Million dollars for a coveted HDB unit not an aberration

Singapore

A MILLION dollars and more for a HDB flat? That's what 53 such flats each commanded in the first three months of this year.

And this may not be an aberration. Million-dollar transactions of HDB resale flats could become more prevalent if resale prices grow in line with household income, say at 2 per cent annually.

First, to be clear, such transactions are a small minority.

They make up 0.3 per cent of total resale transactions for the first eight months of last year, National Development Minister Desmond Lee said in Parliament in October.

Still, there are good reasons why a tiny selection of HDB flats command premium pricing in the resale market.

Having unique selling points are required to get top dollar.

Buyers with a budget of at least a million can opt for private property such as a two or three-bedroom condominium unit in the suburbs.

But HDB flats in mature estates built by private developers under the Design, Build and Sell Scheme (DBSS), with their differentiated layouts and features such as balconies and floor-to-ceiling windows have their strong selling points too.

There were 13 DBSS projects, with land sales under DBSS suspended in 2011 amid a review of the scheme. (The relatively higher indicative prices stirred attention then, while a few DBSS projects came under fire for defects found.) Other examples of HDB flats with compelling attributes include executive maisonettes that offer two floors of space, separating the bedrooms from the living and dining areas. Such units can be spacious with sizes of more than 1,500 square feet.

The iconic 50-storey Pinnacle@Duxton boasts a unique design, location in the heart of prime Tanjong Pagar and has some units offering sea views.

These are some examples of differentiating factors that draw buyers to pay top dollar. And indeed, the more recent million-dollar HDB transactions included those for five-room flats at Pinnacle@Duxton, five-room DBSS units at Bishan, and an executive maisonette at Toh Yi Drive.

Given the economies of scale and no need to pay for maintaining facilities such as swimming pools, monthly service charges for HDB flats are lower than for private residential units.

Meanwhile, residents of HDB units can at times expect a swifter response from their town councils, which are run by elected members of parliament, compared with the Management Corporation Strata Title (MCST) of condominiums.

Smaller condominium projects may struggle to find enough committed people to volunteer to serve on the MCST and to attract high quality managing agents.

Common facilities with wow factors are part of the pitch of new condominium developments.

But HDB residents may not be missing out much as they can easily access community clubs, public sports facilities, playgrounds and parks that enjoy high quality maintenance and are frequently upgraded.

As it is, for all of last year, 82 HDB resale flats were sold for at least S$1 million each, up from 64 in 2019.

It comes too as HDB resale prices have been rising over the last nine months.

Sceptics point to the land lease decay issue with HDB resale flats. And to be sure, the more recent million-dollar transactions for five-room flats were often for those with a lease of at least 89 years.

Owning a freehold residential unit gets around this issue - but at a price.

As for many private residential projects that have original land leases of 99 years, they too face the risk that as the years of land lease outstanding decreases, prices may decline.

The advantage of private leasehold projects over HDB flats though is that an older condominium development can potentially be sold in a collective sale to a buyer, who wants to redevelop the site and is able to top up the land lease.

Still, while Singapore residents may be living longer, the lease decay issue with pricey HDB resale flats need not be an obstacle as buyers are using their pricey public flats as homes.

Those moving from private residences to HDB units, who are in their 50s or 60s, may be comfortable with outstanding land leases of 50 years.

For a couple in their late 20s or early 30s, getting a unit with land lease outstanding of around 65 years can be adequate.

The income ceiling for couples buying HDB flats and executive condominium units in the primary market was raised to S$14,000 and S$16,000 respectively in 2019.

Still, some of those eligible to buy from the primary market may opt for prime HDB resale units as they may not be able to ballot to secure a unit of choice in the primary market or need a place to move into in a few months time as opposed to a few years time.

In the February Build-To-Order exercise by the HDB, four-room and five-room flats in the mature town of Toa Payoh received application rates of 5.9 times and 9.9 times respectively.

With an ageing population and rising life expectancy, expect significant activity from those downgrading, as in moving out of private units to HDB units. Such a move can help free up finances to help fund retirement needs.

Why tie up so much funds with a hard asset when there are lifestyle, leisure and healthcare needs to fund in the golden years?

Furthermore, a wealthy local household could own and live in a prime HDB unit, while enjoying the flexibility to invest in private residential property in Singapore.

The government is not shying away from building new HDB flats in choice locations such as the Greater Southern Waterfront as it aims to resist economic and social forces that drive stratification and gentrification of cities.

Over time, there will be HDB flats in the Greater Southern Waterfront precinct that join the stratified sphere of expensive HDB resale flats.

Home owners who like to live in a choice unit in a prime location for a relatively affordable absolute sum, with good management at a reasonable cost, may continue to be able to satisfy their craving at the top end of the HDB resale market.

By sheer luck, some will secure the choicest public flats with waterfront views in the Greater Southern Waterfront through the primary market.

Others with financial means will have to get hold of such units through paying top dollar in the resale market as and when stock becomes available.

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