A million-dollar HDB resale flat makes sense for some buyers

Feb 06, 2023

AMID strong demand for homes, more Housing and Development Board (HDB) flats have changed hands for over a million dollars each. Attributes such as a large floor area, a central location, good views and being relatively new can help an HDB flat to fetch a cool million dollars or more in the resale market.

Good news for owners of such coveted HDB flats; angst for some people who fear that certain resale flats are possibly unaffordable. Are buyers crazy to pay princely sums for public housing flats?

Prices of HDB resale and private homes in Singapore are interlinked. When HDB resale prices are strong, private home prices receive a boost, as owners of HDB units can easily and profitably sell their homes to free up funds to help buy a private unit.



Advantages over private

On the other hand, buyers may pay more for sought-after HDB resale homes when private home prices are high and still enjoy big savings.

One may need to pay around S$1.2 million for a five-room resale HDB premium flat of over 1,100 square feet at Dawson Road in the Queenstown area, with land lease outstanding of over 92 years. A slightly smaller-sized home at nearby condominium Commonwealth Towers, with a shorter land lease outstanding, could cost around S$2.2 million. In this example, the HDB resale home is about 45 per cent cheaper than the private resale home.

A condominium development can offer various common facilities within its compound such as swimming pools, a gymnasium, a playground, barbecue pits and function rooms. Typically, condominium dwellers also get free parking for their cars.

However, many HDB residents can easily access high-quality public parks, park connectors, playgrounds, libraries and sports facilities. While HDB residents need to pay parking charges for their cars, this is irrelevant for non-car owners.

Buying a pricey HDB flat instead of a condominium unit can lead to substantial savings on the capital outlay as well as on monthly management fees. One can save on home loan costs amid rising interest rates and/or free up more funds for investing to build up retirement savings.

HDB resale buyers

Having a wide pool of eligible buyers of four-room and five-room HDB resale flats helps drive lofty prices at the premium end of the HDB resale market. Buyers who do not meet the eligibility criteria to buy new four-room and five-room flats from the HDB – such as couples who have monthly income exceeding S$14,000, couples consisting of permanent residents, and unmarried singles who are above 35 years old – can turn to the HDB resale market for such flat types.

A couple with annual income of S$240,000 would bust the income ceiling to buy an HDB flat directly from the Board or a new executive condominium unit where the monthly household income ceiling is S$16,000. Affordability for the said couple of a S$1.2 million HDB resale home is a fairly comfortable five times of annual income and a far less comfortable 9.2 times for a $2.2 million private home in the same vicinity.

Besides those ineligible to buy new four-room and five-room flats from the HDB, expect demand for pricey HDB resale flats to come from three other groups of potential buyers.

Firstly, some families may be happy to recycle profits made from selling an HDB Build-To-Order (BTO) unit, which was bought at a subsidised price, to buy an HDB resale flat that is more spacious or is in a more central location.

Secondly, some homeowners may be happy to sell their private homes and move to HDB units, which can offer more space, superior views and/or better transport connectivity. Such downgraders often free up plenty of cash to fund retirement needs. Someone who trades a fully paid-up private home worth over S$2 million for an HDB resale home that costs over S$1 million may be fine with paying a sizeable cash-over-valuation, which is the difference between the sale price of a resale HDB flat and its actual valuation by HDB.

In October 2022, Minister of National Development Desmond Lee said in the past three years, one in 10 HDB resale flat buyers has been a private property owner who sold his existing home to buy an HDB resale flat.

Currently, a wait-out period of 15 months applies for private homeowners as well as former private homeowners who buy a non-subsidised HDB resale flat. The wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a four-room or smaller resale flat.

Thirdly, some young couples who can buy a BTO unit may opt to skip the wait and the lottery effect involved in securing a choice BTO unit, and buy a premium HDB resale flat instead. If a couple took six years to get a new BTO flat and spent around S$3,500 per month on rental in the interim, the total rental bill amounts to S$252,000.

Moreover, getting a larger BTO unit in some popular estates can be difficult. For the latest BTO exercise, the overall application rate among the non-elderly was 11.3 times for the 405 four-room flats at Kallang Horizon in Kallang Whampoa.

The median monthly household income from work including employer Central Provident Fund contributions of resident employed households was S$9,520 in 2021. A million dollars for a public housing flat, which is around 8.8 times of annualised median household income, may seem a stretch.

But a million-dollar HDB resale home is easily affordable for some home buyers. And the said HDB home may be easy to rent out at a good rate – and to sell, if need be.

Moreover, if home buyers are nervous over economic growth prospects and rising home loan rates, some demand could flow from the condominium market to the premium end of the HDB resale market.

Nonetheless, potential buyers of pricey HDB resale homes should note that as the land lease runs down, the units may become slightly harder to sell subsequently. Owners of such flats could also risk being disappointed with what they receive for their homes in the event of any en bloc sale to the HDB.

Still, bidding aggressively for a dream HDB resale unit makes sense for a buyer who is focused on finding a desirable flat to stay.

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