Updated from : The Business Times, 3 Aug 2021
A FIVE-ROOM Housing Board (HDB) flat in Bishan in July smashed the record for the most expensive HDB that has changed hands – a record that was hit just in June.
A 120 square metre unit at Block 273A Bishan Street 24 in a Design, Build and Sell Scheme project called Natura Loft was sold for S$1.295 million just last month, beating the last – and short-lived – record of S$1.268 million. The high-floor unit offers the buyer around 89 years on its remaining lease.
Headline figures like these are coming up against the broader trend that resale prices of HDB flats are on the up, across the board.
They climbed for the fifth consecutive quarter in Q2, up 3 per cent in the three months to June this year from the previous quarter.
HDB resale prices have risen by 11 per cent from a year ago.
The strength in the resale market is seen across flat types and towns. Comparing median prices of resale flat purchases in the mature estate of Toa Payoh for Q2 2021 versus Q2 2020 show prices are up 12 per cent, 15 per cent and 11 per cent for three, four and five-room flats respectively.
Using the same comparison, median prices in the newer town of Punggol are up 10 per cent, 5 per cent and 18 per cent for three, four and five-room flats respectively.
A total of 106 HDB flats sold for at least S$1 million each in the first half of this year, compared with 82 such deals in 2020 and 64 in 2019.
Sales volume has been robust, with more than 14,000 resale flats transacted in the first six months. That is the highest first half-year figure since 2010.
To add, about a third of buyers of HDB resale flats paid cash over valuation (COV) this year, up from one in five last year, said the Ministry of National Development (MND) in a written answer to a parliamentary question in July. COV is paid when a resale flat is sold above its actual HDB valuation, and the difference can only be settled in cash by the buyer. The median COV each year has, however, stayed at zero, said the MND.
In a reply to another parliamentary query, MND said that between January 2020 and April 2021, fewer than one in four resale flat buyers paid above market valuation for their flats. Where buyers paid COV, about 60 per cent paid COV of not more than S$20,000, while around 40 per cent paid more than S$20,000,
Against these numbers, is there irrational exuberance in the HDB resale market? Perhaps not, given the various factors at play.
The scheduled completions of some ongoing HDB Build-To-Order (BTO) flats have been pushed back by around 9-12 months amid construction delays arising from the Covid-19 pandemic.
HDB is willing to consider waiving penalties for affected buyers, who may want to cancel their BTO applications. The switch by some of these people to buy a resale flat to meet urgent housing needs may likely prop up demand in the resale market.
Some buyers of resale flats can receive housing grants. Subject to various conditions, first time buyers of resale flats can get up to S$160,000 in housing grants.
Some may also opt for the resale market as securing a choice BTO unit can be difficult. The number of applicants vying for each BTO unit increased from 2.3 in 2017 to 5.8 in 2020, HDB data showed. The average application rate for a BTO flat in 2020 was 6.7 times and 4.8 times in mature and non-mature estates respectively.
In the May BTO exercise, Telok Blangah Beacon in Bukit Merah drew almost 50 applicants for each of its 70 four-room flats, which were priced between S$602,000 and S$710,000. Project completion is estimated to be in the first quarter of 2027. HDB is on track to launch about 17,000 BTO units this year and is expected to launch at least 17,000 BTO flats next year.
Pasir Ris at S$2,000 psf
For couples whose combined income exceeds the monthly income ceiling of S$14,000 to be eligible to buy a BTO flat, the resale market is an option. One can get more space in a more central location with a HDB resale flat versus buying an executive condominium or a private condominium unit.
It comes too as prices of suburban condominiums are rising. Notably, the multiple price hikes in a single day for Pasir Ris 8 is likely adjusting expectations for suburban residential projects. From that launch, a two-bedroom, 721 sq ft unit on the fourth floor was going for more than S$2,000 psf. That pricing is typically associated with units at prime locations.
With an ageing population, some are selling their private units and buying HDB resale units, thereby freeing up funds for retirement needs. Lower management fees of HDB flats and the ease of access to amenities are other draws for such buyers.
Prevailing strength in the residential market offers good opportunities to monetise private units. This group, with cash on hand, would probably be unfazed by paying COV for a desirable unit.
Upgrading estates, improving infrastructure and enhancing amenities will help ensure that HDB flats remain appealing even as they age.
Crucially, the rise in HDB resale prices may be supported by fundamentals as prices catch up with household income growth. The HDB resale price index as at second quarter of 2021 is 2 per cent below the peak in the second quarter of 2013.
Over a 10-year period from Q2 2011 to Q2 2021, the HDB resale price index is up 12.3 per cent. This works out to a compound annual growth rate (CAGR) of nearly 1.2 per cent.
Over 10 years from 2010 to 2020, median monthly household income from work for Singapore residents grew by 38 per cent from S$5,600 to S$7,744.
Median monthly household income from work for resident employed households grew even faster – by 45 per cent from S$6,342 to S$9,189. Average monthly household income from work for the 2nd, 3rd and 4th highest deciles of resident employed households, which could be where many resale buyers of pricier flats belong to, rose 43 per cent, 46 per cent and 49 per cent respectively between 2010 to 2020.
What’s worth watching is the affordability ratio of HDB resale flats.
In 2020, overall median prices of HDB resale flats transacted were about 3.9 times a household’s median yearly earnings. This is a tad higher than 3.5 times in 2019, based on The Business Times’ analysis of data from SRX, OrangeTee & Tie and the Department of Statistics (DOS).
The 2020 price-to-income multiple – or the affordability ratio – marked its first increase in seven years for HDB resale flats in general. But it reflected that in 2020, household incomes declined for the first time in more than a decade, in the year of a pandemic outbreak.
Overcoming construction delays of new HDB flats, raising supply of new HDB flats and cooling the private home market could help slow the growth in HDB resale prices.
But as the HDB looks to build new flats in prime areas, should there be more restrictions in the HDB resale market such as opening the resale market for HDB flats in prime areas only to buyers who meet all prevailing eligibility conditions for a new flat? What about suggestions to levy taxes on resale profits or to make it more difficult to rent out HDB flats?
Any dampening of resale prices would hurt those holding on to HDB flats as assets to monetise, but also makes it less painful on the pocket for younger couples who need to buy HDB flats to start new lives together. This is a policy trade-off to balance.
For perspective, HDB flats as investment should be viewed with a different lens from investing in private housing. Most Singaporeans live in HDB flats, even as the proportion of households living in HDB units fell to 78.7 per cent in 2020, compared with 82.4 per cent 10 years ago, Singapore latest household census showed.
With positive momentum in the resale market, economic recovery, resident employment rising and household income likely to rise, HDB resale prices may continue to climb.
That said, potential buyers of HDB resale flats should exercise caution as resale prices were on a mainly downward trend between mid-2013 and mid-2019. Also, as the years of land lease outstanding in HDB flats reduce, worries over lease decay and the value of a flat possibly going down to zero may deter buyers from some resale flats.
In the long run, slow growth in Singapore’s population could lower demand in the HDB resale market too. Overall population growth over 2010 to 2020 was 12 per cent or a CAGR of 1.1 per cent. Citizens and permanent residents are eligible to buy HDB flats subject to various conditions. Growth in this group was at an even slower rate of 7.2 per cent or a CAGR of 0.7 per cent between 2010 to 2020.
For now, bargaining power rests squarely with owners of sought-after HDB units. But there are some longer-term trends that are set to change the dynamics for the HDB resale market.