The impact of MRT on property prices

By
Feily Sofian
,
Esther Hoon
|
December 11, 2015 11:25 AM SGT
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Bukit Panjang residents will soon enjoy a shorter commuting time to town when Singapore’s latest MRT line, the Downtown Line 2 (DTL2), commences operations on Dec 27. Most people take for granted that a property with good accessibility would command a higher value. The idea originated from Johann Heinrich von Thünen, a 19th century economist, who theorised that a farmer’s profit from his farmland would partially depend on his transportation costs to the market, where buyers and sellers exchange goods.
Inspired by von Thünen, city planner and economist William Alonso proposed in the 1960s that land near the city centre, where jobs and entertainment are located, would command higher rents. His reasoning was simple — residents living close to the city centre can save on transportation costs, including the opportunity costs of commuting such as a loss in leisure and money-making opportunities. While technology has significantly lowered transportation expenses for firms and individuals, the opportunity costs of commuting are still very relevant today.
By virtue of this, the opening of the DTL2 stations would boost the prices of nearby properties. However, some speculated that the upside in property prices would kick in when the government first unveiled the station locations and no further upside is expected when the new MRT line is completed. Others suggested that another round of price upside would ensue shortly before the new MRT line commenced operations.
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Smaller HDB flats reaped the most benefits
A study by The Edge Property shows a widening price gap over the years between HDB flats located within 500m of Bukit Panjang MRT station and those located more than 500m from the station. The price gap became glaring in 2014 and 2015 as the opening of the DTL2 stations drew closer, with four- and five-room HDB flats within walking distance of Bukit Panjang station commanding more than a 20% price premium over those that were not.
The study also suggests that smaller HDB flats benefited the most from the proximity to the stations. Four-room flats near Bukit Panjang station commanded an estimated price premium of 15% in 2010 and 2011 and 17% in 2012 and 2013. The price premium spiked to 24% in 2014 and 2015 (see Chart 1 on next page). In the meantime, the price gap for five-room flats widened from around 14% between 2010 and 2013 to 22% in 2014 and 2015 (see Chart 2).
Quantum-wise, four- and five-room flats within 500m of Bukit Panjang station fetched an average price of $461,000 and $577,000 respectively in 2015. Those located more than 500m from the station changed hands at an average price of $372,000 and $475,000 respectively.
HDB flats located near Bukit Panjang station were not spared the bearish market sentiment but prices have generally been more resilient than those further from the station. For example, prices of four-room flats located within 500m of Bukit Panjang station fell 10% from an average of $511,000 in 2013, to $461,000 in 2015 while those of five-room flats fell 5% from $607,000 to $577,000. On the other hand, HDB blocks located more than 500m from Bukit Panjang station witnessed a steeper price decline over the same period, averaging 15% to $372,000 for four-room flats and 12% to $475,000 for five-room flats.
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There is some evidence of an increasing price premium for executive HDB flats located near Bukit Panjang station, but it is less pronounced than four- and five-room flats. Residents living in smaller flats are likely to be more dependent on public transportation, which explains the jump in price premium towards the opening of the station. Based on historical resale statistics, there is no three-room flat within 500m of Bukit Panjang station.
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Mixed impact on private homes
The impact of the DTL2 stations on private home prices is harder to quantify due to the limited number of transactions and the heterogeneity of the projects in terms of tenure, age, unit size and facilities. Notwithstanding that, anecdotal evidence shows similarly resilient prices for new projects located near MRT stations.
For example, a 1,206 sq ft low-floor unit at Espa, a 999-year leasehold condominium located next to Cashew station, fetched $1,101 psf in May this year. The price reflects a 35% gain for the owner, who purchased the unit at $813 psf in May 2012, and bucks the trend of falling property prices. Espa was completed in 2009.
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At The Tennery, a 99-year leasehold apartment located just 252m from Bukit Panjang station, a 614 sq ft unit on the sixth floor was sold at $1,252 psf this year. In 2013, three similar-sized units on the seventh and eighth floors were transacted at an average price of $1,280 psf. The 2015 transaction reflects a modest price decline of 2% from 2013. In comparison, the overall mass-market non-landed home prices have declined by 7% since 3Q2013’s peak. The Tennery was completed in 2014.
Older condominiums, however, did not perform as well despite their proximity to the DTL2 stations. However, their price decline was comparable to new projects located further from the stations. Proximity to MRT stations seems to compensate for the age of the projects. For analysis, we compare prices in 2015 and 2013 when the market was at its peak. At Glendale Park, a freehold condominium located 244m from Hillview station, three 1,206 sq ft units on the ninth floor changed hands at an average price of $1,004 psf this year. The price represents a decline of about 14% from 2013, when a 1,033 sq ft unit on the eighth floor was sold for $1,161 psf. Glendale Park was completed in 2000.
Comparable-size units at Hillvista, a newer freehold condominium completed in 2010 and located 522m from Hillview station, witnessed a similar drop. A 1,292 sq ft unit on a low floor was sold at $1,188 psf this year. In 2013, a 1,152 sq ft unit, also on a low floor, went for $1,389 psf. Historically, 1,152 sq ft and 1,292 sq ft units in the development fetched similar per square foot prices.
In another example, an 807 sq ft unit on the 16th floor of Maysprings, a 99-year leasehold apartment located 401m from Bukit Panjang station, was transacted at $929 psf this year. The price reflects a 7% decline from 2013 when two similar-sized units on the 13th and 14th floor found buyers at an average price of $997 psf. Maysprings was completed in 1998.
Some 2km from Bukit Panjang station, a 667 sq ft unit on the 16th floor of Foresque Residences changed hands at $1,259 psf this year. In 2013, a 732 sq ft unit on the 18th floor was sold for $1,354 psf. The 2015 transaction reflects a 7% price decline, similar to the Maysprings transaction. Maysprings is about 16 years older than Foresque Residences.
A unit at Espa, a condominium next to Cashew station, was sold at $1,101 psf this year, reflecting a 35% price gain since 2012
This article appeared in The Edge Property Pullout, Issue 707 (December 14, 2015) of The Edge Singapore.
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