OPINION: More $1 million HDB flats is not necessarily a cause for alarm

By Elizabeth Choong

/ EdgeProp Singapore |

March 14, 2023 11:17 AM SGT

Despite rising prices, resale HDB flats are still more affordable than private housing. (Picture: EdgeProp Singapore)

SINGAPORE (EDGEPROP) - The number of HDB flats selling for $1 million or more in the resale market is on the rise. There were 182 and 259 such transactions in 2020 and 2021 respectively. Last year, the number surged to 558 transactions. At the time of writing, 71 HDB flats sold for at least $1 million this year.

Despite the increase, buyers should not be alarmed because such million-dollar transactions account for only a small percentage of the total number of sale transactions in the HDB resale market. Last year, only 2% of all HDB resale transactions were for at least $1 million, up from 0.9% in 2021 and 0.8% in 2020.

More HDB towns have resale flats that fetched at least $1 million. Last year, 21 out of 26 towns have million-dollar flats, up from 10 towns in 2021 and nine towns in 2020.

The five towns without million-dollar HDB flats last year are Sembawang (North Region), Sengkang (North East Region), Bukit Panjang (West Region), Choa Chu Kang (West Region) and Jurong West (West Region). It is notable that three of these towns are in the west region. As such, buyers with a modest housing budget should look to the five towns or the west region to fulfil their housing need.

Rising tide lifts all boats

Residential property prices have been on the rise, with resale HDB flats being no exception. The average price for resale HDB flats has increased from $539 psf last year to the current $553 psf. It is inevitable that more HDB flats will be sold for $1 million or more, especially if the flat is a large unit, in a central location, or near amenities and public transport nodes.

The silver lining for buyers is that HDB resale prices have risen at a slower pace compared to other housing types. Since 2013, the average price for resale HDB flats has risen by 18%, which is slower than the price growth of 46% for executive condominiums and 32% for leasehold private condominiums.

Additionally, the current average price of $553 psf for resale HDB flats is more than half the average price for executive condominiums ($1,167 psf) and 62.5% lower than the average price for private condominiums ($1,475 psf). With the exception of Build-to-Order (BTO) flats, resale HDB flats are by far the most affordable housing option in Singapore.

Widening price difference between HDB and leasehold condominiums

Some buyers are more cautious about their property purchase, given weaker economic growth, a higher cost of living, and rising mortgage rates. The Ministry of Trade and Industry has projected that Singapore's GDP will grow by 0.5% to 2.5% this year, down from last year's growth of 3.6%.

The cost of living in Singapore is expected to rise this year due to an increase in Goods and Service Tax to 8%. Additionally, Singapore's inflation rate was 6.1% last year and is projected to reach 5.5% to 6.5% this year by the Monetary Authority of Singapore. Mortgage rates have been on an upward climb in recent years and are widely expected to remain high this year.

Furthermore, the price difference between leasehold condominiums and resale HDB flats is widening, adding to the appeal of resale HDB flats. The difference between the current average price for resale HDB flats ($553 psf) and leasehold condominiums ($1,475 psf) is $922 psf. Last year, the difference was $864 psf, and in 2013, the difference was a mere $644 psf.

A widening price difference makes resale HDB flats a more attractive and affordable option than leasehold condominiums. Moreover, some HDB buyers are eligible for HDB loans, which have a lower interest rate of 2.6% compared to housing loans offered by private banks.

The weaker economic conditions could cause more cautious buyers to shelve their plans to upgrade from public to private housing. As such, fewer HDB flats may be available for sale in the resale market. Alternatively, some buyers may choose to upgrade to a larger or better-located HDB flat instead of a condominium unit, which adds to the demand for HDB flats. (Find HDB flats for rent or sale with our Singapore HDB directory)

Majority of $1 million transactions are for the popular central region

For the last three years, the same five towns have had the most number of million-dollar transactions, and they are all located in the central region. Last year, these top five towns accounted for 74.7% of all million-dollar transactions, down from 79.2% in 2021 and 94.5% in 2020.

The current average price for resale HDB flats in the central region ($674 psf) is trending above their counterparts in the east and west regions. Meanwhile, the average prices for resale HDB flats in the east ($516 psf) and west regions ($512 psf) are at a similar price level.

HDB offering more value for money

Larger homes have found favour with buyers post-COVID-19 due to the adoption of work-from-home and home-based learning arrangements.

The average unit price for resale HDB flats is much lower than that of leasehold condominiums, and the price gap between the two housing types is widening. This means that some buyers are priced out of the market for large condominium units but have more than enough budget for a resale HDB flat of similar size. Such buyers are able and willing to pay premium prices for a large HDB resale flat in a choice location.

From 2020 to 2022, at least 81% of the HDB resale flats that sold for at least $1 million were five-room or executive flats. Five-room flats are about 1,000 to 1,200 sq ft, while executive flats are 1,500 to 1,600 sq ft.

The price difference between the current average price for five-room and executive flats ($704 psf) and leasehold condominium units of similar size ($1,323 psf) is $619 psf, which is an increase from the price gap of $577 psf last year. The widening price gap is a strong indicator of the additional value that HDB resale flats offer to homebuyers.

Increase in grants for first-timers

The number of million-dollar transactions for resale HDB flats is expected to increase this year due to several regulatory changes.

Budget 2023 includes an increase in grants for first-time buyers of resale HDB flats. First-time families purchasing four-room or smaller flats will receive a grant of $80,000 (up from $50,000), while those buying five-room or larger flats will receive $50,000 (up from $40,000). First-time single buyers purchasing a four-room or smaller flat will receive a grant of $40,000 (up from $25,000), while those buying a larger flat will receive $25,000 (up from $20,000).

The higher grant provides first-time buyers with more housing budget, which could give a boost to prices for resale HDB flats.

Changes in balloting priority for BTO flats

During Budget 2023, it was announced that HDB will introduce a new sub-category of first-time buyers comprising families with children and married couples below 40 years of age. This new sub-category of buyers will receive an additional ballot when they apply for a BTO flat.

HDB also announced that they will tighten the balloting rules for BTO flats. First-time applicants who do not book a flat when invited to do so will be redesignated as second-time buyers for a year if they apply for a BTO flat again. Second-time buyers who fail to book a flat will have to wait for a year before they can apply again. The new balloting rules will take effect from the upcoming BTO exercise in August.

The changes in ballot regulations and tighter rules for first-timers may push some buyers towards the resale market where there are fewer restrictive regulations, more location choices, and shorter wait times.

Oversubscribed and long wait time for BTO flats

The most recent BTO exercise held last month noted record-low subscription rates. The median subscription rate was 3.81 for two-room flats, 2.67 for three-room flats, 3.61 for four-room flats, and 2.90 for five-room flats. However, market observers think that it is too early to infer that demand for BTO flats has stabilised because some buyers could be waiting for the upcoming BTO exercise in August when more attractive locations in mature estates are available.

The low subscription rate for the recent BTO exercise is an abnormality because BTO flats tend to be very oversubscribed. The BTO exercise in November last year had a median subscription rate of 17.3 for two-room flats and 26.6 for three-room or larger flats. Some buyers turn to the resale market after numerous unsuccessful BTO applications.

Successful buyers of BTO flats have to wait several years for their flat to be constructed before moving in. Wait time has increased in recent years due to construction delays. The median wait time for flats launched during the most recent BTO exercise is 4.4 years, forcing buyers who are unable or unwilling to wait that long to turn to the resale market.

Unsuccessful BTO applicants and buyers in need of an immediate roof turn to the resale market and hence give a boost to demand and prices for resale HDB flats.

Conclusion

The number of million-dollar HDB resale transactions has been on the rise, but it is inevitable due to the general increase in housing prices and continued strong demand for resale HDB flats. However, it is not a cause for alarm because such eye-catching transactions account for only a small percentage of the total transactions for resale HDB flats.

Moreover, HDB prices have been rising at a slower pace compared to other housing types and are much lower than private housing. As such, HDB flats still remain the most affordable housing option in Singapore, especially if buyers are looking for a four-room or smaller flat outside the central region.

The recent increase in government grants for first-time buyers of resale HDB flats, the regulatory changes announced during Budget 2023, the high subscription rate for BTO flats, and the weaker economic outlook are expected to push more buyers to the resale market for HDB flats. As such, prices for HDB flats are expected to continue their upward climb in tandem with the increase in prices for other housing types.