project as shown by the different subscription rates for the latest three DBSS projects and BTO projects.

In fact there was no need for DBSS in the first place with EC projects already offering buyers quality design and finishes except that some EC developments are not in matured estates. But with prices of DBSS flats encroaching onto EC prices, buyers of DBSS flats should seriously consider EC developments. If there are concerns over affordability, buyers can take heart that the difference in interest rate can offset the price difference between a DBSS flat and an EC unit as shown in Table 10. Furthermore buyers of EC projects can opt for Deferred Payment Scheme further lowering the burden on buyers during the construction phase.

In terms of future supply, there are at least five more EC projects in the pipeline for buyers to choose from.

Table 9: Upcoming EC Projects

Yet to be Launched EC Location	Nearest MRT
Yishun Avenue 7/ Canberra Drive	Yishun
Pasir Ris Drive 3/ Pasir Ris Rise	Pasir Ris
Punggol Way/ Punggol Field	Punggol
Tampines Central 7	Tampines
Choa Chu Kang Drive	Choa Chu Kang

In summary, the DBSS has served its purpose and should be suspended till market conditions necessitate it again. For buyers considering DBSS flats, they can consider widening their options to include EC developments which are compelling alternatives to DBSS flats since the price gap is not big.

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[1] Excludes the first DBSS site