Is Buying A $1 Million HDB A Mistake Or Should We Stick To A Less Convenient But Cheaper $600k HDB?

Hi there,

I hope this email finds you well.

The main reason I’m writing to you is to seek advice on a few pointers:

• Is buying a 1-mil housing for my first home the right decision?
• Once I fulfilled the MOP, if I were to sell off it will be over 1-mil mark. Will this be a challenge when it comes to getting demands due to the high price in 10 years?

My partner and I just decided to start sourcing for HDB resale flat given the fact that we are both in our 30s and BTO is a long wait.

Our priorities are – walkable to MRT, central location, 4-room flat.

The top 3 districts are – Tiong Bahru estates, Kallang Whampoa and Dakota/Mountbatten. With our CPFs, grants and savings, we are able to purchase up to <1-mil flat.

The reasons for choosing the above districts are due to both of us working in the CBD area. We felt that we should start our housing journey with a unit that is likely to appreciate, so that we are able to afford the next housing choice after the MOP (and along with inflation things are going to get more expensive and buying a unit that costs average 600k now might mean that we will still need to top up in the future when we sell off the house).

However, the prices are these 3 estates are all at the benchmark of 1-mil mark, hence I’d like to hear more opinions before making this decision to only eyeing on these locations. We might also be wrong by thinking that going with the average resale flat of 600k is a wrong direction, so I’d really love to hear your input or advice as to whether I should go for those 3 estates, or to start from somewhere with a lower price.

I hope that you’ll be able to advise and it’ll be deeply appreciated.

I look forward to hearing back.

Thank you!

(This is part of an ongoing series where we answer reader questions about the property market. If you have one of your own, send it to stories@stackedhomes.com.)

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Hello,

Thank you for reaching out to us. 

This is a very common question that most buyers are asking themselves today. With the ever-increasing number of million-dollar HDBs being transacted, it may feel like you’d be missing out if you don’t buy right now – but yet you may also have lingering thoughts if those prices are sustainable. 

Well, here’s what the data tells us as of now. 

In 2023, there were a total of 125 4-room flats that transacted at $1M and above. This is out of 8,858 4-room units transacted from Q1 to Q3 2023 (Q4 statistics are not out yet), making it just 1.4% of the total number of 4-room flats sold. This number will be lower if we include Q4 statistics.

Unsurprisingly, the majority of these flats are located in the Central Region and were predominantly constructed after 2010, so they are relatively young. They are also typically situated on higher floors. These shared characteristics could conceivably account for their elevated selling prices.

And given the Prime/Plus/Standard HDB flat classifications in 2024, you probably may even see more flats in the Central Region transact for $1 million and more. We are already seeing this on the ground in places like Dawson, as people want to stay in these prime areas without having the higher restrictions (10-year MOP and such). 

But to understand whether or not it’s worth purchasing an HDB at these prices, we have to understand the context of where we are today, starting with the past price movements.

Here’s a look at the overall HDB price movement over the last 10 years.

Year	HDB Resale Price Index (RPI) – Q1 of each year
2012	138.5
2013	148.6
2014	143.5
2015	135.6
2016	134.7
2017	133.9
2018	131.6
2019	131
2020	131.5
2021	142.2
2022	159.5
Annualised	1.42%

The graph and table above show HDB prices experiencing a decline post-2013 and then remaining relatively stable before the onset of the pandemic. Do note that as 2023 has come to a close with prices even higher than in 2022, the annualised returns are higher than the one above.

Alongside three rounds of property cooling measures introduced in 2013, there was a procedural change in HDB’s buying process. Under this alteration, the valuation of a flat can only be applied by a buyer after placing an option fee and obtaining the Option To Purchase (OTP). This change aimed to stabilise prices and restrict sellers’ ability to demand Cash Over Valuation (COV) since the valuation remained undisclosed until the OTP was issued. 

In the former process, sellers sought a valuation before selling their flat, enabling the buyer and seller to negotiate the COV amount. This led to rapid price escalations, prompting government intervention.

Following the implementation of the new procedure, buyers primarily based their offers on recent transactions in the vicinity, thereby aiding in stabilising the HDB market.

How is this relevant to your question?

Despite the change in the sequence of when you obtain the valuation, HDB prices have still increased at a rapid rate since 2020 due to the effects of the pandemic.

Buyers were often unhappy upon discovering the unexpectedly high Cash-Over-Valuation (COV) they had to pay. Due to the hot market, sellers could insist on the $1,000 Option-to-Purchase fee, which would then allow buyers to get the valuation.

This resulted in numerous buyers having to forfeit this sum if they didn’t have, say, $50,000 lying around for the COV because they couldn’t get the necessary loans. And remember, this could happen to buyers multiple times.

What it shows is that prices will go up in a free market regardless – as long as the demand is there. Whether you negotiate on COV or whether sellers know that people are willing to pay more.

With the new Standard, Prime and Plus BTO classification, resale flats that would have qualified for Prime and Plus classification would likely see better growth and demand too since these flats have the same desirable attributes without the restrictions.

Many of the flats that cost upward of a million dollars fall under this criteria, precisely due to their desirability. As such, this will further support their prices.

One example of this are HDBs located in the Dawson precinct. The estate was cited as an example by Prime Minister Lee Hsien Loong on the rejuvenation of old HDB estates. Indeed, prices started off in the $800,000+ range in 2020 and has since risen to $900,000+:

Year	3 ROOM	4 ROOM	5 ROOM
2020	$656,484	$837,060	$994,127
2021	$644,473	$837,615	$1,042,325
2022	$689,057	$887,668	$1,128,133
2023	$710,714	$960,276	$1,192,698

Possible oversupply in the future?

Another thing to consider is the potential for an oversupply of HDBs. With Singapore’s ageing population, a large number of flats could come into the market, depressing prices of HDBs – especially HDBs that don’t have any differentiating factor, such as old flats in less convenient locations.

As such, one of the better approach to this is in looking at HDBs today that stand out for reasons such as its central location, loft-type of unit or excellent access to public transport.

Regardless, this point has to be made because an oversupply situation in the future is very likely. However, we do not know what policies or plans the government would have in the future to help combat this, though we have highlighted several possible scenarios here.

Now since you have a few preferred locations, let’s take a look at the price movements in these estates. 

Year	All 4-room HDB	YoY	Bukit Merah & Central 4-room	YoY	Geylang & Kallang/Whampoa 4-room	YoY
2012	$443	–	$624	–	$517	–
2013	$467	5.42%	$662	6.09%	$536	3.68%
2014	$435	-6.85%	$637	-3.78%	$515	-3.92%
2015	$423	-2.76%	$690	8.32%	$522	1.36%
2016	$423	0.00%	$666	-3.48%	$542	3.83%
2017	$426	0.71%	$673	1.05%	$537	-0.92%
2018	$422	-0.94%	$672	-0.15%	$545	1.49%
2019	$421	-0.24%	$668	-0.60%	$539	-1.10%
2020	$440	4.51%	$679	1.65%	$542	0.56%
2021	$499	13.41%	$737	8.54%	$605	11.62%
2022	$541	8.42%	$748	1.49%	$698	15.37%
Annualised	–	2.02%	–	1.83%	–	3.05%

Looking at the graph above, we can see that the prices of 4-room flats in these estates generally follow a similar trend to other 4-room flats across the island. The notable difference in the annualised growth rate of 4-room flats in Geylang and Kallang/Whampoa can likely be attributed to numerous HDB clusters attaining their Minimum Occupation Period (MOP) in 2022, consequently contributing to an overall rise in the average price PSF within these estates which houses mostly older HDBs.

Now let’s take a look at how prices in the estates outside the Central Region have been moving.

East Region includes: Bedok, Pasir Ris, Tampines

North Region includes: Sembawang, Woodlands, Yishun

North-East Region includes: Ang Mo Kio, Hougang, Punggol, Sengkang, Serangoon

West Region includes: Bukit Batok, Bukit Panjang, Choa Chu Kang, Clementi, Jurong East, Jurong West

Year	All 4-room HDB	YoY	East Region	YoY	North Region	YoY	North-East Region	YoY	West Region	YoY
2012	$443	–	$427	–	$393	–	$464	–	$412	–
2013	$467	5.42%	$443	3.75%	$405	3.05%	$483	4.09%	$426	3.40%
2014	$435	-6.85%	$419	-5.42%	$374	-7.65%	$447	-7.45%	$398	-6.57%
2015	$423	-2.76%	$400	-4.53%	$353	-5.61%	$427	-4.47%	$373	-6.28%
2016	$423	0.00%	$402	0.50%	$353	0.00%	$426	-0.23%	$369	-1.07%
2017	$426	0.71%	$406	1.00%	$344	-2.55%	$427	0.23%	$375	1.63%
2018	$422	-0.94%	$402	-0.99%	$331	-3.78%	$427	0.00%	$366	-2.40%
2019	$421	-0.24%	$411	2.24%	$346	4.53%	$430	0.70%	$365	-0.27%
2020	$440	4.51%	$430	4.62%	$360	4.05%	$443	3.02%	$392	7.40%
2021	$499	13.41%	$468	8.84%	$415	15.28%	$482	8.80%	$458	16.84%
2022	$541	8.42%	$500	6.84%	$468	12.77%	$539	11.83%	$491	7.21%
Annualised	–	2.02%	–	1.59%	–	1.76%	–	1.51%	–	1.77%

The graph indicates that 4-room flat prices in different estates are mostly trending similarly. However, certain areas are showing marginally slower annual growth rates. Your preferred locations are outperforming these estates to some extent. It’s crucial to consider, though, that the comparison between Geylang and Kallang/Whampoa may not be fully fair, given the recent surge of new flats in these predominantly older estates.

So while properties outside the Central Region are more budget-friendly, they only marginally lag in performance compared to those within the Central Region.

As such, the location certainly influences growth rates, but other factors like an area’s supply and demand, the block age, floor level, orientation, and layout also significantly impact individual unit performance.

Thus, it’s not an absolute rule that a flat in the Central Region or a higher-priced property will consistently outperform one situated outside the Central Region and priced lower.

However, we think one reason why Central HDBs can command a higher price now is due to how private property prices have moved. Many buyers who initially wanted a private residence and could afford one found themselves trapped as prices moved up.

In just 1-2 years, buyers who could previously afford a 3-bedroom in the OCR find themselves left with 2-bedroom/2-bedroom + study options only.

This led to many looking at HDB flats more favourably. For example, with a $1.2 million dollar budget, would you rather buy a 2-bedroom + study in the OCR or a spacious 5-room flat on a high floor with an unblocked view that overlooks the CBD?

Buyers with a bigger budget then found themselves flushed with lots of premium options – as long as they don’t mind it being an HDB. Lofts units with greenery views saw a mouth-watering $1.4+ million dollar price tag. Shophouse views at floors over 40 saw record-breaking prices in Tanjong Pagar – but to these buyers, it may seem reasonable as compared to what they would get in the private market. 

As we’ve written about before, at that price point in those areas – you really don’t have many equivalent options. 

So if we go along with this train of thought, then we can appreciate how these “expensive” HDBs will continue to appreciate as long as Singapore property prices continue to move up.

Of course, this is grounded on fundamental policies that determine whether Singapore remains an attractive place to work, live and play, which in turn would lead to a higher population, ultimately resulting in property market growth.

Besides location, the other common trait we saw amongst million-dollar flats is their age. So let’s take a look at how the age of a flat may influence its price.

Period	Avg resale PSF of flats completed in 1990	YoY	Avg resale PSF of flats completed in 2000	YoY	Avg resale PSF of flats completed in 2010	YoY
1993-Q1	$73	–	–	–	–	–
1994-Q1	$132	79.83%	–	–	–	–
1995-Q1	$199	51.01%	–	–	–	–
1996-Q1	$262	31.88%	–	–	–	–
1997-Q1	$303	15.45%	–	–	–	–
1998-Q1	$263	-13.05%	–	–	–	–
1999-Q1	$230	-12.59%	–	–	–	–
2000-Q1	$248	7.92%	–	–	–	–
2001-Q1	$214	-13.70%	–	–	–	–
2002-Q1	$210	-1.94%	–	–	–	–
2003-Q1	$198	-5.63%	$237	–	–	–
2004-Q1	$212	6.90%	$238	0.34%	–	–
2005-Q1	$207	-2.56%	$244	2.34%	–	–
2006-Q1	$200	-3.37%	$236	-3.23%	–	–
2007-Q1	$204	2.18%	$239	1.46%	–	–
2008-Q1	$246	20.50%	$291	21.80%	–	–
2009-Q1	$273	11.05%	$314	7.75%	–	–
2010-Q1	$300	9.98%	$344	9.58%	–	–
2011-Q1	$338	12.48%	$392	14.07%	–	–
2012-Q1	$379	12.38%	$412	5.02%	–	–
2013-Q1	$399	5.26%	$448	8.85%	$554	–
2014-Q1	$393	-1.64%	$439	-2.10%	$557	0.53%
2015-Q1	$352	-10.41%	$412	-6.14%	$477	-14.39%
2016-Q1	$346	-1.79%	$395	-4.14%	$486	1.95%
2017-Q1	$359	4.03%	$402	1.66%	$469	-3.55%
2018-Q1	$371	3.22%	$395	-1.63%	$481	2.50%
2019-Q1	$345	-6.96%	$390	-1.34%	$552	14.78%
2020-Q1	$339	-1.80%	$383	-1.69%	$414	-24.99%
2021-Q1	$404	19.06%	$438	14.29%	$558	34.77%
2022-Q1	$444	10.04%	$480	9.66%	$535	-4.12%
2023-Q1	$489	10.00%	$493	2.57%	$591	10.44%
5-Year Avg Annualised Returns		6.07%		4.70%		6.18%
10-Year Avg Annualised Returns		2.38%		1.11%		1.79%

You’ll notice that despite a 1990 HDB being older, its annualised returns on average is not the lowest which was what we would have expected. Why?

First, the data has been restricted to flats built in that respective year. The different eras could have seen flats being concentrated in different estates, meaning the annualised returns could be a reflection of location rather than purely age.

Next, older flats that were seen to be more favourable in recent years due to the larger size and better affordability as a result of both COVID-19 and the decreasing home affordability.

One other reason is due to the CPF Housing Grants. The grants are fixed depending on the type of flat that’s purchased, not a proportion of flat prices. With this, the subsidy has a greater effect on a more affordable home. For example, a $50,000 CPF Housing Grant on a $500,000 is a 10% discount, compared to a 5% discount on a $1 million dollar flat.

However, our point on the oversupply situation could be a concern here. There are many elderly who still stay in old flats, and when they pass on, these flats could be the ones that see a greater supply compared to the newer, more expensive flats.

Finally, we need to understand who the potential buyers of these $1 million dollar flats are. Despite a rising number of million-dollar HDB transactions, they do still constitute a small percentage overall.

Why is that? Buyers of these million-dollar flats are usually earning enough to buy a condominium, but not enough to buy one that meets their criteria such as being in a central location and having sufficient space for a family.

The gross median income in Singapore for 2023 stands at $5,197 monthly for full-time employees, inclusive of employer CPF contributions. Excluding employer contributions, it’s approximately $4,550 monthly.

So as an example, a couple aged 30 with individual incomes of $4,550 monthly, at a 3% interest rate, qualifies for a maximum HDB loan of around $575,693. If they aim to buy a $1M flat, they would need to finance $424,307 in cash and/or CPF, which is a substantial sum. Hence, the potential buyer pool for a higher-priced HDB is notably smaller compared to more affordably priced ones. However, as long as this pool exists and incomes continue to rise, we should still see continued demand for such flats.

Another aspect to consider is the inter-generational wealth transfer. Given our ageing population, future buyers may also find support from parents who pass on their wealth to them, allowing them to make the leap to a premium HDB especially if they are short on the loan due to their income.

Considering these factors and the earlier observation that the performance of 4-room flats in various estates is relatively similar, let’s now conduct a simple cost analysis comparing the expenses involved in purchasing a $1M flat versus a $600K flat over 10 years.

Costs incurred

Buying a $1M flat

Description	Amount
Purchase price	$1,000,000
BSD	$24,600
Loan required (Assuming a 75% LTV)	$750,000

Cost incurred

Description	Amount
BSD	$24,600
Interest expense (Assuming a 4% interest rate and 25 year tenure)	$260,249
Property tax	$8,800
Town Council service & conservancy fees (Assuming $80/month)	$9,600
Total costs	$303,249

*We are presuming here that you’ll be taking a bank loan

To calculate the potential gains, we will use the annualised growth rate of all HDBs over the last 10 years which is at 1.42%, to do a simple projection. 

Time period	Price	Gains
Starting point	$1,000,000	$0
Year 1	$1,014,200	$14,200
Year 2	$1,028,602	$28,602
Year 3	$1,043,208	$43,208
Year 4	$1,058,021	$58,021
Year 5	$1,073,045	$73,045
Year 6	$1,088,282	$88,282
Year 7	$1,103,736	$103,736
Year 8	$1,119,409	$119,409
Year 9	$1,135,305	$135,305
Year 10	$1,151,426	$151,426

Cost incurred if you were to buy a $1M HDB flat: $303,249 – $151,426 = $151,823

Buying a $600K flat

Description	Amount
Purchase price	$600,000
BSD	$12,600
Loan required (Assuming a 75% LTV)	$450,000

Cost incurred

Description	Amount
BSD	$12,600
Interest expense (Assuming a 4% interest rate and 25 year tenure)	$156,149
Property tax	$4,000
Town Council service & conservancy fees (Assuming $80/month)	$9,600
Total costs	$182,349

*We are presuming here that you’ll be taking a bank loan

Similarly, we will use the annualised growth rate of all HDBs over the last 10 years which is at 1.42%, to do a simple projection. 

Time period	Price	Gains
Starting point	$600,000	$0
Year 1	$608,520	$8,520
Year 2	$617,161	$17,161
Year 3	$625,925	$25,925
Year 4	$634,813	$34,813
Year 5	$643,827	$43,827
Year 6	$652,969	$52,969
Year 7	$662,242	$62,242
Year 8	$671,645	$71,645
Year 9	$681,183	$81,183
Year 10	$690,856	$90,856

Cost incurred if you were to buy a $600K HDB flat: $182,349 – $90,856 = $91,493

What should you do?

Since this property is for your personal residence, it must align with your specific living preferences, notably proximity to an MRT station and your workplace, both of which you’ve highlighted as top priorities.

However, the necessity for these conveniences doesn’t necessarily mandate buying a $1M flat. There are viable alternatives that meet your criteria and are more budget-friendly. Opting for a more affordable property might broaden your potential buyer base compared to buying a higher-priced unit. As previously observed, there isn’t a substantial difference in growth rates among various HDB estates in general.

Beyond location, other aspects such as the supply and demand of an area, the age of the flat, its floor level, etc. influence the property’s price, emphasising the need to also consider these factors. Equally important is your intended holding period. You’ve mentioned potentially selling after the flat fulfils its MOP. Within a relatively short 5-year timeframe, significant fluctuations in HDB prices are unlikely, barring major events like a pandemic or economic downturn.

Given this shorter window, the potential gains or losses for an HDB might not be considerable. Thus, exploring the option of purchasing a centrally located HDB that is slightly older and hence more affordable could be a prudent choice. Referring to the earlier calculations, selecting a more economical flat could result in lower BSD and reduced loan requirements, ultimately minimising overall expenses. Assuming similar growth rates between the flats, opting for a more affordable unit might prove to be a more rational decision.