Public housing with million-dollar price tags

Oct 06, 2022

Nicholas Mak

PRIOR to 2012, paying S$1 million – or more – for a HDB flat was unheard of. In 2012, two HDB resale flats were sold at those price levels. Since then, million-dollar HDB resale flats are becoming more common.

From May to August this year, a monthly average of 32 HDB resale flats were transacted at S$1 million or more. That translates to an average of one HDB resale flat being sold at S$1 million or more every day.

Despite the attention-grabbing news headlines, million-dollar HDB flats make up only a tiny part of the public housing resale market. In the past 10 years, an average of about 22,500 HDB resale flats were transacted each year. Over the same 10-year period, a total of 561 million-dollar HDB flats exchanged hands, which amounted to only 0.25 per cent of the total number of HDB resale flats transacted over the decade.

However, the number and the proportion of million-dollar HDB flats have risen steadily since the first of such flats was sold in 2012. The growth in the number of million-dollar flats accelerated in the past two years. In 2019, a total of 64 HDB resale flats were sold at S$1 million or more.

The volume quadrupled to 259 million-dollar flats in 2021. In the first eight months of 2022, another 232 million-dollar HDB flats exchanged hands. This represents a 53.6 per cent year-on-year increase over the corresponding period last year.



Why did the number of million-dollar flats increase?

There are five primary reasons for the dramatic expansion in the number of million-dollar flats in recent years.

Firstly, a large number of HDB flats reached the end of the five-year minimum occupation period (MOP) during 2019 to 2022, and could be sold in the resale market. In the decade before 2019, an average of 7,800 HDB flats reached the end of their MOP each year. This annual volume more than tripled to an average of 26,400 flats in the four-year period from 2019 to 2022.

These newly eligible resale flats have longer remaining leases and typically come with newer designs compared to older HDB flats. Furthermore, some of these new flats are located in popular housing estates near MRT stations. Therefore, their owners were able to ask for prices higher than the older flats.

Secondly, there is a demand for larger flats since 2020 as a result of the pandemic. The pandemic expanded the practice of working from home (WFH) in Singapore, and the occasional lockdowns forced the entire family to stay home 24/7.

In addition, if a member of the family was infected by the coronavirus, he was required to isolate at home and keep a safe distance from the rest of the family. All these reasons led to an increase in the demand for larger flats, such as five-room HDB flats and executive apartments. As a result, the prices of such resale flats also appreciated.

Thirdly, pandemic-induced supply chain disruptions caused delays in the construction of HDB Build To Order (BTO) flats. This led to a rise in demand for resale flats, including the larger flats.

Fourthly, the government has stopped offering new five-room HDB flats in its recent BTO projects in popular mature estates. In addition, there is an absence of five-room HDB flats in the newly introduced prime location public housing (PLH) projects. Hence, buyers who want five-room HDB flats in certain locations would have to turn to the resale market, adding to the growing demand for larger flats.

Finally, the rise in private housing prices has also contributed to the increase in the number of million-dollar HDB flats. From Q1 2020 to Q2 2022, the private residential property price index rose 18.9 per cent. In the corresponding 27-month period before the pandemic, the price index grew by a smaller 11.6 per cent.

The robust price growth of private residential properties has priced some homebuyers seeking family-sized, three-bedroom units out of the private housing market in certain locations. The private property price inflation has also made the prices of larger HDB flats appear relatively more affordable. As a result, some buyers are willing to pay top dollar for well-located HDB flats.

Where are these flats found?

The HDB towns with higher numbers of million-dollar HDB resale flats are typically located within or near the city area. In addition, a good selection of the larger type of flats can also be found in these towns. These locations include the Central Area, Bishan, Queenstown and Bukit Merah.

All the million-dollar HDB resale flats in the Central Area are found in one single HDB project, the Pinnacle@Duxton. Since January 2018, when the number of million-dollar HDB resale flats started to increase sharply, 171 flats in this project were sold for at least S$1 million each.

Compared to the other towns, the median size of the million-dollar HDB flats in Pinnacle@Duxton is the smallest. It is also not the newest HDB project. The median age of the million-dollar HDB flats in Queenstown and Clementi is younger.

However, the Pinnacle@Duxton is a relatively new HDB project that is nearest to the central business district. This enables the flats to command such prices. At S$963 per square foot (psf), the median price – in terms of S$ psf – of the million-dollar flats at this HDB project is also the highest among all the HDB towns with million-dollar flats.



Latest cooling measures

Despite the fact that million-dollar HDB flats are becoming more common, news of such transactions still raises eyebrows.

The million-dollar benchmark is a psychological barrier. However, we need to keep in mind that one million is just a number. With inflation, rising household income and property prices, it is inevitable that some HDB flats will exceed the seven-digit price tag.

The rising number of million-dollar HDB flats is the result of the strong increase in the overall prices of resale public housing. The latest round of cooling measures introduced by the government in September 2022 could blunt the price growth of resale flats. Furthermore, home mortgage rates are expected to continue to rise in the short term. As a result, the monthly transactions of million-dollar flats could shrink in the next few months. However, the number of million-dollar flats will still reach a new annual record this year.

Still, the property curbs will not eradicate the strong underlying demand among homebuyers for more spacious homes. As long as the key factors leading to the increase in demand for larger flats persist, some HDB flats will be sold at S$1 million or more.

The writer is head of research & consultancy at ERA Realty Network.