Understanding SIBOR and SOR Based Home Loans in Singapore

By SUSAN TEO and PAUL HO

As a small, open economy that depends largely on imports for most of its needs, Singapore adopts an exchange rate policy, which curbs import-based inflation. Specifically, Singapore makes use of a managed float regime, whereby the Monetary Authority of Singapore (MAS) manages the Singapore dollar against a basket of currency of its main trading partners, but allows it to fluctuate between an undisclosed band. Thus the interest rate in Singapore is determined by world money markets. It follows closely the interest rate of the countries in the basket of currency, of which the US dollar makes up a main component. Consequently, there is a correlation between the US interest rates and that of Singapore's.

What is Singapore Inter-bank Offered Rate (SIBOR)?

SIBOR is the interest rate at which banks and financial institutions in Singapore borrow from each other. It is similar to the London Interbank Offered Rate (LIBOR). Set by the Association of Banks in Singapore, SIBOR is transparent and announced daily through the mainstream media. Many home loan packages offered in Singapore are pegged to SIBOR. SIBOR comes in different blends of 1-, 3-, 6- , 12-month. So the 1-, 3-, 6-, 12-month SIBOR are the interest rates for borrowing for 1, 3, 6 and 12 months, respectively. The longer the tenor the higher the rate is.

What is Singapore Swap Offer Rate (SOR)?

In contrast, SOR is the lending costs and the expected forward exchange rate between the US dollar and Singapore dollar. Upon maturity of the SOR tenor, there is a Forex conversion from US dollar to Singapore dollar, but there is no bid and spread, therefore the banks save money amongst themselves. As SOR can be interpreted as currency swaps between the US dollar and Singapore dollar, it has slightly more volatility compared to SIBOR and current movements impacts the trading volume of the SOR contracts. SOR is also set by the Association of Banks in Singapore and comes in different blends of 1-, 3-, 6- , 12-month.

What are SIBOR and SOR pegged home loans?

Floating (variable) interest rate loans in Singapore make use of SIBOR or SOR as the variable component in the interest rate. Most loan packages follow the 1- or 3-month SIBOR or SOR. The interest rate for the loan will be defined as spread + SIBOR or spread + SOR. What is spread? The margin that the financing institutions add to the loan is called the spread. Using a concrete example, for an interest rate of SIBOR + 1%, the +1% is the spread. The spread is usually revised upward, after the first few years of the loan start-date. As an example:

Bank X SIBOR Loan

Period	Interest Rate (p.a.)
First Year	0.75% + 1-Month SIBOR
Second Year	0.75% + 1-Month SIBOR
Third Year	0.75% + 1-Month SIBOR
Fourth Year	1.00% + 1-Month SIBOR
Thereafter	1.25% + 1-Month SIBOR

 

Advantages and Disadvantages of SIBOR and SOR

Contrary to popular belief, it is not always true that during a low interest rate environment, borrowers with a SOR-pegged package will necessarily enjoy lower rates than with a SIBOR-pegged loan. Although SOR and SIBOR are somewhat correlated, and the former tends to fluctuate more, the fluctuations of SOR can be above or below SIBOR. This is seen in Figure 1, 2 and 3, which show the most commonly used tenor of 1-month and 3-month.

Figure 1: 1-Month SIBOR/SOR for Jan 2012-Dec 2012

 Source: www.iCompareLoan.com

Figure 2: 3-Month SIBOR/SOR for Jan 2012-Dec 2012

 Source: www.iCompareLoan.com
 

Figure 3: 3-Month SIBOR/SOR for Dec 2006-Aug 2012

Source: www.iCompareLoan.com

Thus borrowers will be wise to focus on the spread instead. They should opt for packages with a reasonable spread throughout the loan duration. Summarising the features of both SIBOR and SOR:

• Shorter tenor SIBOR has usually lower rates than the longer tenor SIBOR (Because it is riskier and there is a higher opportunity cost for longer term lending)
• Shorter tenor SIBOR is usually more volatile than the longer tenor SIBOR
• SIBOR fluctuates less than SOR

Thus, more risk-averse borrowers may prefer SIBOR loans as they provide more stability. But what tenor of SIBOR should they choose? Recently, banks started offering 1-month SIBOR packages to borrowers. This means an increased administrative cost for the banks.

Figure 4: 1-Month and 3-Month SIBOR for Jan 1989-Dec 2012

Source: www.iCompareLoan.com

From Figure 4, a 1-month SIBOR is generally lower than a 3-month SIBOR as seen over the past 20 years, therefore borrowers may want to consider a 1-month SIBOR if the spread being offered is also attractive.

When to choose between 1-month SIBOR and 12-month SIBOR?

While a shorter tenor SIBOR may mean lower interest, but borrowers have to contend with greater instability as rates are revised at shorter intervals. For example, for a 1-month SIBOR the rate revision period can vary between 1 or 3 months, depending on the financing institutions. In contrast, with a 12-month SIBOR the borrowers may have to pay higher interest but the rate remains constant for 12 months.

Given the many factors to consider when deciding on the best loan package, the borrower may prefer to seek experts' advice, like the free professional help available at www.iCompareLoan.com or simply fill up an enquiry form at http://www.iCompareLoan.com/contact  

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Government Releases Four 99-year Lease Land Parcels in Mature Estates

By SUSAN TEO

On 15 November 2012, the Government announced the sale, under the Confirmed List, of two land parcels at Jurong West Street 41 (Parcel A) and Ang Mo Kio Avenue 2. The second land plot at Jurong West Street 41 (Parcel B), adjacent to Parcel A, is made available on the Reserve List. It is estimated to be able to accommodate 545 housing units on its 18,507.1 sq m land. All three sites are for private residential development.

Confirmed-list lands are put up for bidding on the market regardless of interest, whereas reserve-list sites go on sale only if there is 1) An offer that is at least 85% of the Chief Valuer's (CV) Estimated Market Value (EMV). The valuation will only be made after an offer is made; or 2) More than one offer within a reasonable period, by unrelated parties, that are close to EMV.

The fourth site is a mixed commercial and residential site at Yishun Ring Road. It will only be launched for sale by public tender on 27 November 2012.

Together, the four sites are expected to yield 2,045 housing units. With land sites at Ang Mo Kio Avenue 2 (18,477.5 sq m), Jurong West Street 41 (Parcel A) (22,358.2 sq m) and Yishun Ring Road (8,858 sq m) yielding 680, 545 and 160 units, respectively. Tenders for these sites will close at 12 noon on 8 January 2013, 15 January 2013 and 24 January 2013, respectively (All figures are from URA).

The main draw for the plot at Ang Mo Kio Avenue 2 is its proximity to the upcoming Mayflower MRT station at Ang Mo Kio Avenue 4. In addition, many good schools are in its vicinity, including CHIJ St Nicholas Girls' School.

For the two land parcels at Jurong West Street 41, the main attraction is their closeness to the commercial hub at Jurong Gateway and the vibrancy of the area as a future waterfront district where business and leisure meet. Major plans are already underway to develop the district. Another upside of the sites are their proximity to transport links, like Lakeside MRT Station.

In contrast, the land plot at Yishun Ring Road is situated at an area with limited redevelopment plans. Nevertheless, its plus points include having Yishun Town Centre and Yishun MRT station close by, and being a mixed commercial and residential site among predominantly HDB flats.  

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References

1. Chay, Felda, “Sale of 4 Suburban Sites to Yield 2,045 Private Homes”, The Business Times 16 Nov 2012, Web

<http://www.businesstimes.com.sg/premium/singapore/sale-4-suburban-sites-yield-2045-private-homes-20121116>

2. URA, “Government to Release Four Sites Estimated to Yield 2,045 Housing Units in November 2012 ”, 15 Nov 2012, Web

<http://www.ura.gov.sg/pr/text/2012/pr12-125.html>

3. URA, “Procedure for Reserve List System”, Web

<http://www.ura.gov.sg/sales/reservelist/procedurerl.html>

HDB Launches of New Flats for the Year

By SUSAN TEO

Last month, we saw HDB launching its final round of new flats for 2012, where 6,463 flats were rolled out. This brings the total flats supplied for the year to 27,084, a 7.5 percent increase from last year's 25,200 units.

This year's supply is the highest to date. Initially, supply was planned at 25,000 but strong demand and a brisk resale market caused HDB to increase the number.

Let us recap the six launches for the year.

In January, HDB made its first launch, with five Build-To-Order (BTO) projects in Choa Chu Kang, Punggol, Sengkang and Tampines. In total, 3,923 new flats were offered. Build-To-Order (BTO) scheme allows applicants to apply for their preferred location from pre-specified sites, HDB will then proceed to build the flats if demand is sufficient. This scheme came into effect in 2001, and is the main avenue in which new HDB flats are produced.

Second up, was the bumper launch in March that saw 4,153 units offered in eight BTO projects alongside 3,825 Sale of Balance Flats (SBF) in 26 towns and estates. Sale of Balance Flats (SBF) are “balance flats from earlier Build-To-Order (BTO) exercises; surplus Selective En-bloc Redevelopment Scheme (SERS) replacement flats; or repurchased flats” (“Sale of Balance Flats”).

Meanwhile, the launch in March also unveiled several new schemes and regulations. The new schemes were the Multi-Generation Priority Scheme (MGPS) and Ageing-in-Place Priority Scheme (APPS). Addition tweaks were also made to existing policies. This included raising the income ceiling for buyers of two-room flats in mature estates from S$2,000 to S$5,000, and meting out harsher penalty for buyers who cancel their flat booking. Flat buyers applying to live with their parents under “The Married Child Priority Scheme (MCPS)” also have their balloting chances increased to six for first-timers, and three for for second-timers - up from four and two, previously.




Under the Multi-Generation Priority Scheme (MGPS), married children and their parents who are applying for a studio apartment or a 2-room flat, will be given priority allocation, if they jointly apply for the flats near each other. For the Ageing-in-Place Priority Scheme (APPS), elderly flat owners will have double balloting chances when applying for a studio apartment in their current estate. If these seniors are also applying to live near their married child under MCPS, they will receive four balloting chances altogether.

Next up, was the launch in May when “4,627 new flats in three non-mature towns (Choa Chu Kang, Punggol, and Sengkang) and one mature town (Kallang/Whampoa)” (“HDB Launches 6 BTO Projects Offering 4,627 New Flats”) were rolled out.

In July, another 4,191 new flats were offered under seven Build-To-Order (BTO) projects. Enhancements to the Special CPF Housing Grant (SHG) were also made to enhance the financial assistance for lower-income households.

In September, another bumper launch was offered. This time, 7,055 flats, in both non-mature and mature towns, were put up for sales under the Build-to-Order (BTO) and Sale of Balance Flats (SBF) exercises. New schemes were also introduced. Under the Optional Component Scheme (OCS), opt-in are allowed for internal timber doors and (or) flooring. There is also a new opt-in scheme for the sanitary fittings in bathrooms. HDB also piloted an “open kitchen” concept for flats at Teck Ghee Parkview.

Finally, in November, BTO flats were released in two non-mature towns (Choa Chu Kang and Sengkang) and three mature towns (Bedok, Queenstown and Toa Payoh). The type of flats include studio apartments, 3-, 4-, and 5-room flats. With at least 85 percent to 95 percent of the flats earmarked for them, first-time applicants will enjoy priority balloting for all flat types except for studio apartments.  

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References

1. HDB, “2012 Record Year Of New Flats – November BTO Exercise”, 21 Nov 2012, Web

http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/073889C114DCCD4C48257ABC0030957E?OpenDocument

2. HDB, “Release Of 3rd Quarter 2012 Public Housing Data”, 29 Oct 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/372DE5CF8D38306548257AA60000A61E?OpenDocument>

3. HDB, “HDB Increased New Flat Supply For 2012 TO 27,000”, 27 Sep 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/597ABC0F57FA037548257A860022A3F9?OpenDocument>

4. HDB, “HDB Launches 7 BTO Projects Offering 4,191 New Flats and Enhances Special CPF Housing Grant”, 31 Jul 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/176CF92493B9089848257A4C0019D9BA?OpenDocument>

5. HDB, “HDB Launches 6 BTO Projects Offering 4,627 New Flats”, 30 May 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/36C203C28D162D3948257A0E002CC65B?OpenDocument>

6. HDB, “Meeting Diverse Needs – HDB’s Bumper Launch of 8,000 Flats”, 28 Mar 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/935903454CA92CFC482579CE00264F1E?OpenDocument>

7. HDB, “HDB Launches 5 BTO Projects Offering 3,923 New Flats”, 11 Jan 2012, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/B6004B60783746C9482579820001E7CB?OpenDocument>

8. HDB, “Another 4,200 New Flats Launched; 25,000 More to Come Next Year”, 4 Nov 2011, Web

<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/8D08706EB3498F78482579520005EAA4?OpenDocument>

9. HDB, “Build-to-Order (BTO)”, Web

<http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyingNewFlatModeBTO?OpenDocument>

10. HDB, “Sale of Balance Flats”, Web

<http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyingNewFlatSBF?OpenDocument>

11. NLB, “Singapore's Public Housing”, Web

<http://libguides.nl.sg/content.php?pid=81668&sid=606112>

A Brief Look at Shoebox (or Mickey Mouse) Apartments

By SUSAN TEO

Measuring 714.3 sq km, with a resident population of 5.3 millions (Department of Statistics), in the past few years, Singapore has seen the rise of shoebox (a.k.a. Mickey Mouse) units. Developers in the private residential market have decided that building apartments under 500 sq ft [Some defines any unit smaller than 50 sq m (equivalent to 538.2 sq ft) as shoebox.] is the best way to maximise land space (and profit) and meet the housing needs of the growing population in this tiny red dot. In 2009 and 2010 alone, 2000 of such apartments were sold, compared to under 1000 in the period from 2001 to 2008 (Ku, page 83). Meanwhile, by the end of 2015, 11,000 shoebox units are expected to be ready, “with 3,800 of these in suburban areas” (Teo).

But such cramped living spaces have ignited debate about the comfort level for occupiers. Indeed, it has even prompted outgoing CapitaLand CEO, Liew Mun Leong, to criticise shoebox units as “almost inhuman”. CapitaLand is also protesting against the construction of these apartments (Thakur and Amin). As if in agreement, the Government has intervened to limit the number of shoeboxes in areas outside of the central region. With effect from 4 November, the Urban Redevelopment Authority (URA) will impose a new rule that restricts the number of units that a developer of a non-landed private residential development in a suburban area can build (“New Rules 'Discourage' Shoebox Units Outside Central Area”).

Usually, shoebox units are priced higher on a per square foot (psf) basis compared to larger private apartments, but with a lower absolute price. For example, the price range of a shoebox apartment varies between S$500,000 to S$700,000; in contrast a larger apartment typically costs S$1 million and above. However, on a psf basis, the former can go for S$1,200 on average and the latter S$1,000. Nevertheless, sales for shoebox units has been healthy. For the third quarter of this year, these apartments account for16 per cent of total private property sales, according to the URA. So why the popularity of such cramped living conditions? According to a Straits Times article (“NUS EXPERT SERIES; The Rise and Rise of Shoebox Units”) by three NUS dons, they point out the attractiveness of shoebox units to certain segments of the population because of its lower absolute price. These segments are investors, young couples, retirees, people who are not qualified for subsidied HDB but find larger private housing unaffordable. However, experts are cautioning investors to think before they leap.

In a Straits Times article (Teo), it is reported that the mushrooming of shoebox apartments in suburban areas has led analysts to warn investors that the rental yields may not justify the hefty price tags. These shoebox apartments are priced similarly to those in the central areas, but the rental they could generate are likely to be lower. Currently, figures from the Singapore Real Estate Exchange (SRX) suggest that rentals rates are comparable in both areas, but as the supply of shoebox apartments and larger apartments proliferate in the suburban in the next few years, rental yield for the former are expected to dip.

Nevertheless, rental yields for shoebox apartments in October and November are holding up despite the slide in overall rentals. Figures show that average monthly rentals fell from S$3.88 psf in the third quarter to S$3.84 psf for the two months. But shoebox apartments showed a slight uptick from the 3Q2012 of S$6.61 psf to S$6.65 psf.


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References

1. Agarwal Sumit, Deng Yongheng and Sing Tien Foo, “NUS EXPERT SERIES; The Rise and Rise of Shoebox Units”, The Straits Times 12 Sep 2012, Print

2. Esther Teo, “It May Not Pay to Invest in Shoebox Units”, The Straits Times 8 Sep 2012, Print

3. Ku Swee Yong, Real Estate Riches: Understanding Singapore's Property Market in a Volatile Economy, Singapore: Marshall Cavendish Business, 2011, Print

4. Pooja Thakur and Haslinda Amin, “CapitaLand CEO Calls Shoebox Apartments Inhuman: Southeast Asia”, Bloomberg 24 May 2012, Web <http://www.bloomberg.com/news/2012-05-23/capitaland-ceo-calls-shoebox-apartments-inhuman-southeast-asia.html>

5. “Key Annual Indicators”, Department of Statistics, Web <http://www.singstat.gov.sg/stats/keyind.html>

6. “New Rules 'Discourage' Shoebox Units Outside Central Area”, Channel NewsAsia 4 Sep 2012, Web <http://www.channelnewsasia.com/stories/singaporelocalnews/view/1223909/1/.html>

7. Tan, Melissa, “Bright End to the Year for Property Market”, The Straits Times 8 Dec 2012, Print

Master Plan & Development of Punggol

By SUSAN TEO

Source: “HDB’s Punggol Waterway Clinches its First International Award for Environmental Sustainability”

When Sir Stamford Raffles first landed on Singapore some 200 years ago, Punggol, like the rest of the island was a sleepy, rural place where farming and fishing activities abound. One of the oldest settlements, it is there where the infamous 1942 Punggol Beach Massacre occurred. Fast-forward to the 1990s, and Punggol, famed for its seafood restaurants, has become the backwater in modern Singapore.

But, in August 1996, Punggol was awakened from its slumber when then-Prime Minister Goh Chok Toh unveiled plans to develop it into a waterfront town consisting of private and public housings, alongside water recreational facilities. The smooth development of the project, Punggol 21, however was stalled by the outbreak of the Asian financial crisis in 1997. In addition, in 2003, when financial woes beset the construction industry, the rolling out of new HDB flats in the area was delayed after construction firms went under (Leong). Indeed, some 560 flat buyers had to look for alternative housing after their flats could not be completed on schedule.

Coordination problems also plagued the development of Punggol. The Punggol LRT which was completed in 2004 (Ng), has its western loop, consisting of seven stations, remains closed till today because of a low population density in its vicinity – the upshot of the slow housing development there.

Despite the hiccup in development, the Government continues to plough on in its development plans. In 2007, PM Lee Hsien Loong, launched the Punggol 21-Plus project to build more housings and facilities there. The centrepiece was the 4.2km-long Punggol Waterway, known as My Waterway@Punggol, which he inaugurated in October 2011. The $225- million beautiful waterway, which features a host of waterfront activities, prompted some to proclaim it as the ‘Venice of Punggol’ (Cai). Indeed, it has been the recipient of two international awards this year: the “Grand Prize for Excellence in Environmental Engineering” and the “Global Superior Achievement Award”, presented by the American Academy of Environmental Engineers (AAEE) and the International Water Association, respectively. This makes Singapore the first Asian country to clinch these awards.

A year later, in October 2012, the Housing and Development Board (HDB) embarked on the second phase of development for Punggol. National Development Minister Khaw Boon Wan announced plans to create seven distinctive housing districts (Waterway East, Waterway West, Northshore District, Matilda District, Punggol Point District, Crescent District, and Canal District) there and to increase the number of apartments from the current 26,000 to 100,000. Developments for Waterway East and Waterway West are currently under way, while that for Northshore District and Matilda District will start within the next five years. Plans are also made to increase the educational, commercial and communities facilities there. Current green spaces are to be enhanced, with new ones to be added. (“HDB Embarks on Second Phase of Development for Punggol Town”).

Notwithstanding the comprehensive plans, Punggol still has some way to go before it can be a well-established waterfront town to rival Pasir Ris and Bedok. Both Pasir Ris and Bedok are self-contained towns where residents can not only call the place home, but also enjoy ample employment opportunities and recreational activities there (Lee). For Punggol, however, there is a clear imbalance between employment opportunities and residents population. In the next five years, the number of completed private homes are expected to soar from the current 114 units to 6,618; while HDB flats will jump from the present 18,000 to 35,000. But the supply of jobs is not expected to keep pace. Apart from the lack of jobs, Punggol also faces a shortage of retail amenity. Punggol Plaza is the only shopping mall in the area now. But come 2015, Waterway Point, a shopping mall next to Punggol MRT, will be completed.


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References

1. “HDB Embarks on Second Phase of Development for Punggol Town”, Channel NewsAsia 16 October 2012, Print

2. Cai Haoxiang, “’Venice of Punggol’ The Pride of Former Backwater”, The Straits Times 24 October 2011, Print

3. Lee Sze Teck, “Up and Coming vs Established”, The Business Times 27 September 2012, Print

4. Leong Pik Yin, “Punggol Flats Delayed”, The Straits Times 5 June 2003, Print

5. Ng Desmond, “7-Year Hitch”, The New Paper 22 August 2011, Print

6. HDB, “HDB Honours Industry Partners at HDB Awards 2012 and Unveils Next Chapter of Punggol’s Development”, 6 Oct 2012, Web
<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressRelease /BA653DC75539EF9C48257A9900218A56?OpenDocument>

7. HDB, “Punggol Waterway Wins Global Superior Achievement Award”, 15 Aug 2012 ,Web
<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/F238E309074C5A2148257A5B0009A7A7?OpenDocument>

8. HDB, “HDB’s Punggol Waterway Clinches its First International Award for Environmental Sustainability”, 27 Apr 2012, Web
<http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/0B57ADF650ECCC98482579ED000F9CF5?OpenDocument>

SDP Proposes New Housing Policy: Non-open Market (NOM) Flats

By SUSAN TEO

The Singapore Democratic Party (SDP) - an opposition party in Singapore - has comes up with a new policy to address Singapore's housing affordability issue. In their whitepaper “Housing A Nation: Holistic Policies For Affordable Homes”, the SDP put forth a new category of housing in the public housing market: Non-open Market (NOM) Flats. These flats will exist alongside HDB flats, but the purpose of the former is to provide a more affordable housing option for Singaporeans who are not looking to reap capital gains from their homes. Below is the pricing scheme for NOM.



Under this scheme, the lower selling price is make possible because land cost is excluded. However, the restrictions for NOM flats include

• Flats can only be re-sold to HDB, after a Minimum Occupancy Period (MOP) of 5 years, “at the current price of an equivalent new NOM flat (less grants) minus the value of the consumed lease.” Thus no capital gains can be made.
• Only Singapore citizens are eligible to purchase these flats.
• Owners of flats are not allowed to own private property or HDB flats.
• Renting of flats is prohibited, except under extenuating circumstances.

According to SDP, NMO flats fulfill the function of housing as a social good. The rationale for having such flats being that it frees up financial resources.

SDP argues that due to Singapore's high housing prices, households have a huge mortgage liability. For example, with a monthly median household income of S$5,600, taking a 30-year loan for a five-room unit at an average price of S$380,000 will require installment payments of 25 percent of their income.

However, for a NMO flat, a household can expect to settle its housing loan in 9 to 15 years' time, using at most 20 percent of its income. This will allow households to utilise the savings for other purposes. The SDP believes that these savings will be channelled to other activities that can stimulate the economy. Singaporeans, in the process, will enjoy a higher living standard as they will not be burdened by huge mortgages.

In addition, under this scheme, current owners of HDB flats that have been bought directly from HDB will be given the option to convert their houses into NMO ones, within a year after NMO flats are launched. Owners will get to continue living in their houses while being refunded an amount based on a formula.

But, as with any other policy, flaws exist. A key shortcoming, pointed out by experts, is its socially divisive effect, as it creates a group (NMO flat owners) who cannot make capital gains from their properties versus a group who can. For a more detailed read of the comments by 4 experts, please go to Singapolitics.


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References

1. Singapore Democratic Party, “Housing A Nation: Holistic Policies For Affordable Homes”, Web <http://yoursdp.ucoz.org/_ld/0/7_Housing_a_Natio.pdf>

2. Singapore Democratic Party, “SDP Proposes Non-open Market Flats in Housing Policy”, 4 November 2012, Web
<http://yoursdp.org/news/sdp_proposes_non_open_market_flats_in_housing_policy/2012-11-04-5430>

3. Wong Tessa, “SDP's Non-Open Market flats: Experts Give Their Take”, The Straits Times: Singapolitics 6 November 2012, Web
<http://www.singapolitics.sg/news/sdps-non-open-market-flats-experts-give-their-take>

Understanding Public Rental Housing in the Little Red Dot

 By SUSAN TEO

During Parliament last month, National Development Minister Khaw Boon Wan addressed several issues related to HDB's (Housing Development Board) Public Rental Scheme, or PRS. This includes the ethnic quotas and waiting time for public rental flats. Mr Khaw reveals that HDB is reviewing its ethnic quotas for these flats as

“Currently, 60 per cent of its rental blocks have reached the limit allowed for Malay residents, which is 25 per cent per block,” said Mr Khaw.

For public housing in Singapore, an Ethnic Integration Policy (EIP) was introduced to ensure a balanced racial composition in each block and estate. This move was done to preserve racial harmony and social cohesion in multiracial Singapore, which has some 80% of the population residing in HDB flats.

In addition, Mr Khaw discloses that the average waiting time for rental flats has decreased to six months now. This is a marked improvement from the long waiting time of 21 months in 2008 when demand was at its height. Nevertheless, Mr Khaw hopes to see further reductions. To this end, HDB is churning out 57,000 units by 2015. The number of one-and two-room public rental flats stands at 49,300 units currently, an increase from the 45,500 two years ago.

Adding to the number of rental accommodation are two blocks of flats close to the now-defunct Tanjong Pagar rail station. These former dormitories, at Spooner Road, which once housed the staff of the rail station, will be spruced up and offered to low-income Singaporeans under the PRS and Interim Rental Housing (IRH) scheme. 208 one-and two-room units will be leased out under PRS, while 110 three-room flats will come under the IRH scheme.

Rentals are heavily subsidied under PRS and IRH schemes. Both these schemes are for low-income Singaporeans. The number of households under the IRH scheme stands at 1,500 in December 2011.

Under the PRS scheme, only one-and two-room units are available. Applicants must have a gross household income not exceeding S$1,500, subject to fulfillment of other requirements, before being eligible to apply for the flats under the Family Scheme or Joint Singles Scheme. This scheme is administrated by HDB with rentals varying between S$26 and S$275.   

In contrast, the IRH scheme is a transitional housing option for Singaporeans. These people could be waiting to buy a HDB flat, queuing for a rental unit or waiting out a 30-month debarment period before applying for a rental unit. Under current regulation, after the disposal of a HDB flat, former owners are barred from applying for a rental unit for a 30-month period.

IRH started in 2009 and was ran by private operators like EM Services, LHN Group and the Katong Hostel. It worked as a cross-model in which the operators lease the flats from HDB and rent out a number of them at subsidised rates to IRH tenants, with the rest being rented out at open market rates. Often, two households will co-share an IRH three-room flat.

However after a review in 2011, HDB refined the scheme by 1) limiting the role of operators to the management of the flats, 2) stretching the tenancy period from six months to twelve, renewable for up to two years, and 3) introducing guidelines for better matching of co-tenants.

Disputes between co-tenants in IRH flats are common. MPs often see IRH residents requesting for a change of co-tenant during their Meet-the-People sessions. Under this scheme, a tiny three-room unit is shared by two families, sometimes large ones, couple that with the different living habits of the two households and strained relationships result. Other concerns include safety issues related to living with complete strangers. The cramped living space also causes some voices to grouse about the lack of a conducive study environment for children living in IRH flats. 

Read more articles at  

PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/  
iCompareLoan.com/resources/category/faq/

References

1. “2,000 More Rental Flats for Lower-income Families”, MyPaper 24 Oct 2012, Print

2. “Govt to Tweak Interim Rental Housing Scheme”, Channel NewsAsia 30 Dec 2011, Print

3. Chong, Melissa, “HDB to Build More Rental Flats to Reduce Waiting Time”, Channel NewsAsia 12 Nov 2012, Web
<http://www.channelnewsasia.com/stories/singaporelocalnews/view/1236789/1/.html>

4. Chia, Yan Min, “Flats near Former Rail Station in Tanjong Pagar for Rent”, The Straits Times 9 Oct 2012, Web
<http://www.straitstimes.com/breaking-news/singapore/story/flats-near-former-rail-station-tanjong-pagar-rent-20121009>

5. HDB, “Renting A Flat: Direct from HDB”, Web
<http://www.hdb.gov.sg/fi10/fi10323p.nsf/w/RentDirectHDBOverview?OpenDocument>

6. HDB, “HDB Reviewing Ethnic Quotas for Rental Flats”, Web
<http://www.straitstimes.com/breaking-news/singapore/story/hdb-reviewing-ethnic-quotas-rental-flats-20121114>

7.“Spooner Rd Flats Available for HDB Rental”, Channel NewsAsia 9 Nov 2012, Web
<http://www.channelnewsasia.com/stories/singaporelocalnews/view/1236240/1/.html>