National Development Minister Khaw Boon Wan recently mentioned that the Housing Development Board (HDB) intends to raise the income ceilings for Build-To-Order (BTO) flats and Executive Condominiums (EC).
The income ceiling was last raised in 2011, increasing then by $2,000 to $10,000 and $12,000 for BTOs and ECs respectively.
Income per resident households in Singapore
Exhibit 1: Income of Resident Households (RHH) as of End-2014
At end-2014, there were 1.2 million resident households (RHH) residing in Singapore including Permanent Residents (PRs). For simplicity of calculation, we will not provide further breakdown to differentiate between Singaporeans and PRs.
Based on the information in Exhibit 1, 63% of Singapore households were already eligible to purchase BTO flats from HDB as of end-2014. A further 8% were eligible to purchase ECs only.
What happens if we increase the income ceiling by $2000?
Median household income in Singapore increased by about 18% to $8,292 at end-2014 from $7,092 at end-2011. The difference is $1200. If a raise in the income ceiling for public housing were to take place, we will expect for it to be by $1,200 at least, possibly more.
If we assume that the income ceiling will increase by a similar amount to the last raise, which was $2,000, the RHH income eligibility will be at $12,000 for BTOs and $14,000 for ECs.
Exhibit 2: Increased Amount of RHH Eligible for Public Housing
Note 1: “Before” and “after” refers to the implementation of the income cap assuming it increases by $2,000
Note 2: Numbers are in thousands, numbers do not add up due to rounding
Source: Department of Statistics Singapore
When income ceiling is raised by $2,000, the number of RHH eligible for BTOs will increase by 13% to 860,000, up from 761,000 RHHs. The total number of RHH eligible for ECs will increase by 9% to 936,000, up from 861,000.
Impact for those intending to purchase BTOs And ECs
A guide posted on the blog of the Ministry of National Development (MND) gave us forward guidance that lesser BTOs will be built in 2015 and subsequent years compared to 2014. The reduction in BTO construction was due to the large volume of supply being ramped up by MND in past years.
With supply growth of BTOs slowing down, coupled with more people being eligible to purchase BTO flats once the income ceiling is raised, we will expect demand for BTO flats to continue remaining strong. Remember, there are 2nd time buyers in the market as well vying for these new flats.
ECs are already having some difficulty clearing their existing stocks due to the softening of the property market. In the first quarter of 2015, there were 2,446 vacant EC units. Should the income ceiling increases, an additional 76,000 more households will be eligible to purchase an EC. This will help increase demand, moving the remaining unsold units in the market.
Do you think the income ceiling for public housing should increase to cater to the higher income households in Singapore? Share with us your views on Facebook.
Picture from Benjamin Lim
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