Non-Mature HDB Prices Are Fast Catching Up: Are We Going To See More Million Dollar Flats Here Soon?

It was once assumed that million-dollar flats were a phenomenon in the oldest mature towns only. But with prices rising for 26 straight months, many Singaporeans may now be priced out of the mature towns – and demand may be shifting toward newer and more affordable estates. Here’s what’s happening in the resale flat market to date:

Resale flat prices have continued to rise, despite record highs in 2021

In 2021, resale flat prices rose 12.5 per cent; the biggest increase in around 11 years. As of August 2022, the resale market continues to defy expectations of a slowdown; and prices to date are already 10.8 per cent higher than the same time last year. 

For the month of August alone, there were 33 flats that transacted at the million-dollar mark. Notably, one of these flats was in a non-mature estate; an executive flat in Woodlands Avenue 1 transacted at $1.02 million. 

The volume of resale flat transactions dipped a bit in August, falling to 2,323 units (volume was at 2,363 units the previous month). However, realtors pointed out that this dip is cyclical, and happened due to the Seventh Month (29^th July to 26^th August 2022). 

Indeed, the numbers in August suggest strong, unabated demand, as prices were able to climb despite the usually quiet Seventh Month period. Realtors also noted that buyers, some of whom have to use bank loans, have been undeterred by aggressive interest rate hikes. 

(Buyers eligible to use HDB loans are not currently impacted by rate hikes, as their interest rate is pegged to the prevailing CPF rate). 

According to Square Foot Research, 5-room flats averaged $521 psf in August, while 4-room flats averaged $538 psf and 3-room flats averaged $534 psf.

Resale flat buyers may be turning to non-mature estates

With the relentless pace of price hikes, more buyers – especially first-time home buyers – may find themselves priced out of mature estates. 

We also think the recent introduction of Prime Location Housing (PLH) is an unintended contributor to this effect. Under the PLH model, some of the best located new flats will come with 10-year Minimum Occupancy Periods (MOPs), along with clauses like Subsidy Recoveries (SRs). 

However, there are resale flats that are just as well located as some PLH projects, but have none of these drawbacks. 

A project like the famous Pinnacle @ Duxton, for instance, or resale flats in the traditional hotspots of Bishan and Queenstown, can rival recent PLH launches for accessibility and convenience; with the added advantage of just a five-year MOP. As such, the PLH model could drive up demand and prices among these flats. 

In any event, we have witnessed rising prices in non-mature estates, including areas like Hougang, Woodlands, Jurong East, and Punggol. 

There’s also an interesting price observation by PropNex Research recently. PropNex reported that, for 2021, there were 173 flats in non-mature towns that were resold for $800,000 or above; up from just 33 such transactions the year before. 

Realtors said that, as interest turns toward non-mature towns, we can expect some narrowing of the price gap between mature and non-mature estates in the near-term. 

Cash Over Valuation (COV) tends to be lower in non-mature estates, and it’s a serious problem for first-time flat buyers 

One realtor identified rising COV rates as being the main culprit, for pricing out first-time home buyers. 

COV refers to any amount paid above the valuation of the flat. This amount is not covered by the home loan, and buyers cannot pay for it with their CPF. As such, first-time buyers – who can’t count on cash proceeds from the sale of a previous home – may balk at the initial cash outlay. 

COV rates have not been published by HDB since 2013, as one way to keep them under wraps. However, the realtor claimed that for high-demand areas (e.g., Toa Payoh, Queenstown, Bishan), COV is almost a given; and buyers should expect amounts to be in the range of at least $20,000 to $40,000, as of 2022. In some cases, the amount can exceed $80,000. 

This is broadly in-line with our crowd-sourced results for COV rates. 

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If you visit the same article however, you’ll see there’s still a decent chance that – if you buy in a non-mature area – it’s still possible to buy at valuation (no COV).

For many first-time home buyers, the greatest hurdle is not income requirements like the Mortgage Servicing Ratio (MSR). Rather, the main challenge will be the upfront cash component. COV, which must be paid in cash, is often the next biggest consideration besides the down payment. 

As such, newer home buyers will probably start focusing on non-mature estates, as resale flat prices continue to heat up. 

Turning to the BTO market is not an option for some buyers

Despite HDB ramping up its production, some buyers still can’t opt for a BTO flat. Realtors pointed out that some demographics, such as families where both spouses are Permanent Residents (PRs), cannot apply for BTO flats. 

Likewise, the aftermath of Covid-19 has normalised Work From Home (WFH) arrangements; and for buyers who have no office space, four to five-years is too long to wait for their flat to be built. 

These buyers are caught between high resale prices, and lack of immediate availability for BTO flats. In these scenarios, the best alternative is often a resale flat in a non-mature area. 

In the long term, the distinction of a “mature” estate may not be as significant 

There’s a growing realisation that, as Singapore becomes decentralised, the notion of a “mature” estate may start to hold less value. The clearest example of this is Jurong East. 

On paper, Jurong East is a non-mature estate. In reality, anyone who has lived in the area is an eyewitness to Jurong’s dramatic transformation, into a second CBD. With the opening of major malls like JEM, Westgate, Jcube, etc., Jurong is in fact something of a retail powerhouse. 

Even Yishun is no longer really “inconvenient”, with the opening of Northpoint City back in 2018, and malls like Junction 9. 

As the MRT network expands, the perceived distance between mature and non-mature towns will diminish. And for those settling in for five or more years (five years is the MOP anyway), there’s a lot of time for the neighbourhood to evolve. As this fact begins to settle in, buyers may start to be more open to non-mature towns. 

Even the BTO market may be starting to reflect this. We already saw, for the first time ever in 2021, demand for non-mature BTO flats outstrip demand for mature ones. 

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