What now for upgraders and downgraders?

Following the recent Government measures to curb property speculation, some buyers have forfeited their booking fees on their planned purchases in anticipation of a dip in property prices.

In the HDB resale market, anecdotal evidence has shown early signs of price moderation, in particular the cash-over-valuation component, as the expectations of buyers and sellers change. If HDB prices were to moderate, it will be easier for the HDB upgraders and downgraders.

Price is just one part of the equation. With the new measures, the variables for this group of people to consider have also become more complicated.

Upgraders and downgraders applying for a housing loan from banks or financial institutions now require a higher upfront cash payment as they are limited to a loan quantum of no more than 70 per cent for their next HDB purchase unless they meet a certain criteria. This is down from the previous 80 per cent limit. In this instance, HDB upgraders and downgraders have to fork out a 30 per cent payment, of which 10 per cent must be in cash, to purchase a HDB flat, unless they have no more outstanding housing loans.

Timing then becomes crucial to qualify for the 80 per cent financing, as HDB owners have to show sufficient proof of sale of their existing unit within two weeks from the date of the first sales appointment. Hence, arrangements with the buyer of their existing flat and the seller of the flat have to be well planned. This is akin to contra arrangements in the current market, where the precise execution of the property transaction is imperative.

Upgraders and downgraders intending to purchase uncompleted HDB flats will be limited to a maximum of 70 per cent financing if they buy the flat with an existing home loan. If this group of buyers wishes to obtain 80 per cent home loan financing, they will either have to pay off their existing home loan or sell their flat first and look for temporary housing before the new flat is completed. Either way, this implies a higher cash outlay for the purchase of the new flat.

HDB owners will therefore need to do their sums carefully to ensure that they have sufficient cash before making a decision to upgrade or downgrade.

Upgraders whose current household income is below and approaching the $8,000 level need not hurry to purchase HDB flats as more options are now available to them. Buyers whose household income is between $8,000 and $10,000 but was previously unable to purchase HDB flats, are now allowed to purchase Design, Build, and Sell Scheme (DBSS) flats.

If the response to DBSS flats is good, more supply in this category may be subsequently released. After all, the Government has over recent years been gradually pushing out more DBSS projects such as Parc Lumiere at Simei, The Peak at Toa Payoh and Park Central at Ang Mo Kio. Invariably, this is also good news for private downgraders within this income range. However, a 30 month debarment period applies after they have sold off their private property.

The introduction of the new measures is in line with the Government’s intention for HDB flats to be more for home ownership than for investment. When speculative demand is crimped, this will have a dampening effect on the capital appreciation of HDB flats, even when the private property market recovers in the future. Inadvertently, the HDB-private price gap widens, making it harder for upgraders to buy without sufficient cash on hand.

The HDB market has certainly become more complex than before. Before you jump on the bandwagon, it is advisable to seek the help of qualified experts before you pay for that dream home.

By Png Poh Soon, Senior Manager, Consultancy and Research, at Knight Frank.

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