A five-room HDB DBSS (Design, Build, and Sell Scheme) apartment in Bishan sold for $1.295 million in July, establishing a new public housing record.
The transaction occurred less than a month after the previous peak, when a $1.268 million HDB terraced home in Whampoa changed hands. The sale is the latest in a series of million-dollar HDB resale deals that have taken place this year. According to HDB statistics posted on data.gov.sg on August 24, a total of 145 HDB flats sold for at least $1 million in 2021, outnumbering the 82 reported for the whole year of 2020.
The increase in million-dollar sales for public housing shows a continuing upward trend in resale prices, despite tighter Covid-related limitations.
While HDB resale volume fell 6.8% q-o-q in 2Q2021 owing to limitations, prices increased 3% q-o-q and 11% y-o-y, putting the HDB resale price index to only 2% below the previous high in 2Q2013, according to HDB statistics published last month. This is the sixth quarter in a row that resale prices have increased.
The rise in resale prices has re-emphasized the importance of cash over value (COV). COV refers to the difference between the flat’s HDB-determined value and the agreed-upon resale transaction price. COV must be paid in cash up front; buyers cannot use their CPF or housing loans to meet the cost.
COV was projected to be in the $100,000 to $150,000 range for the record-breaking Bishan sale, but ERA Realty property agent Elson Wang, who negotiated the transaction, was reported as stating the final amount was “less than expected.”
However, it is not uncommon for resale flat purchasers to pay such a high COV today. According to Lee Sze Teck, senior director (research) at Huttons Asia, “the quantum [of COV] fluctuates and may reach $100,000 in exceptional cases.”
More Buyers paying more COV
Because HDB ceased publicly releasing COV statistics after 2013, the information on how COV has trended despite the booming resale market remain a mystery. This was timed to coincide with a change in the resale procedure, which now requires that the value of a HDB apartment be disclosed only after the parties to the transaction have reached an agreement on a price, rather than before.
However, according to a written response by the Ministry of National Development (MND) on July 26 to a question addressed in Parliament, a third of resale apartment purchasers paid COV in 1H2021, up from one in every five in 2020.
According to another MND written response dated July 6, fewer than one out of every four resale flat transactions recorded from January 2020 to April 2021 included a COV. Six out of ten paid a COV of less than $20,000, while four out of ten paid a COV of more than $20,000.
The increasing frequency of resale transactions using COV indicates that purchasers are more ready to pay the cash price.
One explanation for this is a spike in demand as more house purchasers turn to resale homes in the aftermath of the pandemic due to delays in the completion of Build-To-Order (BTO) projects. Construction delays have pushed many couples to seek property in the secondary market, according to OrangeTee Research & Analytics’ HDB Market Pulse study for 2Q2021. Buyers downsizing from private residences have also resorted to the HDB resale market.
As a result of the increasing competition for resale apartments, sellers have been able to demand higher prices. Buyers, on the other hand, are ready to pay the COV in return for the assurance of obtaining a flat in a timely manner.
In more mature communities or those situated near amenities, purchasers are more likely to pay a premium for resale apartments. Flats with more attractive characteristics, such as excellent views, a high-floor location, or exceptional design elements, may demand a higher COV, according to Christine Sun, of OrangeTee.
Despite the increasing probability of having to pay COV, there is still considerable demand for resale apartments. HDB resale prices rose 6% in the first half of the year, with 14,644 transactions, the largest 1H sales volume since 2010, when 17,598 resale flats were sold.
Performance for HBD resale going forward
Given the resale market’s excellent performance so far, the trend is likely to continue for the remainder of the year. “The supply-demand mismatch may continue this year, driving flat prices upward in the coming months,” Sun observes.
More delays in BTO projects may aggravate the issue even more. On August 26, HDB said that five BTO projects in Bukit Batok, Bukit Panjang, and Woodlands would suffer additional delays in completion owing to financial problems with their major contractors. The impacted projects, which total 2,982 units spread over 13 blocks, were supposed to be finished between 4Q2021 and 2Q2023.
Given that many BTO projects are expected to take a year or more to complete, purchasers who can’t wait may choose to sell their BTO unit and buy a resale flat instead, given the possibility for easing restrictions. BTO purchasers may be allowed to cancel their apartment bookings without incurring fines by filing an appeal with HDB, according to MND.
Buyers who cancel their apartment booking would typically lose their choice fee or 5% of the flat purchase price paid in advance, as well as having to wait a year before applying for subsidized accommodation again, according to current rules. The penalty and one-year waiting period will be lifted for those who win their appeal.
So, what is COV’s next step? Due to development delays, more young couples may resort to the HDB resale market, which may lead to a further rise for Sun. “If COV continues to rise, some young people may find it more difficult to purchase flats in older estates or to live closer to the city core,” she observes.
COV is expected to stabilize for the remainder of the year, according to Lee of Hutton Asia. “We believe demand is stabilizing, and building activity in the BTO sector is increasing [along with] customer reluctance to paying COV,” he adds.
Market watchers believe that the HDB resale market would stay strong in the foreseeable future. Sun estimates that HDB resale volumes will reach between 27,000 and 29,000 units per year, a record high. In contrast, in 2020, 24,748 units were sold, whereas in 2019, 23,714 units were sold before the epidemic. “Resale flat prices may increase by 9% -11 percent for the whole year of 2021,” she forecasts.
Mark Yip, CEO of Huttons Asia, agrees, predicting that HDB resale prices would increase by 8% this year, the highest rate of growth since 2011.
Million-dollar HDB resale deals aren’t going away anytime soon. Positive emotions provide owners the power to negotiate for greater prices, according to Yip, and such deals may reach the 200 mark by the end of the year.