Amid a lacklustre resale HDB market which has seen prices dipping 9.2% from the peak in 2Q13 to 1Q15, The Pinnacle@Duxton has made the headlines for resale transactions at eye-popping amounts.
There have been 53 resale transactions at the Pinnacle@Duxton to date. The 37 transactions for 4-room flats have fetched an average of $859,883, while the 16 transactions for 5-room flats have fetched an average of $989,536.
The Pinnacle@Duxton was only 3 times oversubscribed
There were 5,171 applications in total for the 1,232 4-room and 616 5-room flats at The Pinnacle@Duxton when they were launched back in 2004. Prices ranged from $289,200 to $380,900 for 4-room flats and $345,100 to $439,400 for 5-room flats in 2004 (Table 1). Based on the average resale price of $859,883 for a 4-room flat and $989,536 for a 5-room flat, sellers would have netted a windfall of $524,833 and $597,286 respectively.
Separately, there were 372 applications for the 111 flats that were relaunched in another exercise in 2008. Prices ranged from $545,000 to $645,800. Taking the 25th and 75th percentile of this price range as a proxy for 4-room and 5-room prices respectively, sellers who bought during this exercise would have gained smaller but still substantial profits of $289,683 for 4-room flats and $$368,936 for 5-room flats.
Table 1: Purchase price and resale profits for flats at The Pinnacle@Duxton
Source: HistorySG, SingaporeInfopedia, HDB, The Edge Property
In comparison, the estimated gains for resale transactions for 4-room BTO flats in Compassvale View, Fernvale Court and Coralinus in Sengkang and Punggol, which were also completed around the same time as The Pinnacle@Duxton, were in the $236,000 to $253,000 region.
Better than the lottery
For most people, windfalls of close to half a million dollars such as those received by the sellers at The Pinnacle@Duxton, are associated with striking the lottery. It costs just $10 to apply for a BTO flat. The same amount can buy 20 ordinary tickets for the Singapore Pools Toto lottery with a guaranteed first prize jackpot payout of $500,000. Intuitively, the expected return of buying a BTO flat is much higher than buying the lottery tickets simply because of the better odds of winning the former. It would be interesting, however, to witness how their expected values stack against each other.
The $10 spent on buying Toto ticket has an expected value of -$9. This was computed by the simple formula: Probability of Losing x Amount Lost per Bet + Probability of Winning x Amount Won per Bet. This means an average punter can expect to lose an average of $9 for each $10 [f1] bet (Table 2).
On the other hand, the $10 spent by Pinnacle@Duxton applicants in the 2004 launch exercise has an expected value of $187,554 and $213,447 for 4-room and 5-room flats respectively. The probability of winning was derived based on the subscription rate while the amount won was the average profit made.
Although the $10 spent on the flat application only grants you the option to purchase the flat and there is an additional cost of financing for the flat, this situation can be viewed as an offer to make close to half a million in profit in return for an investment of less than $400,000.
For the $10 spent on a 4-room and 5-room application in the 2008 exercise, the expected value was $86,428 and $110, 076 respectively. In other words, one would be better spending their money on calculated investment risks than on a lottery.
Table 2: Expected value of $10 spent on applications for The Pinnacle@Duxton or on the Singapore Pools Toto lottery
The average rents for 4-room and 5-room flats at The Pinnacle@Duxton are $3,330 and $3,566 respectively. This translates to gross rental yields of 4% to 5% based on current resale prices. For the original owners who purchased their flats at launch prices, the rents would represent a gross rental yield of 11% to 12% while owners who purchased their flats in 2008 would enjoy a respectable gross rental yield of around 7%.