BTO Prices Have Gone Up, But Have They Necessarily Become More Expensive?

feb-bto-2021-bukit-batok

I know what you’re thinking. If Build-to-Order (BTO) flat prices have gone up, then by definition, aren’t they more expensive?

Well, yes. From a strictly numerical perspective, they have indeed become more expensive. This is the compound annual growth rate (CAGR) from 2008 to 2018:

HDB estate

CAGR of BTO prices (3-room flat) 

Bukit Batok 

1.18%

Bukit Panjang

1.49%

Choa Chu Kang 

2.74%

Jurong West

3.55%

Punggol

2.24%

Sembawang 

0.56%

Sengkang

4.28%

Woodlands 

1.63%

Yishun

1.01%

How did we get this?

For this comparison, we used the historical price data from 2008 to 2018. We used 1) the earliest and latest BTO prices within those 10 years and 2) the average of the minimum and maximum BTO selling prices for 3-room units (before grants). 

Then, we calculated the CAGR over 10 years, following this formula: CAGR = (latest BTO price/earliest BTO price)^(1/10)-1

This calculation gives you a snapshot of how BTO prices have been trending over the past decade, but of course, there are limitations as well. After all, not every estate gets new flats each year, and the unit mix of BTOs launched varies each time. 

So, let’s deep dive into two particular estates: Punggol and Yishun. Although Punggol is a fairly young estate while Yishun is mature, both of them are known to be on the cheaper end of scale, and have had a healthy number of launches in those 10 years. 

 

Punggol BTO prices from 2008 to 2018

Here’s the how the BTO launch prices for Punggol have moved from 2008 to 2018. The prices listed are the average of the minimum and maximum selling prices. Further, if there were no launches in a particular year, the price was assumed to be the same as the previous year.

2008

94,500

173,000

275,000

366,500

2009

101,500

169,500

278,000

370,500

2010

101,500

193,500

309,500

394,000

2011

98,000

196,000

323,500

409,500

2012

117,000

205,000

319,500

405,500

2013

111,000

204,000

328,000

430,000

2014

110,500

189,000

309,500

381,500

2015

114,500

198,000

324,500

426,500

2016

110,000

186,500

311,000

413,500

2017

110,000

186,500

317,000

395,500

2018

130,500

216,000

324,000

441,000

CAGR

3.28%

2.24%

1.65%

1.87%

As you can see the CAGR of a Punggol BTO over a 10-year period ranges from 1.65% to 3.28%. 

Now, let’s look at Yishun. 

 

Yishun BTO prices from 2008 to 2018

2011

-

174,500 

265,000 

329,000 

2012

-

183,500 

292,000 

359,500 

2013

96,500 

192,000 

286,000 

354,500 

2014

98,000 

163,000 

279,000 

374,000 

2015

98,000

163,000

279,000

374,000

2016

101,000 

173,000 

274,000 

374,000

2017

95,000 

167,000 

271,000 

354,500 

2018

103,500 

193,000 

282,500 

369,500 

CAGR

1.41%

1.45%

0.92%

1.67%

The data shows that the CAGR for the Yishun area is even lower, ranging from 0.92% to 1.67%. 

No doubt, this might seem suspiciously low based on the prices listed above. But remember, exponential growth is never intuitive (which is also why many people underestimate the power of long-term compounding).

So, back to our original question. Have BTOs become more expensive? That depends on your definition of the word “expensive”.

 

Defining the Word “Expensive”

Yes, BTO prices have indeed increased (although probably by much less than you might have thought). So, if we define the word “expensive” as “having increased in price” – an absolute measure – then yes, BTOs have become more expensive.

But if we define “expensive” as being less affordable – a relative measure – then the answer is much less clear. To answer that question, there are a couple different angles we will be taking, starting with inflation.

 

BTO Prices vs Inflation

You’ve probably heard of the difference between real versus nominal values before, as in nominal GDP versus real GDP. It’s an essential economic concept. 

Nominal  value is measured by the absolute value in terms of dollar cost, while real value is measured relative to the price of goods and services. In other words, real value is the nominal value adjusted for inflation (which is why real GDP is almost always lower than nominal GDP).

So, we know that the nominal values of BTOs have increased. But how about their real values? 

To determine that, we must first look at Singapore’s inflation rate – which has fluctuated significantly over the past decade

Year

Inflation Rate

2008

6.63%

2009

0.6%

2010

2.82%

2011

5.25%

2012

4.58%

2013

2.36%

2014

1.03%

2015

-0.52%

2016

-0.53%

2017

0.58%

2018

0.44%

CAGR

2.25%

Even with the two years of slight deflation in 2015 and 2016, the CAGR of Singapore’s inflation from 2008 to 2018 is 2.25%. And based on the overview above, except for Choa Chu Kang, Jurong West and Sengkang, the price appreciation of BTOs is lower than the rate of inflation. This means that, in most cases, the real prices of BTOs have fallen. They have become less, not more expensive.

That’s from an inflation perspective. Let’s look at another one – which you may find a bit more relevant – income.

 

BTO Prices vs Income Growth

Measuring how prices change compared to inflation may be an essential economic concept. But let’s face it – it’s a little too abstract for most of us non-economists (though it is still helpful). What matters more to us is our incomes.

So, the next question is – how have BTO prices moved compared to our incomes?

To determine that, we can look at a widely-tracked metric – median gross monthly income from work (including employer CPF contributions). Now, you may argue that net income would be more appropriate, since it’s what actually hits your bank account. But remember, we are looking to compare growth trends here, so it really doesn’t matter.

With that said, here’s how Singaporeans’ incomes compare

Year

Median Gross Monthly Income

2009

2,927

2010

3,000

2011

3,249

2012

3,480

2013

3,705

2014

3,770

2015

3,949

2016

4,056

2017

4,232

2018

4,437

2019

4,563

CAGR

4.54%

The CAGR of 4.54% is significantly higher than the BTO case studies we saw above. In other words, compared to our incomes (and compared to inflation), BTOs have become more affordable and less expensive.

And that’s before taking into account the housing grants.

 

Housing Grants Make BTOs Even More (Immediately) Affordable

Now, CPF housing grants are not “free money” by any means. The funds are disbursed directly into your CPF Ordinary Account (so you can’t spend it willy-nilly), and you can only use it to offset the initial BTO purchase. Further, if you sell your BTO flat, you must also repay the grant amount.

But there’s no denying that they make homeownership more accessible. This is even more the case since September 2019, when the Enhanced Housing Grant (EHG) came into effect, with a higher qualification income ceiling of S$9,000 per month and a removal of all restrictions on the type of flats or estates.

Read More: HDB’s New Enhanced CPF Housing Grant (EHG) and Higher Income Ceilings: What You Need to Know

The EHG also raised the maximum grant amount (which scales according to income) to $80,000 for households and $40,000 for singles. That can be a significant offset off the already-affordable BTO flats.

 

Conclusion: BTOs Remain Reasonably Affordable

The data is clear. Contrary to common complaints, BTOs are still reasonably affordable. Plus, since incomes and inflation are outpacing BTO prices, you could argue that they are actually getting even more affordable. And when you add the recent housing grant revisions on top of that, the conclusion is self-evident.

On a side note, if you wonder why you only hear people complaining about BTO prices, the answer is selection bias. After all, people who find them extremely reasonable will not be complaining – they will be researching and buying! If you want to join those people, then check out our BTO launch directory and see what’s on the BTO menu for November.

 

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