Published March 27, 2008

HDB resale buzz set to continue

But increasing buyer resistance and and an expected surge in supply may take away some sheen, says EUGENE LIM

HDB resales prices accelerated their climb in the second half of 2007 for a full-year gain of 17.5 per cent, on the back of a strong economy, brighter job prospects and supply-demand factors. The HDB Resale Price Index (RPI) rose 6.6 per cent in the third quarter and 5.7 per cent in Q4, after 1.3 per cent and 3 per cent increases for the first and second quarters.

The 17.5 per cent jump in resale prices last year was dramatic compared to just 2 per cent in 2006. But it was still much less than the 34.3 per cent surge seen in 1996. At 121.7 points, the RPI at Q4 2007 is just 11 per cent shy of the peak of 136.9 points recorded in Q4 1996. As the economy improved, more buyers were upgrading to larger flats. The government's target for an eventual population of 6.5 million has seen increasing numbers of permanent residents (PRs) in Singapore. The latter typically buy their HDB homes from the resale market as they do not qualify to buy new flats directly from the HDB.

The surge in private property prices last year priced out a segment of would-be upgraders, who had no choice but to buy their homes from the HDB resale market. Also, the booming stock market and the spate of collective sales in the private property market have unleashed a group of cash-rich house hunters, many of whom are opting for high-end resale HDB units. This group is willing to pay top dollar for flats that fit their criteria.

The increased demand, coupled with the stronger purchasing power of some of these buyers, helped steepen the resale market price curve in the second half of 2007.

In November 2007, it was reported in the media that a 32-year-old five-room flat in Marine Parade with a full sea view was sold for $730,000. That trumps the previous record of $720,000, set in June by a fairly new five-room flat in Kim Tian Place. Apparently, the buyer did not even bother to wait for the flat's valuation and bought it simply because he liked it.

In January this year, a 20-year-old 'penthouse' executive maisonette in Bishan changed hands for almost $100,000 cash over valuation (COV). The buyers, who had been house-hunting for almost nine months, were willing to pay top dollar because there are limited numbers of such flats. There are no more than two dozen of these units in Bishan. On top of making the large cash outlay, the buyers are planning extensive renovations to create their ideal lifestyle home.

Such highly publicised transactions have kept the HDB resale market in a state of euphoria since the middle of last year. Many hopeful sellers hiked asking prices overnight, with some demanding as much as $200,000 COV.

The COV is the amount that is paid over and above the valuation of a flat and cannot be paid from a home loan or monies from the Central Provident Fund (CPF). The higher the COV demanded by sellers, the more cash is required of the buyers.

Cash component

With the high COV demanded by sellers of centrally located HDB resale flats, buyers who do not have or are not willing to part with so much cash have been turning to outlying HDB estates like Sengkang and Punggol. These areas, which were shunned several years ago, have become increasingly popular among those looking for better value. According to HDB's Q4 2007 numbers, the median COV for a five-room HDB resale flat in Sengkang was $23,000; compared to $79,000 for a similar flat in centrally located Queenstown.

To avoid having to pay high COV in the resale market, many buyers who are not in urgent need have been attracted to new flats that are built or marketed by the HDB and private developers. This is because these buyers would have to foot at most 5 per cent of the purchase price if they are taking a bank loan to finance the purchase. Those who qualify for an HDB loan would be fully financed by CPF monies together with the loan from the HDB. Very little cash, if any, is needed; hence, these flats are crowd pullers whenever they are put on sale.

Centrally located projects - those in established estates under the recent HDB bi-monthly sale of surplus flats and privately developed City View @ Boon Keng - saw overwhelming response. Recent HDB Build-To-Order (BTO) projects, mainly in Sengkang and Punggol, are also seeing good response although they have yet to be fully taken up.

With the increased demand, the HDB's unsold stock of surplus flats, currently estimated at 2,000 units, is depleting. The HDB is now stepping up its building programme via the BTO scheme and will be launching some 4,500 units in the first half of this year. However, as the new flats will take several years to build, the BTO programme is a longer term solution and will not be able to cater to those with immediate housing needs.

As such, in the interim, we can expect continued strong demand in the resale market. However, as the majority of resale flat buyers depend on financing, there is a limit to how high COV transactions can go. Sellers that demand more than $50,000 cash may find it difficult to secure buyers. In January, it was reported by the HDB that 25 per cent of resale transactions were completed at prices no higher than $10,000 above valuation.

Resale volume

Though sentiment was good in 2007, the total resale volume of 29,436 units was a shade lower than the 29,723 units closed in 2006. However, the number of five-room and executive flat transactions increased in 2007 over 2006.

There were 7,275 five-room resale transactions in 2007 compared to 6,421 units the previous year. This represented a 13.3 per cent increase. Similarly, for executive flats, there were 2,627 transacted in 2007 as compared with 2,229 in 2006; or a 17.9 per cent increase in transaction numbers.

Five-room and executive resale flat transactions now account for 25 per cent and 9 per cent of total transactions; up from 2006's 21 per cent and 7 per cent respectively. This preference for larger flats is likely to continue for the rest of the year. That will be good news for the developers of mass market condominium projects as the support for their projects has traditionally come from buyers staying in the larger HDB flats.


Despite worries of a US-led global recession hitting Singapore, our economic fundamentals remain strong. The buzz in the HDB resale market is expected to continue in 2008. However, with the increased number of new flats coming on stream, some demand will be taken away from the resale market. As such, we may see resale volume stay at around 30,000 units for the whole year.

Resale prices are expected to continue to rise but possibly at a more measured pace of 5-8 per cent in the coming months due to increasing buyer resistance and more new supply coming on stream.

Eugene Lim is assistant vice-president, ERA Realty Network Pte Ltd.