FROM the onset, public housing policy has been the bedrock of Singapore's asset ownership programme. Today, 80 per cent of Singaporeans live in HDB flats. HDB flats have evolved from being just a home to also becoming an investment asset - and a stepping stone to a higher standard of living.
By many measures, Singapore's public housing programme has been a resounding success. Undoubtedly, HDB has played, and will continue to play, an important role in the building of an inclusive society - by making housing available and home ownership affordable, and reducing the barriers across income and racial groups.
Today, every HDB flat has an open market value which its owner can realise after staying in the flat for a minimum period. The values of HDB flats today reflect Singapore's growth and prosperity since the 1970s.
However, in 2006, when the rapid population growth far exceeded supply and resale prices soared, both build-to-order (BTO) and resale prices raised the ire of Singaporeans, especially as resale prices surged more than 94 per cent in just a few years.
People have been alarmed at the dramatic rise in public housing costs - particularly with reports of million-dollar resale flats surfacing. This has caused many to wonder if HDB flats will remain affordable for future generations.
Here are some examples of million-dollar resale flats in Singapore:
- The first HDB flat to hit this dizzying price level was an executive apartment at Block 149 Mei Ling Street in Queenstown. The unit was sold for S$1 million in 2012 with a cash-over-valuation (COV) of S$195,000. On a high floor, the 1,615 square foot (sq ft) unit offers unblocked views of Queenstown stadium and is close to supermarkets and food centres.
- A 1,615-sq-ft executive maisonette near Bishan MRT station was sold for S$1.05 million at the end of 2013, translating to a COV of S$250,000. The unit is on the 20th floor of Block 190 at Bishan Street 13.
- In Oct 2014, a similar-sized executive maisonette also in Bishan Street 13 changed hands for nearly S$1.09 million. The 27-year-old two-storey unit is located at Block 194 near a 24-hour food centre and Junction 8 shopping centre.
- More recently in March this year, a top-floor unit at City View @ Boon Keng, a Design, Build and Sell Scheme (DBSS) development, was sold for S$1.028 million. On the 40th floor, the unit has higher ceilings in the balcony and living room, compared with units on the lower floors, and offers an unblocked vantage view and a spacious layout of 1,281 sq ft.
Market forces in play
It is good to know that compared to BTO flats, HDB resale prices are primarily determined by market forces. The government cannot simply manipulate prices as there would be many repercussions. On the one hand, artificially lowering prices would benefit those who cannot afford a home; on the other, it will cause much displeasure among those who have recently bought a resale flat, or even the majority of HDB flat owners who are sitting on a tidy paper profit.
While the government has limited maneuverability in implementing policies to affect prices directly, several cooling measures were introduced to indirectly cool HDB resale prices. This includes the the Mortgage Servicing Ratio, Total Debt Servicing Ratio and the removal of COVs.
Meanwhile, with the evolution of the resale market, buyers' tastes have changed and flats are now also valued differently - depending on factors such as location, view, and design. Now, buyers are more willing to pay more for a top-floor flat commanding the best view, compared to a lower-floor unit facing the bin centre.
Appeal of million-dollar flats
Buyers will always be willing to fork out huge amounts for homes located in "hot areas" such as Bishan, Toa Payoh, Queenstown and Clementi. The fact that fewer new flats are being launched in these mature estates definitely also helps boost their appeal.
The Bishan maisonettes, for example, are a type of flats that was constructed in the 1980s, and construction of these flat types has stopped with the launch of executive condominiums (ECs) in 1995. Maisonettes are different from most regular flats, having a large floor space of around 150 square metres. Such homes usually command a premium.
Pinnacle@Duxton - a famous producer of million-dollar flats - is also not a typical HDB development either. Its location in Tanjong Pagar is not something most flats are blessed with.
One possible way to explain the million-dollar HDB flat trend could be that condo and EC sizes have shrunk. Some extended families need the larger space to have a more comfortable living environment and so they have had no choice but to purchase a HDB unit with the right size, even if they can buy a similar-priced condo with a smaller area. Such million-dollar flats are not many, and even if they are transacted, they do not fully represent the market as they form just a minority of HDB resale deals.
There is no reason to be alarmed because it is uncommon for people to pay such high prices for a HDB resale flat. And with the numerous cooling measures in place, it is even rarer that a buyer can afford to pay such a large quantum for a HDB flat.
Differing value of flats
Today, we have built a unique public housing system that is based on home ownership. It offers Singaporeans not only shelter but also a store of value.
However, Singaporeans have to understand that there are always people who are prepared to pay more for a flat's inherent value - good location, high floor, proximity to good schools, and so on. And these flats usually command a premium that buyers are always willing to pay more for.
But flats with such qualities are few - and we should stop seeing these flats as an indicator of our public housing prices skyrocketing. They are not in fact "warning signs" of uncontrolled housing prices.
- The writer is PropNex Realty CEO.