Buying A Home In Singapore's Prime Area: HDB vs PLH vs Condo - Mortgage Master Blog

Buying A Home In Singapore's Prime Area: HDB vs PLH vs Condo


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by Si Jie Lim on


Just days after the Prime Location Public Housing (PLH) model was announced by HDB, the public housing record for the highest transacted price was broken. This time it was a 5-room unit at Natura Loft ($1.36m), a Design, Build and Sell Scheme (DBSS) project on Bishan Street 24, that broke the previous high ($1.295m).

The uncanny timing for this record change has undoubtedly sparked off a question in many of our minds. Is this caused by the newly introduced PLH model? Has the new PLH model caused a market rethink of the valuation and desirability of a home in prime locations?

A New Conundrum For Singapore Homeowners: PLH vs Resale HDB vs New Condo vs Resale Condo

The newly introduced PLH model has added a new dimension to the existing dilemma that many homeowners were already facing.

In the past, the conundrum was between public housing (resale or BTO) and private housing (either resale or new condo). Now, with the PLH model, there is an additional option to consider.

How do you choose?

How Do You Weigh Your Choice Between PLH, Resale HDB And Condo?

1. Facilities: Public Housing Vs Condo

Condos are a special breed of real estate in Singapore, since it comes with its own set of shared facilities. If you stay in a condo, you get your own gym, swimming pool, BBQ pits, function rooms and tennis courts as the basic set of facilities. For larger scale condos with 800 units or more, you enjoy even more amenities.

For instance, a condo like City Square Residence comes with karaoke rooms and a bowling alley. The Minton also has karaoke rooms and a badminton court on top of the basic facilities. It is also not uncommon to have minimarts within the condo compound as condo developers try their best to make life convenient for condo owners.

Condos that are considered mixed development and/or integrated developments even have shopping malls located at the foot of the condo, though strictly speaking these are not within the condo compound.

Now, contrast this with public housing. For public housing, there aren’t such exclusive facilities that can only be used by residents. That said, you can still find similar amenities around public housing. For example, public gyms, swimming pools, basketball courts, stadiums and tennis courts can all be found around public housing estates.

The difference is that you will need share it with any more households in both your estate as well as the neighbouring estates.

The facilities for condos do come at a price, literally. Condo facilities need to be maintained and they cost homeowners at least $200 to $300 every month. Should there be more facilities, or if your condo is a mixed/integrated development, expect maintenance fees to cost even more.

It may sound good on paper that you have exclusive facilities that only condo residents can enjoy, but ask yourself if you really use them that often? The reality is that you will probably be paying more for condo facilities, compared to amenities in public housing estates, which tend to be on a per use basis.

Score:

New Condo: 5

Resale Condo: 4

BTO PLH: 3

BTO HDB: 2

Resale HDB: 1

2. Price: HDB vs PLH vs Condo

Homebuying is a huge, long term financial commitment. Thus, it is also impossible to keep price out of the equation when deciding between HDB, PLH and condo. The thing is, price is a combination of lots of different factors, from size to location to remaining lease.

For a fair comparison, we will compare the price range for a 4-room HDB (equivalent to a 3-room condo) in a prime or city fringe location (e.g. Kallang).

Here is a quick breakdown of the pricing for each of these choices.

Property Type Price Range
BTO HDB (Kent Heights) $511,000 to $660,000
BTO PLH (River Peaks) $582,000 to $688,000
Resale HDB $500,000 to $1,088,000
New Condo (M Suites) $1,740,000 to $1,820,000
Resale Condo $1,150,000 to $3,860,000

Source: PropertyGuru

As you can observe, the price range for HDB BTO in a city fringe location like Kallang is just slightly cheaper than the BTO PLH launch. Given its proximity to the central area, it is a price worth paying.

From HDB PLH to condo, the price jump is huge. It is almost a threefold jump. This means you not only have to fork out more downpayment, but you also need a higher income to afford the loan.

Score:

BTO PLH: 5

BTO HDB: 4

Resale HDB: 3

New Condo: 2

Resale Condo: 1

3. Rental Potential: HDB vs PLH vs Condo

The need to meet the Minimum Occupation Period (MOP) of 5 years is one of the key differences between HDB and condo. For the new PLH model, this MOP is raised to 10 years. Plus, you are restricted from whole unit rentals even after the MOP is met.

Condos, on the other hand, have lots of flexibility. In fact, there isn’t any MOP that you need to meet at all. If you are purchasing a resale condo, you can rent it out the moment you have full ownership of the condo. As for build-under-construction (BUC) condos, the earliest you can rent it out is when your condo is completed. Obviously.

If you are buying a home as an asset for rental income, then condo gives you the opportunity to start making rental income early. That’s because you don’t have to stay for 5 (or 10) years for the MOP to be met.

However, if you were to compare rental yield, HDBs do offer better yields. The rental yield for HDBs is around 5% to 7% whereas condos rental yield ranges between 2% and 3%. The key reason for HDBs to have double the yield is because condos tend to cost around 3 times the cost of HDBs. However, the rental income for condo is only around 1.5 to 2 times of HDBs.

That said, having a 5 (to 10) year head start for condo does give it an edge in this category. Between HDB and PLH, we do think that HDBs still hold a slight advantage over PLH because of the rental restriction on PLH to curb the lottery effect for PLH flats. The rental restriction where you can only rent out rooms instead of the whole unit puts a cap on the rental potential for PLHs.

Score:

New Condo: 5

Resale Condo: 4

BTO HDB: 3

Resale HDB: 2

BTO PLH: 1

4. Capital Gain Potential: New vs Resale

For any property, there are two ways that you can make it an asset play. You can either aim for a high rental yield for good rental income, or you can aim for the capital gain potential. Let’s first address the elephant in the room. While you can choose between BTO HDB, BTO PLH, resale HDB, new condo and resale condo, you probably will not make a significant capital gain if you were to buy a resale HDB or resale condo.

And the reason is simple. Resale HDBs and resale condos do a huge room for price appreciation in the future. Yes, they can still grow in tandem with the overall property appreciation rate, but don’t expect them to outgrow the overall property market.

BTOs and new condo have much bigger potential for capital gain compared to resale HDBs and resale condos. This is due to a common market phenomenon of a price jump upon either MOP (for HDB) or building completion (for condo). And there are many theories as to why this price jump happens.

Some say that it is to compensate owners for holding on to the property for the long waiting period. Others think that it is because resale buyers are more willing to pay a significant price due to the fact that it is new. The lack of transaction records for the newly MOP-ed HDB or newly built condo is also a reason for such irrational homebuying behaviour.

However, once this one-time capital appreciation takes place, the resale transactions that follow will be pegged to the first few transactions that took place. Since the “market rate” has already been set, resale homebuyers are unlikely to pay way above the range.

Moreover, new developments come with lower price points. Having a lower base makes it easier to earn a significant capital gain. After all, to make 20% gain on a resale HDB that was bought at $700k is much harder compared to a BTO that is priced at $400k. This is even more so for PLHs which are already priced at a premium because of its location. For instance, the median price for the 4-room BTO for Rochor (PLH) is $600k.

Thus, we think that new properties tend to hold an edge against resale properties in this category.

Score:

New Condo: 5

BTO PLH: 4

BTO HDB: 3

Resale Condo: 2

Resale HDB: 1

5. Capital Gain Potential: HDB vs PLH vs Condo

Now that we have established that BTOs or new condos have greater capital gain potential, the other thing to consider is whether to opt for HDB or condo. Here’s where condo has an edge over HDBs, regardless of whether it is the PLH or typical HDB.

For HDBs, there is an invisible ceiling of $1m. That’s because $1m is the price point where you can make the jump from HDB to the private condo market. Thus, this has created an artificial ceiling on the price that resale homebuyers are willing to pay for an HDB.

There are some outliers and the number of such outliers are showing signs of increase. But these outliers still represent only a small proportion of the whole HDB market. Only 400+ of HDB flats have been sold for more than $1m since 2012. The introduction of HDB PLH model could change this, but even then, it will take 15 years from now to really observe the effect.

For PLH, resale homebuyers may be willing to pay above the $1m price point. But the resale PLH will also be subjected to another 10 years of MOP. By the time the second owner can resell the property, there’s a shorter lease remaining. This will weigh on the minds of the third owner.

On top of that, you need to give up the subsidy you received from HDB because of the subsidy recovery. So far, from the Rochor PLH development, we know that there is a 6% subsidy clawback at the time of selling. Also, PLH has a smaller target audience because of the eligibility criteria.

Another reason why condos have better capital gain potential is because of the wider and more affluent target audience. Since condos are considered private housing, foreigners and PRs can also buy condo. For HDBs, you need at least one Singaporean in order to own an HDB.

Foreigners and PRs that are looking to relocate to Singapore have a higher likelihood of being in well paid jobs that can allow that to pay a premium for condos. Some of foreigners also like Singapore’s environment as a safe haven for investments and like to park their money in real estate here.

Score:

New Condo: 5

Resale Condo: 4

BTO HDB: 3

Resale HDB: 2

BTO PLH: 1

6. Upgrade Potential: Not Applicable If You Already Bought Condo

There are some things in life that is a one-way street where you can only move in one direction and not the other. Owning an HDB and a condo at the same time is one of those. If you start off your homebuying journey by first owning a condo, then you have given up your privilege of owning both an HDB and condo at the same time. That’s because, once you own a condo, it becomes very hard for you to own an HDB again.

The rules of HDB states clearly that, if you own a private property, you need to dispose of it for at least 30 months before you can buy an HDB. 30 months is not a long, but neither is it short. Can you pause your life for 2.5 years just to re-own an HDB? Likely not. That’s why start**ing with an HDB is the best first step to take. This gives you the flexibility to then decide whether you want to upgrade to condo or own both an HDB and condo when your MOP is met.

How about PLH? Well, we think that the idea of imposing a 10 year MOP and rental restrictions for PLH does limit the potential of owning both PLH and condo at the same time. It is not impossible, but it does take its toll on your finances since your rental income from your PLH may not be able to fully supplement your condo mortgage.

Score:

BTO HDB: 5

Resale HDB: 4

BTO PLH: 3

New Condo: 2

Resale Condo: 1

Who wins? HDB vs PLH vs Condo

Of course, these 6 factors aren't equally weighted. That depends on your priorities as a homebuyer. But just assuming that they are of equal importance to you, here's how your 5 options stack up.

OVERALL SCORE Resale HDB: 1+3+2+1+2+4= 13

Resale Condo: 4+1+4+2+4+1= 16

BTO PLH: 3+5+1+4+1+3= 17

BTO HDB: 2+4+3+3+3+5= 20

New Condo: 5+2+5+5+5+2= 24

PLH: A New Model But Probably More For Own Stay

Growth of assets in the public housing market has led to more Singaporeans/PRs thinking whether it is worth “speculating” in an HDB, especially one in the prime area. But the narrative from the government and the policies implemented seem to indicate that the PLH model is really meant for own stay, rather than as an investment.

Overall, in our opinion, there isn’t any category where PLH is the clear winner over the other choices. But if you are looking for affordable housing in the prime area, PLH is definitely one to consider.

At Mortgage Master, we know the latest home loan packages in the market and sometimes can even offer exclusive interest rate packages that you cannot get directly from the bank. If you're looking to purchase a new property, or refinance your existing home loan, fill up our enquiry form and our mortgage consultants will follow up with a call.

Posted in New Purchase, News on Dec 14, 2021