Understanding the various factors influencing the rise in HDB prices is crucial for homeowners and prospective buyers. With more than 80% of Singapore’s population finding solace in the cosy embrace of HDB flats, it’s no wonder that affordable public housing has become an indispensable necessity on the island.
In a world of global uncertainties and economic downturns, the demand for HDB resale flats is unlikely to be shaken. This article explores the factors behind the rise in HDB resale prices in Singapore and the key determinants that shape their market value.
There is bad news for Singapore homebuyers: resale flat prices ended Q1 2023 at a record high. Data released by the HDB showed that its Resale Price Index (RPI) grew 1% in the first quarter of 2023 compared to the fourth quarter of 2022.
Despite the high interest rate environment, the demand for HDB resale flats has grown. The increase in HDB resale prices in Q1 2023 has marked the 12th consecutive quarterly hike in the resale price index since 2020!
The factors discussed below will help individuals make informed decisions when buying or selling an HDB flat. Gaining insights into the factors will empower them to expand their investment potential in the ever-evolving real estate market.
One of the foremost reasons behind the upswing in HDB resale prices is the high prices of private properties. Rising prices in the private housing market will also push the price of resale HDB flats to a certain extent.
Owing to Singapore’s renowned status as a safe haven, local and international investors are interested in the investment opportunities presented by private residential properties. The private residential property index has increased from 188.6 in Q4 2022 to 194.8 in Q1 2023. It represents an increase of 3.2%, accelerating sharply from a 0.4% growth in the previous quarter.
Similarly, the volume of private properties transacted was all-time high in nearly ten years. That has compelled many homebuyers to turn towards the HDB resale market instead, which lead to the rise in HDB resale prices.
Furthermore, in the latest cooling measures in April, the government raised Additional Buyer’s Stamp Duty (ABSD). It may have had an indirect impact on the HDB resale prices.
This cooling measure has increased the overall transaction cost for Singaporean citizens or permanent residents looking to buy private properties, thus making them less attractive than HDB housing. That has potentially shifted the demand towards HDB resale flats.
Another contributing factor is the shortage of supply and increased demand. Over the last few years, the supply of HDB resale flats has been unable to keep pace with the growing demand, leading to a rise in HDB resale prices.
During the years of COVID-19 pandemic years, new Build-to-Order (BTO) projects have been delayed numerous times due to the pandemic’s disruption and other logistical challenges. Since tighter border control measures have adversely affected the construction sector, they could delay further.
These construction delays also saw some homebuyers turning from BTO flats to resale flats. Likewise, first-time buyers with “urgent housing needs” are unwilling to wait out long completion times for BTO flats. All these interlinked factors pushed up demand for HDB resale units.
Combined with homebuyers who turned away from the private property market due to their high prices, the uncertainty attached to BTO projects has contributed to the surge in demand for HDB resale flats in Singapore.
Another reason behind the rise in HDB resale prices is a higher demand for such flats. The demand surge comes from two main groups – ‘upgraders’ and ‘downgraders’.
Upgraders, particularly newlyweds who prefer not to wait for a BTO flat, often opt for resale flats. These couples may search for large apartments if they plan to have a child soon or need more space because of the prevailing work-from-home arrangement. Some buyers may push themselves to snap up bigger HDB units as they fear such flats may be out of their price range in the future.
On the other hand, downgraders, typically older Singaporeans, may be moving from large private properties to smaller HDB flats owing to the poor economic outlook and inflation.
The high private property prices may have prompted more “downgraders” to turn towards the HDB resale market, thus contributing significantly to the demand. These buyers may switch to non-mature estates, which are further away from the city centre but still more affordable.
The rising prices of HDB resale flats can be due to several interlinked factors, including the increasing number of HDB flats reaching their Minimum Occupation Period (MOP).
As HDB flats complete the five-year MOP, they become eligible for resale, adding to the overall supply in the resale market. This influx of available HDB flats provides more options for potential buyers, contributing to the overall demand and subsequently influencing the prices.
There is a perception among sellers that selling an HDB flat immediately after its MOP expiration will yield the highest resale prices. This perception stems from the idea that the flat is still relatively new, in good condition, and offers the maximum remaining lease duration compared to other resale flats.
Buyers, particularly those looking for a well-maintained and long-term investment, are willing to pay a premium for such properties, further driving up the resale prices.
Additionally, the well-regulated nature of HDB flats under the governance of the Housing & Development Board plays a significant role in stabilising the HDB resale market.
The strict regulations prevent homeowners from engaging in speculative buying and selling practices, ensuring a more controlled and orderly market environment. This stability, in turn, enhances buyer confidence and contributes to a rise in HDB flat prices over time.
The unrelenting interest in million-dollar deals and persistently strong demand has fuelled prices of HDB resale flats, continuing to go up.
In Q1 2023, 21 four-room HDB flats crossed the $1 million mark on the resale market. It is the highest number in recent years and almost three times the number of $1 million four-room units sold during the same period in Q1 2022.
This recent rise in four-room million-dollar HDB resale flats could be due to the 15-month wait-out period announced in September 2022 that restricts private residential homeowners from buying five-room or larger apartments. It may have diverted some private homeowners to buy four-room resale flats at a higher price. Some property experts expect this uptrend to continue in the coming years.
Also, growing interest and demand for larger homes (jumbo flats) near the city centre has shown a significant increase in $1 million or more flat deals among resale buyers. Due to the bigger size and diminishing supply, the in-demand large-sized flats in mature estates command price premiums. That has contributed to the high number of million-dollar HDB flats transacted.
We can also attribute the rising prices of HDB resale flats to the impact of interest rates, particularly the fixed rate home loans by HDB. In an environment of increasing interest rates, HDB’s fixed interest rates are considered a safe and promising option by property buyers.
The upward trajectory of interest rates set by the US Federal Reserve has also influenced local mortgage rates in Singapore.
HDB offers a concessionary interest rate for its loans, which has remained unchanged at 2.6% per annum since 1999. In contrast, as the economy reopened following the COVID-19 pandemic, interest rates have seen a significant rise. The floating interest rates in recent months have exceeded the 4% mark.
Given the current rising interest rate environment, HDB’s concessionary rate of 2.6% is considerably lower than the floating interest rates by banks. This stark difference in home loan interest rates has impacted the HDB resale market, resulting in upward pressure on resale flat prices.
Buyers seeking more favourable interest rate conditions are drawn to HDB resale flats due to the lower fixed interest rates thus increasing demand and subsequently driving up prices in the resale market.
Read more: Floating or Fixed Rate Home Loan Better
Changing government policies also influence HDB resale prices. Some property analysts suggest that a rise in the CPF housing grant amounts for eligible resale flat buyers could further push the demand for resale HDB flats. The increased housing grants for first-timers may stimulate demand and price growth for some flat types.
In the Budget 2023 statement, the CPF housing grant (in this case, Enhanced Housing Grant) has been increased from $50,000 to $80,000 for eligible first-timer families buying a four-room or smaller HDB resale flat. For those looking to buy a five-room or larger resale flat, the EHG amount will increase from $40,000 to $50,000.
Property experts suggest this will make it more affordable for buyers of resale flats and could increase the HDB resale market’s transaction volume to anywhere between 26,000 and 28,000. It could impact growth in resale prices by up to 10%.
Other government policies, like the Voluntary Early Redevelopment Scheme (VERS) announced in 2018, have also contributed to speculative buying in older estates, pushing up HDB resale flat prices. Under this government policy, homeowners in older estates get to sell their flats back to the government.
Further reading: 7 New HDB Rules in 2023
The attractiveness of the HDB flat location is another factor when discussing the rising prices of HDB resale flats.
Flats in mature estates such as Ang Mo Kio, Bedok, and Queenstown tend to command higher prices. The proximity of HDB flats to essential amenities further impacts their resale prices. HDB resale flats closer to MRT stations, schools, and shopping centres are typically in higher demand and can fetch a premium in the resale market.
The convenience of having easy access to public transportation, educational institutions, and retail shops enhances the desirability of these HDB flats among homebuyers, driving up their prices.
Factors like the surrounding environment and quality of life add to the location’s attractiveness. Buyers prefer HDB flats near well-maintained parks, recreational facilities, and green spaces, driving up the appeal and value of HDB resale flats in those areas.
The stability of Singapore’s economy plays a significant role in the rising prices of HDB resale flats. Singapore’s strong and stable economy provides job security for its residents, which boosts buyer confidence.
When individuals have confidence in their income stability, they are more willing to make significant investments, such as purchasing property. As a result, the demand for HDB resale flats remains consistently high, driving up their prices.
A robust economy and increased buyer confidence contribute to the upward trend in HDB resale flat prices.
As mentioned, the HDB resale price index in Q1 2023 has marked the smallest quarterly increase in the last ten quarters – or 2.5 years.
Singapore’s HDB resale prices grew by 10.4% in 2022, slower than the 12.7% rise posted for 2021, according to HDB flash estimates. It suggests that HDB resale price growth has started to moderate. Property analysts expect a single-digit percentage hike in HDB resale prices in 2023, ranging from 2% to 8%.
The slower increase in prices during the first quarter of 2023 suggests that the recent property cooling measures have helped to reduce market euphoria. Singapore households have started to feel the effects of rising interest rates and inflation. It shows that while resale home prices may continue to grow, they may see a slower increase in 2023.
With the launch of 23,000 BTO flats “committed” in 2023, prices may start to moderate as supply catches up.
The soaring HDB resale prices in Singapore are a confluence of factors shaping the real estate market landscape. These factors are complex and intertwined, illustrating the multifaceted nature of property pricing and the dynamics of the HDB resale market.
As Singapore continues to evolve, so will the factors influencing HDB resale prices, providing an ongoing topic of analysis and interest.
While interest rates rise, home prices will not expect a significant drop in 2023. Singapore’s HDB resale market will remain an attractive choice for homebuyers in the long term, even with the cooling measures in place.
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