Older Hdb Flat Prices Converge %E2%80%94 Larger Units Prime Estates Still Command Premium
Currently, there is a concern about the lease decay of older HDB flats, following last week’s article, Has lease decay set in for HDB flats?. This week’s analysis will focus on the performance of older HDB flats and how their location might affect their prices.
The study was carried out using a combination of both time series and cross-sectional data. In order to control for the effect of building height on prices, the upper bound of prices was excluded. This is because higher-floor flats tend to command higher prices, which could skew the average transacted prices upward.
For example, flats in Jurong West have an average building height of 10 storeys, while those in Bukit Merah, Kallang and Whampoa, Queenstown and Toa Payoh can go up to 20 storeys. Assuming a price increment of $5,000 per floor, the difference in price between these higher-rise towns and Jurong West could be as much as $50,000. Thus, the analysis mainly focused on the lower bound of transacted prices.
The first HDB flats that were sold in Singapore were primarily located in central areas such as Bukit Merah, Kallang, Whampoa, Queenstown and Toa Payoh, when the Home Ownership for the People Scheme was introduced in 1964. In 1971, HDB further liberalised the market by allowing flat owners to sell their units in the resale market after fulfilling the Minimum Occupation Period (MOP).
During this time, HDB priced flats differently according to the location, namely urban areas, suburban estates and new towns. Over the past decade, have there been significant differences in prices across different locations?
The study focused on flats with leases commencing between 1966 and 1970, with an average age of around 51 years. Two-room flats in mature estates like Ang Mo Kio, Bedok, Bukit Merah, Marine Parade and Toa Payoh have transacted between $150,000 and $185,000, while similar flats in non-mature estates have transacted at around $175,000.
Although the volume of two-room flat transactions in non-mature estates was low, there was almost no difference in price between the two locations. This was surprising because centrally located estates such as Geylang and Toa Payoh did not command higher prices compared to Jurong West. A possible explanation for this is that the two-room flats in Geylang and Toa Payoh are slightly older than those in Jurong West, resulting in lower prices.
For three-room flats, prices in mature estates ranged from $170,000 to $200,000. On the other hand, flats in non-mature estates were priced between $175,000 and $200,000. Similarly, there was little price differentiation between mature and non-mature estates. Prices in centrally located areas such as Geylang and Toa Payoh were almost equal to those in Jurong West, a non-mature estate. The slightly older flats in Geylang and Toa Payoh might have contributed to the lower prices. Interestingly, the three-room flats in Jurong East are the oldest among those studied, but prices may have received a boost from the new Pandan Reservoir MRT Station.
For larger flats, four-room units sold for between $302,000 and $503,000, while five-room flats were sold for between $330,000 and $636,000. Due to their proximity, four-room flats in Bukit Merah and Queenstown were priced similarly, at around $350,000. However, the limited number of transactions in both flat types made it difficult to come to any meaningful conclusions about pricing trends.
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The key takeaway was that the prices for two-room and three-room flats were relatively consistent across different parts of the island. Slight variations could be attributed to factors such as remaining lease tenures or improved transport infrastructures.
For flats with leases starting between 1971 and 1980, the average age during the study period was 43 years. Flats in Bishan, Bukit Timah, Kallang and Whampoa, Marine Parade, Toa Payoh and Queenstown were relatively older, with an average age of 46 years. Those located in Ang Mo Kio, Choa Chu Kang, Clementi, Jurong East and Pasir Ris were relatively younger, with an average age of 41 years.
Two-room flats sold at prices ranging between $160,000 and $220,000. Prices of two-room flats in Jurong West, a non-mature estate, were similar to those in mature estates such as Ang Mo Kio, Bedok, Bukit Merah, Marine Parade and Toa Payoh.
Prices for three-room flats were between $140,000 and $300,000. Bukit Timah, the Central Area and Marine Parade stood out with higher prices compared to the rest of the island, thanks to their scarcity. The opening of Farrer Road MRT Station may also have contributed to the higher prices in Bukit Timah, with the Central Area commanding a premium for its city-centre location. On the other hand, flats in Marine Parade may command higher prices due to their proximity to the sea and the new Thomson-East Coast Line stations. Interestingly, Geylang and Toa Payoh seem to be underperforming compared to some non-mature estates, given their similar age profiles.
The resale prices of four-room flats hovered around $300,000 across many estates, with Bukit Timah, the Central Area and Marine Parade standing out with higher prices. This can be attributed to reasons similar to the three-room flat segment. Flats in Queenstown also commanded higher prices compared to other mature estates due to their closeness to Holland Village and the Holland Village MRT station, which opened in 2011. A cluster of flats along Lorong Lew Lian also recorded high prices due to limited supply near the Serangoon MRT Station.
To meet the demand for larger flats, HDB began constructing five-room units during this period, primarily in point blocks in estates like Marine Parade. For flats with leases commencing from 1971 to 1980, the average age during the study period was 43 years. There was a clear differentiation in prices between mature and non-mature estates, with buyers of mature estates paying an average of more than $400,000 compared to around $300,000 in non-mature estates.
In conclusion, we established two key findings buyers should take note of. Firstly, there is almost no differentiation in prices across locations for older two-room and three-room flats. Secondly, four-room and five-room flats in Bukit Timah, the Central Area, Marine Parade and Queenstown consistently stood out with higher prices compared to other towns.
As the lease of the HDB flats studied is over 40 years old, it remains to be seen if these trends will continue in the years ahead. Buyers of younger two-room and three-room resale flats should be cautious about paying a premium for location, as prices across different locations might converge over time. The same caution applies to buyers looking to apply for two-room and three-room Prime or Plus BTO flats, unless they are planning to sell after the 10-year MOP. Otherwise, they might be better off choosing Standard BTO flats and investing the cost savings elsewhere.
Conversely, four-room and five-room flats in Bukit Timah, the Central Area, Marine Parade and Queenstown have shown strong price resilience over the years. This should be kept in mind by resale buyers and BTO applicants when making decisions. For policymakers, there seems to be a bifurcation in the resale market, with owners of two-room and three-room flats falling behind in terms of capital appreciation, while larger flats in mature estates are outperforming those in non-mature estates. This divide is expected to widen over time. While recent policy changes aim to reduce the “lottery effect”, it remains to be seen if the new Prime, Plus and Standard flat classification will effectively address the issue.