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This year, Singapore’s star performer in the housing market has been HDB public flats. Here, four out of five Singaporeans live in HDB housing flats. Of those, 90% own their homes.

The HDB resale prices index saw a 2.9% increase in q-o-q during 3Q2021, marking its ninth quarter-end growth. The index is now at 150.6, surpassing its previous peak of 149.4 in 2Q2013. Nicholas Mak, head research at ERA Realty, stated that HDB resale values have increased by 15% since 3Q2019 based on the index. On Nov 1, he spoke at the ERA EdgeProp webinar, where the theme was “Does upgrading now make sense for the future?”

Mak says that the major contributor to skyrocketing HDB resale values is the shortage of construction materials and delays caused by the pandemic. He says that delays in building HDB Build-To-Order flats (BTOs) have led some first-time buyers to the HDB market.

Every year, between 20,000 and 25.000 families are created. The majority of these families choose to live in an HDB flat for their first home. Mak says that this creates a steady pool of housing demand.
Between 2017 and 2019, HDB resale volume was between 22,000 to 25,000 flats per year before the pandemic. With the ongoing pandemic, there were 24,748 resale transactions in 2020. Mak predicts that this year will end with between 30500 and 31500 HDB resale transactions.

Mak notes that this year’s transaction volume will be the highest since 2010. Mak notes that if it weren’t for the pandemic, there wouldn’t be such a surge in resale transactions volume.

Eugene Lim, ERA’s chief executive officer, says that the rise in HDB resale and prices is not due to the pandemic. He also attributes it to “confidence” in Singapore’s economic recovery, as well as the very low (around 1%) bank housing loan rates. Lim says that confidence and low borrowing rates have attracted more buyers to the HDB resale market, as well as private residential markets.

According to Mak, another factor that could contribute to HDB’s resale prices inflation is the number of flats that have exceeded their minimum occupancy period (MOP), in the last two to three years. HDB data revealed that 25530 flats had reached their five year MOP in 2021. This is an increase of 24,163 units from last year.

Why spend a million dollars on HDB flats when you can have them for a fraction of the price?
According to Lim, ERA, a record 192 HDB flats sold for at least $1million in October, an all-time high. Many of these flats were either beautifully renovated or have a great view.

A five-room HDB in Bishan was sold for $1.36million. Lim says that it is the most expensive HDB apartment ever sold.

Bishan is an established HDB community and home to top schools such as Raffles Institution, Ai Tong School, and Kuo Chuan Presidency Primary School. Mak says that this contributes to the high demand. ERA Research found that HDB towns in the Central area have the highest number of million-dollar transactions. These include Pinnacle @ Duxton and Bishan, Toa Payoh, Bukit Merah, Toa Payoh, Pinnacle @ Duxton and the Dawson flats in Queenstown. Mak believes that the rise in million-dollar flats is not due to the pandemic, but rather to the premium attached certain Central areas like Bishan.

Affordableness could also be a reason behind these million-dollar HDB flats. Flats worth $1 million to $1.1million could be afforded by first-time buyers who have a monthly income of $14,000. This is the income limit for HDB flat buyers. Mak notes that a budget of $1million to $1.1million will not suffice to buy a 99-year leasehold condo located in Bishan.

A three-room apartment on the private residential market is comparable to a five-room HDB home. The latest transaction in the Bishan area was at The Gardens of Bishan, Sin Ming Walk. Based on a caveat lodged, a nine-floor, 1,206-square-foot, three-bedroom unit at the 99 year leasehold condo was sold last month for $1.648 million ($1,367/ft). This condo is 17 years old. A newer project is Sky Habitat. This 99-year leasehold condominium at Bishan Street 15 was designed by Moshe Safdie. It was developed in a joint venture by CapitaLand and Mitsubishi Estate Asia. It was completed in 2015. According to URA Realis, a 1,249-square-foot, three-bedroom unit located on the ninth floor sold last month for $2.1million ($1,682 per square foot).

BTO vs resale flats

Mak says that some young couples might have financial constraints. They can apply for HDB BTO flats if they’re not in a rush. BTO flats aren’t available in all HDB towns in Singapore, unlike resale.

Mak says that the prices for BTO flats are usually 15% to 25% less than similar resale flats within the same area. The BTO flat buyer is buying it already at a discount price. It could however mean that there will be an eight-to-10-year wait between the time the BTO flat application was made and the end of the five year MOP, when the flat is available for sale on the resale marketplace. He observes that HDB resale values could fluctuate during this time. But the trend over time is generally upwards. The BTO flat buyer can experience a greater capital gain over the long-term.

Lim notes that a BTO flat costs $150,000 less than an HDB flat for the same location. There is also upside potential after MOP. The original purchase price may be $200,000 more than the selling price. It comes after a 10-year waiting. He says that private condominiums are more affordable than HDB flats. You don’t have to wait 10 years for a $200,000 capital gain.

A downside is that BTO flats might not be in the right location for young couples. Others may prefer to live close to their parents. Lim says that their parents might be in an older housing estate with fewer BTO flat launches. BTO flats in popular estates are more sought-after and therefore, there is a risk of oversubscription.

Lim says that first-time buyers are more likely to find a flat in the resale HDB marketplace. You may still be eligible to receive housing grants, such as the family grant, enhanced housing grant or proximity housing grant.

Future prime flats tied up for ten years

With its new model of public housing called prime location public housing, the government is already trying to cool down the HDB market. The monthly income limit of $14,000. is required for those who wish to purchase these BTO flats located in prime locations.

The MOP period is now 10 years instead of the five-year limit. Additional restrictions include the possibility of a clawback on the housing subsidy for resale and the inability to rent the entire apartment after the MOP.

Mak says that these restrictions make it less attractive to investors. It’s aimed at buyers who are looking for a place to call home.

It is dependent on how many such PLH flats are released as to whether it will impact HDB resale values. Mak adds that buyers of PLH flats won’t be able to move to private property as soon as they are released. Mak adds that they might not have the same benefits as HDB resales.

Mak says that the demand for private condos and HDB resale apartments in the vicinity of the PLH PLH BTO projects may result in a spillover. These restrictions apply only to BTO flats located in prime locations. He says that the government will continue to build BTO flats in other areas of Singapore.

Supply can also be used to cool the HDB market. The ramp-up isn’t as aggressive due to disruptions in the supply chain. Mak reports that the government launched 16,800 HDB BTO flats last ye, approximately 17,000 flats, and will launch 17,000 more next year.

Mak says that the increase in supply will not immediately stop prices from rising as it takes time for the market to cool down. The current sales momentum may continue into at least 1H2022. He notes that the pace of price rise could slow down next year, as the government increases the supply of BTO flats in prime locations.

Private resales rebound

There has been a significant increase in activity not just for HDB resales. Both private residential resale and new home sales saw an increase. Private new home sales surpassed 9,912 units in 2019 by way of the pre-Covid figures. Private residential resales amounted to 15,214 units, which is 1.7 times more than the 8,949 transactions of 2019.

It is worth noting that the market share for private residential resales has increased from 20.1% to 31.5% in 2019, and to 31.5% in the first three quarters 2021. In contrast, the market share for HDB resales fell from 53.2% in 2019 down to 47.8% during the first nine months. Lim believes that this means that HDB resale flat beneficiaries have moved to private property.

Mak attributes this to homeowners who are looking for fully furnished housing units they can move into right away. They have chosen private resale condominiums over new launches. He adds that this has partly fueled demand for private resale condos.

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