How Do You Pick An HDB flat That Will Hold Its Value?

11 min read

It’s hard not to see HDB owners frowning this past decade. Ever since the last property peak in 2013, resale HDB flats have mostly been locked in a long downward trend, with little light ahead: the dream of SERS, the days of $30,000 being the median Cash Over Valuation (COV), and the belief that flat prices “will never go down” have ended quite suddenly. 

But among those who keep a close eye on the HDB market, this all poses a bit of a puzzle. For example: for the whole of 2018, we saw the number of million-dollar flats climb to a record number of transactions (71 such transactions) – and this happened despite HDB prices being at a seven-year low at the time. Although admittedly, it is really only a minuscule 0.3 per cent of the resale HDB transactions for 2018.

However in August of this year, there were five million-dollar flat transactions, with predictions of at least 70 such sales this year. Bear in mind this is in spite of the coronavirus situation. As to drive home the point, one of the million-dollar flats was sold in June – in the midst of the Circuit Breaker no less – and it was the first million-dollar resale flat to grace Ang Mo Kio.

To top it off, HDB resale volumes have been falling. In Q2 of this year, for instance, resale flat volumes plunged 41.9 per cent. The number of resale flat transactions fell by a further 0.2 per cent in Q3, when HDB flat prices barely managed to edge up by 0.1 per cent. Overall, resale HDB flat transactions are still down by 11.3 per cent compared to last year. 

This is likely due in part to the Coronavirus, but you get the point we’re making:

Some HDB flats are managing to fetch sky high prices, despite price movements and resale volumes being down for a long time.

The resale HDB flat market is quite frankly becoming a two-speed market, where flats of certain types – and in certain areas – outperform the average by so much, it’s as if they’re a whole different category of housing. 

And while many of our property savvy readers know to point at Pinnacle @ Duxton – which is as far from a regular resale flat as an Orchard Road condo is from a Pasir Ris EC – there are a few other traits that mark out these top performing resale flats. Here’s a rundown on what they are:

• Pick a proven location, not just any mature location
• The scarcity value of some flat types 
• A supply overhang makes scarcity and location even more important
• There are better prospects for newer resale flats 

1. Pick a proven location, not just any mature location

In terms of just price per square foot, HDB resale flats have performed as follows since the last property peak (2013)

Across the board, HDB flat prices average $431 psf today, down from $469 psf. This is a decrease of about 8.1 per cent from 2013.

However, a few estates have managed to avoid this. Notice that, while all the top estates are mature locations, not all mature locations are top estates.

In addition, note that the prices of executive or larger flat types are not reflected in the average prices here. More on this in point 2. 

Clementi

Clementi is a dark horse in the HDB race. You probably wouldn’t guess it if you don’t follow the resale market – but Clementi has gained significantly from the development of One-North and Holland Village, which are both adjoining it.

Average flat prices here average $543 psf, up even further from $512 psf in the peak of 2013. This is about a six per cent increase, outperforming the overall HDB market by about 14 percentage points.

Bukit Merah

You can chalk this one up to Tiong Bahru: an old housing estate that became the hipster heart of Singapore, and brought about aggressive gentrification (although these days the same energy is drifting out to the areas of Katong and Keong Saik). 

Average flat prices in Bukit Merah average $649 psf, up from $618 psf in 2013. This is an increase of about five per cent, beating the overall resale market by about 13 percentage points. 

Bishan

Bishan was known for its high value resale HDB flats even before 2013, so it’s no surprise to see it here. Prices have risen from $503 psf, to $520 psf today. This is up 3.3 per cent; impressive given that flats here were already expensive before the last peak.

Central Area

This is the region with some of the most expensive flats, but we can see they’re more resistant to downturns. Central area flats average $626 psf, down from $644 psf at the peak. However, they still outperformed the resale market – this is a decrease of around 2.8 per cent, much better than the 8.1 per cent slide in the wider market. 

Bukit Timah

Rounding out our list of top districts since 2013 is Bukit Timah. This area is better known as a high-rent private housing enclave; but flats in the area also gain from some of the prestige. The area manages to be in a “just right” zone that’s close to town, but spared from the congestion and noise. 

Prices here average $565 psf, down from $588 psf in the last peak. This is a 3.9 per cent decrease, much better than the 8.1 per cent drop in the wider resale market. 

If you’re looking for a resale flat that can possibly hold some value, and you’re looking at the long term, it may be best to focus on these neighbourhoods. 

We emphasise long term because you can see there’s still volatility in the prices; it’s hard to know if Bishan can have the best performing flats next year, but reasonable to think it will stay in the top estates over, say, the next 10 years. 

So if you’re thinking on a more short-term basis (e.g. you’ll sell right after the five-year Minimum Occupation Period), then you may want to focus on more immediate factors; such as the five-year URA Master Plan.

2. The scarcity value of some flat types 

First, a caveat:

The median price of certain special flats – such as executive or larger units – is sometimes not known. HDB doesn’t publish the price unless there’s at least 20 of these transactions in a quarter. But these units are less common, so we seldom hit that volume. There are, for instance, no current median prices for executive or larger flats in Bishan. (But for those in the know, you can actually head here to find that out).

That said, most of the million-dollar flats we see are not the usual three, four, or five-room HDB flats. Even a casual look at the million-dollar flats will reveal the situation:

The most number of million-dollar flats come from Pinnacle @ Duxton, which we’ve previously explained is a special HDB development.

The million-dollar flat sold in Ang Mo Kio this year is a jumbo HDB flat, which has 1,916 sq.ft. That’s close to two five-room flats put together, and it was a design built in the 1980’s that you’d no longer find today. Despite its 59 years lease remaining, the previous owners actually made a profit on their initial purchase of $850,000 in late 2014 (gross, not net).

Other million-dollar flats so far this year came from Natura Loft @ Bishan, The Peak @ Toa Payoh, and City View @ Boon Keng. About seven of the million-dollar transactions came from these three properties, and they are all Design, Build, & Sell Scheme (DBSS) flats. 

These flats, while not having condo facilities, are built by private developers with upgraded finishing; and you can no longer get a new DBSS flat, as the scheme was suspended in 2012.

So we can be mostly certain that “million dollar” potential comes from the scarcity of these properties. The question is whether the premiums on such properties are worth paying. 

For example, is it worth paying over $810,000 for a three-room DBSS flat in Trivelis, in the hopes of that price still rising? 

Rather than give you the same tired answer (i.e. it depends), here’s what we can say: At the very least, you will have an advantage over a run-of-the-mill flat. These flats are selling for more than their counterparts – on a per-square-foot basis – right now.

However, there’s no guarantee on potential gains, if any. So if you want to take that leap, contact us first on Stacked; we’d need to look at the specific unit to give you a more precise answer.

This leads us to the next issue:

3. A supply overhang makes scarcity and location even more important

Starting from 2020, about 20,000 flats a year are expected to reach their MOP. This is the point at which sellers can rent out the whole HDB flat, or put them on the open market.

The higher supply will put downward pressure on resale flat prices, as more sellers lowball each other, and rental rate drop (as there’s no shortage of flats for tenants to rent now).

The best way to guard against this is scarcity and location, which are now more vital than ever. For example, if you have a flat in Bishan that’s near the MRT station, then you don’t need to sweat even if there are 10,000 or 20,000 new flats going on the market – yours will maintain its value, as those other units don’t have your flat’s MRT access and proximity to the city centre.

This is something a lot of buyers forget, when picking a resale flat: they obsess so much over the price, or small differences in square footage (older flats are bigger), that they forget the fundamentals of location. 

Remember that a “cheap” unit can become a false savings, if its value goes down even further. 

4. There are better prospects for newer resale flats

While it’s now easier to buy older flats (you can use your CPF even if there’s only 20 years left), the advantage is still with newer resale flats; preferably those that haven’t crossed the 20-year mark. 

The first reason is the CPF withdrawal at 55. At that age, you can withdraw any money above your Basic Retirement Sum (BRS). However, doing so requires you to pledge a property with a lease that lasts till you’re at least 95 years old. As such, you’d need a property with a remaining lease of at least 40 years. This can make older flats unpalatable to some future buyers.

The second reason is that – if the age of the youngest buyer isn’t 95 years old when the least runs out – the maximum amount of financing for the flat will be decreased (HDB will let you know how much you can borrow, but it won’t be the usual 90 per cent financing). 

The third reason is that today, we know the Selective En-Bloc Redevelopment Scheme (SERS) only applies to about five per cent of HDB estates. The chances of this windfall have been much diminished, thus reducing demand for very old resale flats. 

As such, if you have long term plans for your resale unit (e.g. you don’t see yourself selling it for 20 years or more), its important to watch that lease decay.

Keep these factors in mind, and you have a better chance of picking a resale flat that could have a better retention. If all of this is a bit much to digest however, you can also drop us a message for some direct help.

Otherwise, do follow us on Stacked to get the latest insights and stories on Singapore’s property market.