Cutting through the buzz around $1m HDB resale
2022-11-18
Each time I see news headlines about yet another Housing Board resale flat selling for more than $1 million, I shake my head. I make myself read the article – because I’m a journalist who writes about socio-political issues, including housing; and because I hope that this time, the report will give a more nuanced, accurate picture of these transactions.
Alas, I am usually disappointed. I then shake my head again, in despair.
Of course more HDB flats will be sold for more than $1 million this year than last. Inflation alone would account for this, let alone the red-hot property market that is the result of a rise in demand as borders reopen with the lifting of Covid-19 restrictions, and the shortage of supply due to construction delays of homes during the pandemic.
So it should not be surprising that more flats were sold above that price threshold in the first nine months of 2022 than in the whole of 2021. Such news garners headlines, but leaves me cold.
After all, a large, jumbo-sized or executive maisonette selling for above $1 million should not be so surprising, even if it is in a suburban area like Woodlands, Yishun or Hougang. The average size of such apartments is 1,500 sq ft to 1,600 sq ft. Some go up to more than 2,000 sq ft.
In May, three flats of about 189 sq m each sold for more than $1 million in Pasir Ris and Woodlands. The transactions grabbed attention, given the headline $1 million figure. But these flats are about twice the size of average four-room flats. Calculating prices on a per square foot (psf) basis would be a more accurate indicator of how resale flat values are rising.
Of the three transactions, one was for an executive flat in Woodlands located in Woodlands Street 83, at 189 sq m, or 2,034 sq ft, that sold at $1.04 million. This amounts to $511 psf.
How does this compare with median prices of other resale flats in Woodlands? Well, HDB resale data shows that in the second quarter of 2022, the median price for a four-room resale flat in Woodlands was $450,000. Since four-room flats average around 1,000 sq ft, the median price is about $450 psf.
In many property transactions, smaller-sized units sell for a higher psf than larger ones. For HDB flats, however, there is a scarcity of larger-sized units, and buyers are prepared to pay a premium for such flats. But even then, the premium on a psf basis is not unreasonable – about 13.6 per cent.
But you can’t headline a story with “HDB resale flat sells for $511 psf”. Slapping on the million-dollar quantum grabs attention.
Analysts and media commentators should be more granular in their analysis, and highlight property trends that are more reflective of genuine underlying trends and issues than slick, clickbaity figures that mean much less than their headlines suggest.
In my view, huge flats selling for more than $1 milion are less of a social concern than the prices of regular-sized, four-room flats.
Location and age
It also matters where the flats are located. Prime-location flats would naturally be priced higher, and breaching the $1 million threshold would be less remarkable for them.
The age of the flats is also a factor to consider.
Supposing there are two resale flats of 1,000 sq ft, in the same precinct. One is five years old with 94 years left of its 99-year lease. Another flat, 39 years old, has 60 years left on the lease. Both sell for $1 million, or $1,000 psf. Which is more newsworthy, or worthy of notice and concern? Surely the latter, as there would be questions about whether the flat can hold its value as the lease decays, when it is already nearly 40 years old.
In a column some years ago, I argued that analysts should track a more specific figure to assess the value of HDB flats. This is the price of flats on a psf basis, divided by the number of years left on the lease. For simplicity’s sake, one can assume a straight-line depreciation of the remaining lease, from 99 years at 100 per cent, to zero when the lease reaches its limit.
Such a measure is admittedly a very crude proxy for measuring value, but would at least take into account how the age of an HDB flat might affect its value. (For buyers, this is also a useful, if blunt, tool to figure out whether to buy that resale flat or that 99-year leasehold condominium unit.)
So when I look at those transactions on HDB flats that cross $1 million, I ask myself: How big is the flat? How old is it? Where is it located? How significant are those headline numbers, as a measure of how prices are affecting affordability?
For now, I remain unfazed by million-dollar sales for large flats. If Singaporeans want to live in double-storey executive maisonettes for a “landed” living experience, and are willing to pay more on a psf basis for executive maisonettes, good for them, I say, so long as they are aware of the risks of the value of their flat declining in the years to come. Based on earlier studies, the value of an HDB flat on low floors stagnates from year 30.
Four-room flats
What I would be concerned about is prices of four-room resale HDB flats crossing $1 million. Four-room flats are median-sized flats, popular with many home buyers. How many flats are crossing this price threshold, and where, and how old are the flats?
In October, a useful article on the propertyguru.com website looked at this trend, asking: “Rise of the four-room million-dollar HDB flats in Singapore: Where are they found?”
It reported that the first four-room resale flat sold for above $1 million was a 1,033 sq ft flat at The Pinnacle@Duxton, in June 2018, for $1.028 million.
The article added: “According to official data from data.gov.sg, as at Oct 3, 2022, there have been 25 four-room flats transacted for over $1 million in 2022 alone.”
Of these, 18 were in the central area, and three in Queenstown. The article then looked at prices of four-room resale flats in the $850,000 to under $1 million range, to try to predict which estates will have more $1 million transactions for four-room flats in the coming months or years. These were clustered in Kallang/Whampoa, Queenstown, Bukit Merah and central areas. Interestingly, Ang Mo Kio had 31 transactions in that range and Toa Payoh had 49.
That is something I would find worrisome: HDB four-room resale flats in suburban heartland estates like Ang Mo Kio selling for more than $1 million. While estates like these are classified as mature estates by HDB because of their connectivity and amenities, they are not really in the city centre. A train ride from Ang Mo Kio to Raffles Place in the Central Business District takes about 20 minutes.
Estates like these are huge population centres housing multi-generational families. Heartlanders can find their children priced out of these estates by high resale flat prices that have a knock-on effect on new, Build-To-Order (BTO) flats. If that happens, there will be widespread unhappiness about the HDB dream becoming one that is out of reach of median workers and their adult children.
The housing market is hot right now, and anxieties over rising prices are increasing. The Government is doing its level best to manage both prices and expectations. It has steadily increased the level of subsidies given for new BTO flats to keep them affordable to the masses, even as underlying prices and costs of construction have gone up.
Attention-grabbing headlines on property news – such as million-dollar resale flats – add fuel to a climate that is already overheated. The herd mentality tends to be strong in Singapore’s property market, and news about a few sales figures can cause sentiment to become overblown.
I hope analysts and commentators would avoid focusing attention on figures that fuel emotion but do not shed much light on underlying issues. Instead, they should help the public cut through the noise to discern trends that are significant to the health of Singapore society.
Tracking $1 million resale flats is faddish, but unnecessary. Tracking median resale prices for four-room flats in all estates would be more useful. Analysing these on a psf basis, and by age of flat, would be even better. If any million-dollar transactions deserve attention, they would be the four-room flat resales that cross that threshold outside the city centre area.
Each time I see news headlines about yet another Housing Board resale flat selling for more than $1 million, I shake my head. I make myself read the article – because I’m a journalist who writes about socio-political issues, including housing; and because I hope that this time, the report will give a more nuanced, accurate picture of these transactions.
Alas, I am usually disappointed. I then shake my head again, in despair.
Of course more HDB flats will be sold for more than $1 million this year than last. Inflation alone would account for this, let alone the red-hot property market that is the result of a rise in demand as borders reopen with the lifting of Covid-19 restrictions, and the shortage of supply due to construction delays of homes during the pandemic.
So it should not be surprising that more flats were sold above that price threshold in the first nine months of 2022 than in the whole of 2021. Such news garners headlines, but leaves me cold.
After all, a large, jumbo-sized or executive maisonette selling for above $1 million should not be so surprising, even if it is in a suburban area like Woodlands, Yishun or Hougang. The average size of such apartments is 1,500 sq ft to 1,600 sq ft. Some go up to more than 2,000 sq ft.
In May, three flats of about 189 sq m each sold for more than $1 million in Pasir Ris and Woodlands. The transactions grabbed attention, given the headline $1 million figure. But these flats are about twice the size of average four-room flats. Calculating prices on a per square foot (psf) basis would be a more accurate indicator of how resale flat values are rising.
Of the three transactions, one was for an executive flat in Woodlands located in Woodlands Street 83, at 189 sq m, or 2,034 sq ft, that sold at $1.04 million. This amounts to $511 psf.
How does this compare with median prices of other resale flats in Woodlands? Well, HDB resale data shows that in the second quarter of 2022, the median price for a four-room resale flat in Woodlands was $450,000. Since four-room flats average around 1,000 sq ft, the median price is about $450 psf.
In many property transactions, smaller-sized units sell for a higher psf than larger ones. For HDB flats, however, there is a scarcity of larger-sized units, and buyers are prepared to pay a premium for such flats. But even then, the premium on a psf basis is not unreasonable – about 13.6 per cent.
But you can’t headline a story with “HDB resale flat sells for $511 psf”. Slapping on the million-dollar quantum grabs attention.
Analysts and media commentators should be more granular in their analysis, and highlight property trends that are more reflective of genuine underlying trends and issues than slick, clickbaity figures that mean much less than their headlines suggest.
In my view, huge flats selling for more than $1 milion are less of a social concern than the prices of regular-sized, four-room flats.
Location and age
It also matters where the flats are located. Prime-location flats would naturally be priced higher, and breaching the $1 million threshold would be less remarkable for them.
The age of the flats is also a factor to consider.
Supposing there are two resale flats of 1,000 sq ft, in the same precinct. One is five years old with 94 years left of its 99-year lease. Another flat, 39 years old, has 60 years left on the lease. Both sell for $1 million, or $1,000 psf. Which is more newsworthy, or worthy of notice and concern? Surely the latter, as there would be questions about whether the flat can hold its value as the lease decays, when it is already nearly 40 years old.
In a column some years ago, I argued that analysts should track a more specific figure to assess the value of HDB flats. This is the price of flats on a psf basis, divided by the number of years left on the lease. For simplicity’s sake, one can assume a straight-line depreciation of the remaining lease, from 99 years at 100 per cent, to zero when the lease reaches its limit.
Such a measure is admittedly a very crude proxy for measuring value, but would at least take into account how the age of an HDB flat might affect its value. (For buyers, this is also a useful, if blunt, tool to figure out whether to buy that resale flat or that 99-year leasehold condominium unit.)
So when I look at those transactions on HDB flats that cross $1 million, I ask myself: How big is the flat? How old is it? Where is it located? How significant are those headline numbers, as a measure of how prices are affecting affordability?
For now, I remain unfazed by million-dollar sales for large flats. If Singaporeans want to live in double-storey executive maisonettes for a “landed” living experience, and are willing to pay more on a psf basis for executive maisonettes, good for them, I say, so long as they are aware of the risks of the value of their flat declining in the years to come. Based on earlier studies, the value of an HDB flat on low floors stagnates from year 30.
Four-room flats
What I would be concerned about is prices of four-room resale HDB flats crossing $1 million. Four-room flats are median-sized flats, popular with many home buyers. How many flats are crossing this price threshold, and where, and how old are the flats?
In October, a useful article on the propertyguru.com website looked at this trend, asking: “Rise of the four-room million-dollar HDB flats in Singapore: Where are they found?”
It reported that the first four-room resale flat sold for above $1 million was a 1,033 sq ft flat at The Pinnacle@Duxton, in June 2018, for $1.028 million.
The article added: “According to official data from data.gov.sg, as at Oct 3, 2022, there have been 25 four-room flats transacted for over $1 million in 2022 alone.”
Of these, 18 were in the central area, and three in Queenstown. The article then looked at prices of four-room resale flats in the $850,000 to under $1 million range, to try to predict which estates will have more $1 million transactions for four-room flats in the coming months or years. These were clustered in Kallang/Whampoa, Queenstown, Bukit Merah and central areas. Interestingly, Ang Mo Kio had 31 transactions in that range and Toa Payoh had 49.
That is something I would find worrisome: HDB four-room resale flats in suburban heartland estates like Ang Mo Kio selling for more than $1 million. While estates like these are classified as mature estates by HDB because of their connectivity and amenities, they are not really in the city centre. A train ride from Ang Mo Kio to Raffles Place in the Central Business District takes about 20 minutes.
Estates like these are huge population centres housing multi-generational families. Heartlanders can find their children priced out of these estates by high resale flat prices that have a knock-on effect on new, Build-To-Order (BTO) flats. If that happens, there will be widespread unhappiness about the HDB dream becoming one that is out of reach of median workers and their adult children.
The housing market is hot right now, and anxieties over rising prices are increasing. The Government is doing its level best to manage both prices and expectations. It has steadily increased the level of subsidies given for new BTO flats to keep them affordable to the masses, even as underlying prices and costs of construction have gone up.
Attention-grabbing headlines on property news – such as million-dollar resale flats – add fuel to a climate that is already overheated. The herd mentality tends to be strong in Singapore’s property market, and news about a few sales figures can cause sentiment to become overblown.
I hope analysts and commentators would avoid focusing attention on figures that fuel emotion but do not shed much light on underlying issues. Instead, they should help the public cut through the noise to discern trends that are significant to the health of Singapore society.
Tracking $1 million resale flats is faddish, but unnecessary. Tracking median resale prices for four-room flats in all estates would be more useful. Analysing these on a psf basis, and by age of flat, would be even better. If any million-dollar transactions deserve attention, they would be the four-room flat resales that cross that threshold outside the city centre area.
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