HDB owners’ dilemma: To upgrade or not to upgrade

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/ EdgeProp Singapore
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November 5, 2021 6:00 AM SGT
Contributing to the HDB resale price inflation is the number of new flats that have reached their minimum occupation period over the past two to three years (Photo: Samuel Isaac Chua/EdgeProp Singapore)
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HDB resale price inflation - EDGEPROP SINGAPORE
Contributing to the HDB resale price inflation is the number of new flats that have reached their minimum occupation period over the past two to three years (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - The star performer in Singapore’s housing market this year has been HDB public housing flats, where four in five Singaporeans live, of which 90% own their homes.
In 3Q2021, the HDB resale price index chalked up a 2.9% q-o-q growth, marking its ninth quarterly increase. The index has surged to 150.6, surpassing the previous peak of 149.4 registered in 2Q2013. Based on the index, HDB resale prices have increased about 15% since 3Q2019, says Nicholas Mak, head of research at ERA Realty. He was speaking at the ERA-EdgeProp webinar on Nov 1, where the theme was: “Does it make sense to upgrade now for the future?”
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According to Mak, a major contributing factor to soaring HDB resale prices is the supply chain problems and construction delays due to the pandemic. The delays in the construction of HDB Build-To-Order (BTO) flats have diverted some first-time home buyers to the HDB resale market, he says.
HDB RESALE INDEX - EDGEPROP SINGAPORE
Between 20,000 and 25,000 families are formed every year, with the majority opting for an HDB flat as their first home. “That contributes to a constant pool of demand for housing,” says Mak.
Before the pandemic, from 2017 to 2019, HDB resale volume hovered between 22,000 and 25,000 flats a year. In 2020, with the ongoing pandemic, 24,748 resale transactions took place. Mak expects this year to end with between 30,500 and 31,500 HDB resale deals. (Find HDB flats for rent or sale with our Singapore HDB directory)
“Transaction volume this year will be one of the highest since 2010,” notes Mak. “If not for the pandemic, we would not see such a spike in resale transaction volume.”
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NICHOLAS MAK - EDGEPROP SINGAPORE
Mak: HDB resale transaction volume this year will be one of the highest since 2010. If not for the pandemic, we would not see such a spike in resale transaction volume (Photo: ERA Realty)
Apart from the pandemic, Eugene Lim, key executive officer of ERA, attributes the growth in HDB resale transactions and prices to “confidence in Singapore’s economic recovery as well as very low (around 1%) bank housing loan rates”. Lim adds: “Confidence coupled with low borrowing rates have drawn more buyers into the resale HDB market as well as the private residential market.”
Another contributing factor to the HDB resale price inflation could be the number of new flats that have reached their minimum occupation period (MOP) over the past two to three years, according to Mak. HDB data showed that 25,530 flats reached their five-year MOP in 2021, up from 24,163 units last year.

Why pay a million dollars for HDB flats?

As at end-October, a record 192 HDB flats changed hands for at least $1 million in the resale market, making it an all-time high, says ERA’s Lim. “Many of these flats have either been nicely renovated or command a good view.”
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EUGENE LIM - EDGEPROP SINGAPORE
Lim: The jump in market share of private resales shows that the beneficiaries of the HDB resale flats have upgraded to private property (Photo: ERA Realty)
The latest transaction was for a five-room HDB under the abolished Design, Build and Sell Scheme (DBSS) in Bishan that changed hands for $1.36 million. “It is the most expensive HDB flat sold to date,” says Lim.
Bishan, an established HDB town, is also where top schools like Raffles Institution, Ai Tong School and Kuo Chuan Presbyterian Primary School are located. “This contributes to the high demand,” says Mak. ERA Research has found that HDB towns with the most million-dollar transactions are those in the Central areas, for instance, Pinnacle @ Duxton, Bishan, the Dawson flats in Queenstown, Toa Payoh and Bukit Merah. Beyond the pandemic driving people to choose resale flats, Mak attributes the proliferation in the number of million-dollar flats to the premium attached to certain Central locations like Bishan.
Another reason for these million-dollar HDB flat purchases could be affordability. For instance, first-time home buyers with monthly household income of $14,000 — which is the income ceiling for HDB flat buyers — could still afford flats of $1 million to $1.1 million. However, a budget of $1 million to $1.1 million will not be enough to purchase a 99-year leasehold condo in the Bishan area, notes Mak. (Discover insightful data of any Singapore condominium with our condo directory)
BISHAN PARK - EDGEPROP SINGAPORE
The latest transaction was for a five-room HDB under the abolished Design, Build and Sell Scheme in Bishan that changed hands for $1.36 million (Photo: Samuel Isaac Chua/EdgeProp SIngapore)
Comparable to a five-room HDB flat is a three-room apartment in the private residential market. In the Bishan area, the latest transaction was at The Gardens at Bishan at Sin Ming Walk. A ninth-floor, 1,206 sq ft, three-bedroom unit at the 99-year leasehold condo changed hands last month at $1.648 million ($1,367 psf), based on a caveat lodged. The condo is already 17 years old. If someone wants a newer project, there is Sky Habitat, a 99-year leasehold condo at Bishan Street 15, designed by acclaimed architect Moshe Safdie, developed by a joint venture between CapitaLand, Mitsubishi Estate Asia and Shimizu Corp, and completed in 2015. A 1,249 sq ft, three-bedroom unit on the ninth floor was sold for $2.1 million ($1,682 psf) last month, according to URA Realis.

BTO vs resale flats

“Some young couples may have financial constraints,” says Mak. “If they are not in a hurry, they can consider applying for HDB BTO flats. But unlike resale flats, BTO flats are not available in every HDB town in Singapore.”
The prices of BTO flats are typically about 15% to 25% lower than comparable resale flats in the same town, adds Mak. Therefore, the buyer of the BTO flat is already buying it at a discounted price. However, it could mean an eight- to 10-year wait from the time of application for a BTO flat to the end of the five-year MOP when the flat can be sold on the resale market. “During that time, HDB resale prices could fluctuate,” he observes. “But the longer-term trend is usually upwards. Hence the buyer of the BTO flat can enjoy bigger capital gain over time.”
HDB TAMPINES - EDGEPROP SINGAPORE
Another drawback is that BTO flats may not necessarily be in a location that a young couple desires to be in (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Buying a new BTO flat is $150,000 cheaper than an HDB resale flat in the same location, and there is upside potential after MOP, notes Lim. The selling price could be $200,000 higher than the original purchase price. However, it comes after a 10-year wait. “That is why those who can afford it will look to buy a private condominium instead of an HDB flat,” he says. “You may not need to wait 10 years to see a $200,000 capital gain.”
Another drawback is that BTO flats may not necessarily be in a location that a young couple desires to be in. Some may want to live near their parents. However, their parents may be living in a mature housing estate where there are few BTO flat launches, says Lim. BTO flats, especially those in the more popular estates, tend to be oversubscribed; and this introduces an element of uncertainty into the BTO flat buying process, he adds.
In the resale HDB market, on the other hand, first-time buyers can better secure a flat that meets both their personal and lifestyle criteria, according to Lim. They could still be eligible for some of the housing grants such as family grant, enhanced housing grant and proximity housing grant.
PRIVATE RESIDENTIAL INDEX - EDGEPROP SINGAPORE

Ten-year tie-up of future prime flats

The government has already attempted to cool the HDB market through its new public housing model called prime location public housing (PLH). Those who want to buy these new BTO flats in the prime locations will still have to meet the monthly household income ceiling of $14,000. However, instead of five years, the MOP period is 10 years. Other restrictions include a clawback of the housing subsidy at resale, and not being able to rent out the entire flat after MOP.
“These restrictions make it less enticing for investors,” says Mak. “It’s targeted at buyers who want a place to live.”
Whether it will affect HDB resale prices depends on the number of such PLH flats released. “The buyers of PLH flats will not be able to upgrade to private property so soon,” adds Mak. “And they may not enjoy the same upside as other HDB resales.”
PRIVATE INDEX VS HDB - EDGEPROP SINGAPORE
However, the private condos and HDB resale flats in the vicinity of the PLH BTO projects could benefit from a spillover in demand, says Mak. The restrictions are only for the BTO flats in prime locations. “The government will continue to roll out BTO flats in other parts of Singapore,” he adds.
The other way of cooling the HDB market is by increasing supply. However, due to the supply chain disruption, the ramp-up is not as aggressive. According to Mak, the government rolled out 16,800 HDB BTO flats last year, about 17,000 flats this year, and is expected to launch another 17,000 flats next year.
The increase in supply is unlikely to arrest prices immediately as it takes a while for the market to cool, Mak points out. The current sales momentum could continue at least into 1H2022. However, the pace of price growth could slow next year as the government ramps up the supply of BTO flats, including those in prime locations, he notes.
RESIDENTIAL SALES VOL - EDGEPROP SINGAPORE

Private resales rebound

It wasn’t just HDB resales that have seen a surge in activity. Private residential resale deals swelled too, along with new home sales. In the first nine months of 2021, private new home sales totalled 10,009 units, which has already surpassed the pre-Covid figure of 9,912 units in 2019. Private residential resales totalled 15,214 units — 1.7 times higher than the 8,949 transactions in 2019.
What is interesting to note is that the market share of private residential resales in the overall housing market has increased from 20.1% in 2019 to 31.5% for the first three quarters of 2021. Meanwhile, the market share of HDB resales has contracted from 53.2% in 2019 to 47.8% for the first nine months of this year. “This means that the beneficiaries of the HDB resale flats have upgraded to private property,” Lim reckons.
Mak attributes it to homeowners who want completed housing units that they could move into immediately. Hence, they have opted for private resale condos rather than new launches. “That, in part, has fuelled demand in the private resale market,” he adds.
MARKET SHARE OF HDB RESALES - EDGEPROP SINGAPORE
Check out the latest listings near The Gardens at Bishan, Sky Habitat

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