PLH vs BTO: Which can make more money?

The first launch of public housing under the Prime Location Public Housing (PLH) at the Rochor planning district was met with a healthy subscription with a total of 6,976 applications for 680 four-room BTO flats, representing 10.3 times oversubscription. These flats are attractively located in the vicinity of Jalan Besar and Rochor MRT station and are integrated with a supermarket, F&B, residents’ network centre, elderly facilities, and childcare centre, but it comes with additional restrictions, longer waiting time and a smaller unit size vis-à-vis to other HDB in the non-prime estate.

The Rochor projects – River Peaks I and II – have a waiting time of about six years and are expected to be completed in the second quarter of 2028. Given a longer MOP of 10 years, owners will be able to sell only from the year 2038. Four-room flats are priced from $582,000 upwards.

As a recap, HDBs sold under the PLH model have more restrictions than those sold under the BTO model.

In order to understand further from a financial perspective for a HDB bought under PLH and BTO model, we would breakdown the analysis using a case study between the recent launch.

Non-prime BTO 4-room (Sembawang)
Purchase Price $302,000**
**Note: Based on Sun Sails 4-rm BTO price in Nov 2020

Affordability

Upon MOP, an HDB under the PLH scheme would be eligible to be sold back to the secondary market, with an income ceiling on the potential buyer. Using the maximum prevailing monthly income ceiling of $14,000, it is estimated that potential buyers have to fork out significant cash and/or CPF for the down payment.

Bearing in mind that resident employed household’s median monthly household is $9,189 in 2020[1], the above scenario is applicable for buyers who are at the prevailing income ceiling. Coupled with the additional PLH ownership restriction, the PLH Resale flats eligibility will be further reduced by income ceiling, reducing the pool of potential buyers.

[1] Singapore Department of Statistics | Press Release – Key Household Income Trends, 2020 (singstat.gov.sg)

Financial Viability

The new PLH model aims to ensure that new public housing built in prime and central locations will remain affordable, accessible and inclusive for Singaporeans. Therefore, it does not position itself to be an investment vehicle. However, in the event that the flat owner wish to sell off his HDB, being able to enjoy a higher sales proceed will still add more to his or her eventual retirement saving.

Using the same example again, the following simulation show how much would the flat owner get back in sales proceeds between the PLH and BTO model.

Assuming flat owners sell their flat after reaching MOP, owners under the BTO model would get back much more sales proceeds compared to owners under the PLH model. Because the owners under the BTO model can get back the sales proceed at a shorter time frame, the sales proceed may provide the additional capital to ballot for another BTO or an executive condominium, or upgrade to private property.
Owners under the PLH model will need to wait longer. Given that real estate is usually correlated to inflation, there will be a good chance that houses will also be more expensive by the time they wish to sell off their HDB flats.

The convenience offered by the PLH flats prime location might be difficult to measure quantitatively but with the growing infrastructure that is happening across Singapore, there is also a good chance that BTO flats in the non-prime estate may also offer similar convenience.

There are several key considerations towards applying for a PLH HDB new launch. From this analysis, one has to be prepared for a larger initial cash/CPF outlay as a down payment. If the PLH HDB are to be sold after MOP, the pool of eligible resale buyers is likely to be smaller and the proceeds of the resale would probably be lesser compared to BTO HDB.

Can’t decide which is better for you? Or if there’s something better? Reach out to Mark for personalized asset progression planning.