By Mr. Propwise

Our article last week on What the Raised Income Ceiling Means for the Property Market by Dennis Ng resulted in quite a few comments from our readers. Our readers correctly pointed out that there was no raising of income ceiling for the purchase of resale flats, but only to qualify for the CPF grant when buying resale flats.

To be clear, the HDB regulations announced on August 15 stipulate that:

1. The monthly income ceiling for households will be raised from $8,000 to $10,000 for:

a. Purchasing a new flat from HDB

b. Purchasing resale flats with the CPF Housing Grant

c. Getting a HDB loan for the purchase of a new or resale flat

2. Raising the monthly income ceiling to purchase new Executive Condominiums (ECs) from $10,000 to $12,000.

There was no change to the DBSS income ceiling of $10,000.

So will the COV go up or down?

Our reader C.H. commented: “It is interesting that Dennis is predicting an increase in the COVs for HDB resale flats despite the increased income ceiling for HDB BTO flats and ECs. I thought this would be likely to cause the COVs to be lowered in the near future instead, as predicted by many industry watchers, as many would go for new HDB flats or ECs instead of looking for resale flats?”

Reader E.T. further added: “Those earning $8,000 to $10,000 have always been able to buy HDB resale properties and this analysis is flawed. In fact, those earning $8,000 to $10,000 can only buy HDB resale, ECs and condos. The new measures allowed those belonging to this category to consider BTOs due to the increased income ceiling and hence the demand on the resale market should drop which will potentially lead to a LOWER COV instead of higher COV.”

If the total demand for HDB flats were static, then yes the raising of the income ceiling to buy new flats (BTOs and ECs) should conceptually shift demand from resale flats to new flats.

But the raising of the income ceiling to get the CPF Housing grant when buying resale flats will also shift demand from buying mass market private property to resale flats. So it is a question of whether demand from this source will outweigh the shift in demand from resale to new flats, thus pushing up COVs. It is hard to estimate what the shift in demand from private property to resale hdb flats will be.

But there are also further negative factors to complicate matters. HDB is increasing flat supply for first-time home buyers, launching 50,000 new flats over 2011 and 2012. The raising of the income ceiling to buy ECs could shift some upgrading demand away from mass market condos. We also have a volatile market, downgrading of economic growth, and worries about a developed world recession and European crisis.

On the positive side, interest rates are likely to stay low for an extended period, and the Singapore dollar is seen as a safe haven by many investors, who are increasingly buying properties in Singapore and pushing up private home prices, which will push some local demand back to resale HDBs.

Thus sorry to disappoint but it is not clear at this point whether COVs will go up or down, although on balance my guess would be that they are likely to trend downwards due to the upcoming supply and current poor sentiment in the property market.

As our reader E.T. says: “Fundamentally, I would agree with you that whether the shifting of buyers to BTO offset by the increase in demand of HDB resale will cause an increase or decrease of COVs would be anyone’s guess. In fact, a total of 99,000+ households fell in the $8,000 to $10,000 category and their real estate needs would be unpredictable.” Well said!

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