7 Pitfalls of the New 10 Year MOP Under PLH Model You Should Know

Just last month on 27 Oct 2021, the Ministry of National Development (MND) and Housing & Development Board (HDB) announced details of the new Prime Location Public Housing (PLH) model, a combined effort to curb rising housing costs and to keep ‘public housing in prime locations affordable, accessible and inclusive for Singaporeans’.

With the majority of our citizens living in HDB flats, it is important that equal access to housing is granted for all regardless of the areas the flats are built at, moreso for those situated in prime locations due to their great accessibility and various other factors.

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While this PLH model is a good move by the government in a bid to curb rising HDB prices whilst creating more affordable housing for its citizens, there are certain pitfalls you should note before diving head first into purchasing one of these BTOs. Below, we list out the top 7 problems you could face under this recently introduced model.

1. 10-year MOP Required

Current BTO projects are typically attached to a 5-year MOP, where owners have to occupy their flats before they are able to sell it off. This new model introduces a 10-year MOP, which is doubled in duration to deter those who are looking to gain from resale profits and cater towards those with genuine housing needs.

This means that new PLH flats homeowners will have to wait 10 years before they are able to sell off their flat or invest in private properties. During this period, even if the homeowners needed money urgently, there would be no way for them to sell off their property immediately either. 

2. Unable to Rent Out Entire Home

Along this extended duration, it is also important to note that at any point in time - during or after MOP - homeowners are not allowed to rent out their entire flat. Instead, they will only be able to rent out spare bedrooms.

3. Shorter Loan Tenure for Upgraders in the Future

With this new model, it is highly possible that investors will turn their sights towards the resale market instead, which will increase its already high demands further. 

Those who have plans to upgrade in the future due to e.g. family expansion might also need to think twice before making a PLH flat purchase due to the extended MOP, and below let’s take a look at 2 case studies of how this extended MOP will affect upgraders.

Case Study 1

Let’s take a look at an example of a couple who are in their mid thirties who decides to purchase a PLH BTO:

Age during purchase: 35 years old

Waiting time for BTO: 5 years

New MOP: 10 years

Age eligible for upgrade to private property: 50 years old

As you can see from the above, this would mean that by the time the couple is eligible for an upgrade, they would already be in their fifties! Let’s also not forget that a percentage of the resale price will be paid back to HDB, which will be further explained in the next point.

Next, let’s take a look at the scenario and the monthly installment payable with the assumption that each property costs $1mil at the time of purchase with a bank interest rate of 1.5%pa and a loan to value of 75%:

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After the 15 years MOP, if the couple were to choose to upgrade, their loan tenor will get significantly shorter due to their age, thus resulting in the high monthly installment payable.

Case Study 2

As mentioned above, homeowners are not allowed to rent out the entire home at any point in time be it during or after MOP. They will be restricted to being able to rent out spare bedrooms only.

For those looking to keep the PLH BTO and upgrade while getting passive income via rental in the meantime, this could prove to be a significant decrease monthly. 

Let’s say we have a 3BR, in which only 2 can be rented out. With the assumption that average monthly rental for the master bedroom is $1,500 and $1,000 for another room, the owner will receive a total of $2,500 per month. This would mean that the remaining room (if left empty) could end up incurring a loss of $1,000 monthly!

With such drawbacks, many might turn to other private property types instead, such as condominiums and landed properties.

4. Lower Quota for Married Child Priority Scheme

The eligibility criterias for purchasing prime area BTO flats will be the same as the criterias for BTO flats in other locations. However, the priority allocation quota for Married Child Priority Scheme will be reduced; currently, up to 30% have been set aside.

Depending on the location of sites under the PLH model, this percentage will then be reviewed and adjusted accordingly.

5. Unruly Neighbor? Either Fulfil 10 Years MOP or Rent Out Spare Bedrooms

Oftentimes a hit or miss, some of us may meet neighbors from hell who can make living on the same floor truly tiring. If you were to encounter neighbors like that in your PLH BTO, the only option if you are looking to ‘escape’ before the 10 year MOP is to rent out your spare bedrooms. 

This can prove to be a hindrance for those looking to move to a better place with greener pastures, as the rental yield will not be the greatest due to at least one unoccupied room in the flat.

6. Additional Subsidies Provided But Beware of Subsidy Clawback

Though there are pitfalls to this model, there is still a silver lining especially for those who are in it for the long term and not looking to upgrade. 

With flats built in prime locations, one can definitely expect a higher price tag. To help homebuyers cope with the prices, PLH flats will also be tagged with additional subsidies, keeping it affordable.

You may think, ‘wouldn’t this be unfair for other BTO owners who are not accorded the same subsidies ?’ - this is where upgraders will have to take note as for parity, upon the sale of a PLH flat, homeowners will have to pay a percentage of its resale price back to HDB to help recover the additional subsidies. 

7. Smaller Pool of Buyers Due to Stricter Eligibility Conditions

With the concern that over time PLH flats might slowly become inaccessible due to rising prices, eligibility conditions are also raised for those who are interested in purchasing a resale PLH flat. 

Some of the differences include being an eligible family nucleus e.g. a married couple, a current $14,000 income ceiling, as well as more stringent rules when it comes to private property ownership.

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With the additional conditions slated above, owners looking to sell their property after the 10 year MOP will face even more difficulties other than the typical ethnic quota concern, which can end up shrinking an already small pool of buyers.

PLH Model-Applicable Locations

The model will be implemented on selective housing projects that are located in prime and central locations like the city centre and its surrounding area, including the Greater Southern Waterfront.

The first project under this model will be the upcoming launch at Rochor, which is located along Kelantan Road and Weld Road. The project consists of 960 units of a mix between 3-4 room flats, with the addition of 40 units of 2-room rental flats. 

It is important to remember that property prices are a byproduct of demand and supply. While the implementation of such models can help regulate prices for certain flats, there is no guarantee that future selling prices wouldn’t be bumped up in order to factor in subsidy recovery. 

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Property owners/buyers who are after the lottery effect might be wondering: What is the next best solution now that prime area BTOs are no longer a viable option? If you are one of them, simply click on the Any Questions button below and we will let you in on the next best step you should take.

In the meantime, as the PLH model will be worked on subsequently to develop the best parameters to align with HDB’s goals, we look forward to seeing the changes it will bring to the property market.