[2021 Repost]
We all know this, or we have heard at least an inkling of this. HDB resale prices are rising, and they are climbing at a rate unseen in many years. Latest published statistics show HDB resale prices in Q3 2021 exceeding the historical peak in Q2 2013 with August HDB resale prices just 0.1% off that peak. This was a point which many felt we won’t be returning to anytime soon, considering the performance after 2013. Resale price are expected to still continue to grow.
As you can observe above, prices have fallen at about 12% since the peak in 2013 and remained stagnant. It then started increasing in 2020 and from Q3 2020 onwards it had risen dramatically. As of latest Q3 2021 flash estimates, prices have exceeded the peak in April 2013.
This rise would not be lost among HDB homeowners – which an increasing number of flats transacted when they achieved the Minimum Occupation Period of 5 years. This number doubled to 13.4%, as compared to 2016.
Why Are HDB Resale Prices Rising?
Now, to answer the main question – why are HDB resale prices on an upswing? The reasons are as follows, and you would find it to be pretty much pandemic-driven.
BTO Delays
This is very likely a main cause for the rise in HDB resale prices. With BTO projects getting delayed and contractors having difficulties to procure resources and running into financial issues, home-owners are inclined to turn to HDB resale flats as an alternate option. HDB resale flats offer a much quicker option as they are already ready for move-in. This is definitely faster compared to a HDB flat still under construction.
And to add, with home-owners likely to be bound by family commitments and timeline such as family planning, schools – there might not be much of a choice too.
Need For Privacy & Space
COVID-19 has introduced new working paradigms. The Work-From-Home (WFH) model has in many ways become a default working style, with Zoom calls replacing face-to-face meetings. Beyond that, people are more adverse to stepping out of their homes now in light of an infectious virus like COVID-19.
This has resulted in people staying at home more than usual, and it is only natural people will now seek a better home environment. People are now searching for places which can provide them the privacy in which they crave. Or maybe they are now looking for larger spaces which can accommodate more activities – such as WFH or gym.
This has led people to look for HDB resale flats who can offer them the size and privacy they need.
Construction Costs
This may not be keenly felt just yet, but linked to the earlier point on BTO delays – contractors are feeling the burden of increasing construction costs. This is a real problem in the face of COVID-19. With issues such as material supply, contractors with little risk buffer and etc – the construction industry has been badly hit.
Such costs would, easily, eventually flow back to the home-owners and buyers will then have to fork out a higher price to get their homes.
Is Such Price Growth Sustainable?
With HDB flats meant to be affordable to the masses, a sustained growth in the long run will only mean future home-owners getting priced out. On a society standpoint, this is not desirable. If HDB owners feel that their homes are more of investment units to sell at a much higher price later, this can lead to a housing bubble too. This is especially detrimental to the HDB market and its long-term goals.
Therefore, such price growth is not sustainable in the long run. If left unchecked, it can lead to economic and society repercussions.
Historically, what is most likely to happen is that the Government will step in with regulations. Prior to the peak in 2013 – HDB resale prices have risen at an unsustainable rate too. They then introduced the Total Debt Servicing Ratio (TDSR) framework to curb this growth. In particular, the Mortgage Servicing Ratio (MSR) under this framework was introduced to tackle HDB resale prices. We see such active involvements by the Government constantly too. For example, the Additional Buyer Stamp Duty (ABSD) adjustments in the private property market.
Along with other tweaks, the government then successfully stabilised HDB prices. With HDB prices increasing dramatically again – what do you think will be the Government’s next step?
What Should You Do?
I would say, simply – Know your own needs
If you are in need of a new home, then you would have no choice but to accept the new norm of prices. Would you be able to wait for prices to fall, or would it ever fall to past prices again? History says no.
If you are already a home-owner contemplating to sell – consider how much will you get back when you sell and if it makes sense for you financially and personally. The reality now is that HDB prices are in a good place, and this is a point to note for you. However, we understand selling/buying a home is more than just prices too.
Consider your options against your own needs. If you need more advise, we are always here to help. Click here to reach out! Cheers!
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