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Analysts divided on whether 6% subsidy clawback for Rochor flats is adequate

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When River Peaks I & II flats go onto the resale market for the first time, future residents of the Nov 2021 BTO launch will have to pay a 6% of the resale price or the unit’s valuation, whichever is higher. Source: HDB

Property analysts are divided on whether the 6% subsidy clawback imposed on the resale of flats at an upcoming Rochor Build-to-Order (BTO) project, which is the first housing project under the new Prime Land Housing (PLH) model, reported Channel News Asia (CNA).

Some of the analysts believe the 6% subsidy recovery is “reasonable”, while others say it is not high enough.

The Housing and Development Board (HDB) on Wednesday (17 November) announced that the clawback percentage – which is a much-anticipated detail in the PLH model – would apply to an upcoming project in Rochor.

This means owners of upcoming flats in such a project would have to pay 6% of the resale price or the unit’s valuation, whichever is higher, to HDB once they sell their flats.

The clawback was introduced to address concerns on additional subsidies which could lead to “excessive windfall gains”. It will only apply to the first resale of the flats.

Set to be completed in 2028, the Rochor project forms part of the Housing Board’s BTO exercise for this month.

Excluding conventional housing grants, units at this project are priced from $409,000 for three-room flats and $582,000 for four-room flats. The 960-unit project only features three- and four-room units.

OrangeTee & Tie Senior Vice-President of Research Christine Sun described the 6% recovery rate as reasonable, considering that prices of HDB resale flats have increased across the board over the last decade. 

In fact, prices have risen 9.1% year-to-date.

With the flats expected to enter the open market by around 2038, following a longer construction period as well as a minimum occupation period (MOP) of 10 years, Sun sees a high possibility for such flats to achieve over 6% price growth in 17 years.

Breaking down the 6% recovery rate, she pointed that a four-room PLH flat sold for $1.2 million in the future would have a clawback amount of around $72,000.

“The owner will still be able to enjoy a gross profit of at least $500,000,” she said as quoted by CNA.

She added that the percentage “cannot be too high as the buyers face more stringent selling criteria and longer MOP, when compared to other BTO owners”.

PropNex CEO Ismail Gafoor said the 6% recovery rate is “a modest sum considering the benefits arising from the location and the potential capital appreciation that the flats stand to gain”. Nonetheless, he feels that it is adequate.

However, not all analysts agree. ERA Realty Head of Research and Consultancy Nicholas Mak believes the percentage “seems a bit on the low side”.

Although the subsidy recovery has no direct equivalent in the private property market, Mak noted that the closest tax would be the Seller’s Stamp Duty, which ranges from 4% to 12%, intended to deter speculative buying.

With this, he had expected the authorities to set the recovery rate at a “mid-point” at around 8%.

Mak added that while the subsidy recovery may deflate the “lottery effect” of PLH flats, estimates, however, showed that the buyers of such flats “can still stand to make significant profit from their flats in the future”.

Meanwhile, Huttons Research Head Lee Sze Teck said it is “difficult to say whether the clawback is fair” given the absence of precedents.

“We need to know how much the additional subsidy is. If it’s a six-figure amount, and the clawback is only 6%, then we can make that judgment, but right now … one part of the equation is opaque,” he added as quoted by CNA.

Last month, authorities said the subsidy recovery rate would “reflect the extent of additional subsidies provided at launch”, adding that the same rate would apply regardless of when the owner resold the flat in the future.

National Development Minister Desmond Lee has also said the percentage rate may be adjusted for other future projects, depending on the subsidies needed and the market conditions.

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Cheryl Chiew, Digital Content Specialist at PropertyGuru, edited this story. To contact her about this story, email: [email protected]

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