View of HDB flats in the Ghim Moh area. (Photo: Chen Siyuan: Wikimedia Commons)

The latest data showed a 0.7 percent drop in HDB resale prices in Q3 as compared to the previous quarter. We investigate some reasons for this.

By Hock Meng Tay

The latest HDB resale data for the third quarter of 2017 saw a fall in both prices and transaction volumes. The Resale Price Index (RPI) fell by 0.7 percent from 133.7 during Q2 to 132.8 during Q3 2017. Resale transactions also dropped by 3.2 percent from 6,001 units during Q2 to 5,808 during Q3.

On the HDB rental front, the number of subletting applications fell by 2.1 percent from 10,929 cases in Q2 to 10,698 in Q3. According to HDB, as of end-September, a total of 53,445 flats were being sublet, a decline of 0.2 percent in Q2.

HDB cooling measures

A DBS Vickers Research report noted that following a series of property cooling measures in 2013, demand for HDB resale units have dropped. The report cited the Mortgage Servicing Ratio (MSR), which stipulated a cap of 30 percent on a borrower’s gross income and a maximum loan tenure of 25 years for HDB housing loans (30 years for private loans applied through the banks for buying HDB flats).

The authorities also implemented a three-year waiting period for new permanent residents (PRs) before they can buy resale flats. This ruling, on top of the large supply of Build-To-Order (BTO) flats resulted in 17,318 resale flats being transacted in 2014. This was 31 percent down from the peak of 24,094 units in 2012. HDB resale flat prices also fell by 6.6 percent over the same period.


Figure 1 shows that there is still a general uptrend in the RPI from Q1 2008 till Q1 2013. However, after Q2 2013, the index started to hit its peak, and declined a little, then turned flat around Q1 2015. Despite the short-term blip in the latest quarter (Q3 2017), and compared to the peak in Q3 2013, the current decline is about 11.1 percent.

Figure 2 shows the quarterly moving average of HDB resale prices. It appears that prices have since started to flatten. It also shows that HDB resale prices have largely stabilised without much significant changes.

Based on the latest figures from HDB’s website, the number of resale flat applications have started to drop, with the highest drop stemming from the 3-room flat types (negative 7.8 percent in Q3 2017 as compared to Q2 2017). However, the 5-room flat types bucked the trend during Q3 with an increase in the number of resale applications. The rate of change is about 1.5 percent on a quarterly basis.

We think that the drop off could be the availability of the new housing grants offered to first-time home buyers during the 2017 Budget. This could have drawn demand away from HDB resale flats to the newer BTO flats. Moreover, the government has stepped up the construction of BTO flats, including the March 2017 announcement by HDB that the waiting time for new BTO flats will be shortened.  

Are prices sustainable?

Using the latest HDB RPI, we compared a mature estate like Ang Mo Kio with a non-mature estate like Punggol to demonstrate the changes in flat prices. Mature estates are usually located closer to the city centre, and the amenities are well-established compared to those located in non-mature estates.

Many HDB dwellers are indifferent whether they stay in a mature or a non-mature estate as long as transportation and amenities are available. In such instances, they could be willing to fork out a premium for a relatively newer flat as compared to older resale flats in mature estates.

Therefore, we think that the quarterly price decline in Q3 could be a blip as there are bound to be some flat dwellers who are willing to pay a premium for convenience, accessibility, the condition and age of the resale flat, among others.

Comparing the median prices for 4-room flat types in both Ang Mo Kio and Punggol, the data shows that the median price for a 4-room flat in Ang Mo Kio is about $374,400, while the median price for a 4-room flat in Punggol is about $468,888.

Punggol flats are priced at a premium as compared to Ang Mo Kio

Using this typical example of making a comparison among flat types located in a typical mature estate like Ang Mo Kio and those in a non-mature estate like Punggol, it is reasonable to conclude that in some cases, resale flats are priced at a premium if they are in a non-mature estate as compared to one located in a mature estate. This might be the result of personal preferences as most first-timer couples or upgraders tend to prefer newer flats over older flats, and most of them are willing to pay premium prices for newer flats.

However, we need to stress that we are only drawing a simple comparison of prices of one flat type located in a mature estate like Ang Mo Kio with a non-mature estate like Punggol, and barring any comprehensive tests of samples drawn from the mix of flat prices located in the 26 housing estates, both mature and  non-mature, we can reasonably observe that HDB dwellers are willing to pay a premium for a newer flat in a non-mature estate than an older flat in a mature estate, even though the former is located further away from the city centre as compared to the latter.

HDB launches new resale portal

In a move towards more transparent HDB resale transaction information, the authorities on 19 October announced the launch of the HDB Resale Portal starting from 1 January 2018.  The authorities aim to focus on several key objectives through the portal.

First, the delivery of streamlined services which focuses reducing the waiting time for the completion of the resale transaction. Second, shorter transaction time which takes only one appointment with the HDB officer to get the documents approved. HDB aims to shorten the completion of the resale application from 16 weeks to eight weeks.

The overall improvement is a continuous drive towards making HDB resale transactions more transparent. If one can recall, the HDB resale market used to be dominated with a single focus on cash-over-valuation (COV) where both buyers and sellers try to negotiate with each over on the COV values. However, it was perceived as one of the major causes for the continued rise in HDB resale prices, and the COV method was removed in March 2014.

With the replacement of COV, both buyers and sellers will now have to agree on the final price before requesting for a valuation report.

BTO sales launch in November

HDB recently launched 4,829 BTO flats across four estates, two in non-mature estates (Punggol and Sengkang), and the balance in mature estates (Geylang and Tampines). The various room types ranged from 2-room Flexi to 5-room and 3Gen flats. The recent launch brings the total BTO flat supply for 2017 to about 17,500 units.

Guru View


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