Is Your HDB Flat Still An Appreciating Asset?

Throughout the history of Singapore’s independence, the Housing Development Board (HDB) has played an integral role in providing affordable and good quality homes to Singaporeans and New Residents.

However in recent years, major concerns over the growth of HDB flat prices outstripping that of the average income growth has caused many young families to feel the pinch in terms of affordability.

Gone are the days where your HDB flat can be fully paid for in 10 to 15 years. In fact, many early homeowners have immensely profited from the rising HDB prices over the past decade, with prices doubling within a short period of 7 years.

Year Resale Price Index

2Q 2006


2Q 2007


2Q 2008


2Q 2009


2Q 2010


2Q 2011


2Q 2012


2Q 2013


Source: HDB

If you had purchased a HDB flat in year 2006, you would realize that your home is now worth almost double of the price you paid for.

Why Did HDB Resale Prices Shoot Up So Rapidly?

There are four main reasons for the skyrocketing HDB resale prices;

Policies Did Not Keep Up With The Voracious Demand

Prior to 2011, buyers who wished to purchase a new HDB flat directly had to wait an approximate  2 to 3 years before they could get to select their HDB flat. HDB had become cautious of overbuilding as they had ended up with a large number of surplus flats due to over-construction in the earlier part of the decade.

Population Increase Ramped Up The Demand For Flats

The immigration policy during that period led to an astronomical increase in population which in turn skyrocketed demand for affordable public housing. With such a mis-match in supply and demand, prices of HDB flats naturally boomed.

Strong Economic Growth With Sound Macroeconomic Management

The combined factors of a stable government, foreign capital inflows, rising Singapore Dollar, land scarcity, detailed land use planning and confidence in the government to deliver on its commitments have made buying a HDB flat an attractive investment decision.

Homeownership Aspirations

The majority of Singaporeans will choose to start their property portfolio with a HDB flat as it is the most affordable form of homeownership. They understand that homes are tangible assets and it’s value can be unlocked for retirement or used as a platform to enhance their lifestyle by upgrading.

Is Your HDB Flat Still An Appreciating Asset?

The Singapore Government has since decided that the effects of spiraling prices and increasing unaffordability of public housing are far-reaching and significant and have stepped in with a slew of cooling measures aimed directly at making HDB units affordable once again.

Ramping Up Supply Of BTO Flats

Approximately 100,000 new HDB flats under the BTO scheme have been injected into the market within the last 4 years. This move aims to match the demand for public housing and keep resale prices in check. Over time, HDB prices should stabilize as the supply catches up with demand.

Mortgage Servicing Ratio (MSR) Cap Of 30%

By capping the MSR at 30% for both HDB and bank loans, the loan amount of a home-buyer is kept at a size that he can comfortably service. This measure effectively controls the purchasing power of buyers and has a long term effect of preventing buyers from over-stretching their finances and curbing the rapid growth of HDB resale prices.

Total Debt Servicing Ratio (TDSR) Framework

The new TDSR framework has made a potential buyer’s ability to secure the maximum 80% more difficult as other existing financial obligations will be taken into consideration when applying for a loan. With a reduced affordability level, potential home buyers are forced to exercise more discretion when purchasing a home.

Permament Residents (PRs) Ability To Purchase Greatly Impacted

PRs are the worst hit by the cooling measures. They have to wait for a period of 3 years before they are eligible to purchase a HDB resale flat. On top of that, they have to pay an Additional Buyer Stamp Duty (ABSD) of 5% even for their first property purchase. If they are looking to upgrade to a private residence after their HDB reaches its Minimum Occupation Period (MOP), they will also have to sell off their HDB flat within 6 months.

The strong demand for HDB flats from PRs contributed greatly to the surge in prices of resale homes. With the cooling measures in place, this demand has been effectively weakened and thus resulted in a weaker resale market.

Effect Of Cooling Measures

The new cooling measures has thus far been effective at slowing down the annual price growth of HDB resale properties as shown in the chart below.

Year Resale Price Index Y-on-Y Change


172.0 +14.0%


190.4 +10.7%


202.9 +6.6%

Jan-Sept 2013

204.8 +0.9%

Source: HDB

Period Resale Price Index Q-on-Q Change

2Q 2013

206.6 +0.5%

3Q 2013

204.8 -0.9%

Source: HDB

In the chart you will be able to observe that hdb prices have in fact, dipped for the first time in 4 years and that the extended bull run has finally come to an end. In Q3 2013, the HDB resale price index fell by 0.9% compared to the previous quarter, signaling a turning point in the HDB resale market.

Cash Over Valuation (COVs) Fell To A 2.5-Year Low

The potent combination of new measures also resulted in the drop of Cash Premiums for HDB flats as buyers have to contend with the lower MSR and ABSD for PRs. In the chart below, you will be able to observe that the average COVs have been falling at a steady rate across all HDB flat types.

Period Median 3-Room COV Median 4-Room COV Median 5-Room COV Median Exec. COV Overall

4Q 2012

$28'000 $35'000 $38'000 $50'000 $33'000

1Q 2013

$28'000 $32'000 $36'000 $55'000 $32'000

2Q 2013

$20'000 $28'000 $30'000 $45'000 $26'000

3Q 2013

$15'000 $18'000 $20'000 $30'000 $18'000

4Q 2013

$10'000 $8'000 $9'000 $22'500 $10'000

% Change Q-on-Q

-64% -77% -76% -55% -69%

Falling Volume Of HDB Flats Transacted

A slowdown is evident with the volume of transactions the lowest compared to recent years. In the first 9 months of 2013, only 14,099 units were transacted as compared to 37,205 in year 2009.

Year Resale Applications









2013 (First 9 Months)


How You Can Protect The Value Of Your Asset

Gone are the days of high capital appreciation from your HDB flats. The various cooling measures such as TSDR, MSR and ABSD have had the intended effect of softening resale prices. With the increased supply of BTO units in the pipeline, there is a very good chance for a further price correction within the next 2 years.

Nevertheless, as a HDB flat owner, here are some options you might like to consider.

  1. Hold on to your HDB flat for the next 10 to 15 years. However you should not be expecting any double digit growth in annual prices and in the next few years, do expect a negative growth in the value of your HDB flat.
  2. Sell your HDB property and upgrade to an Executive Condominium (EC) which has a greater upside in capital appreciation and an enhanced lifestyle. ECs are generally affordable due to the restrictions on ownership and income ceiling of $14,000.
  3. Sell your HDB flat and upgrade to a mass market condominium in the resale market or new launches.

Why You Should Consider Upgrading

In 2013, HDB resale prices were flat and attained a negative growth. By end-2015, HDB prices may be negative by up to -10%, contributed by the falling prices of all HDB flats when the 100,000 new flats are ready in the next 3 years.

A 10% drop will mean losing between $40,000 to $60,000 in asset value. As such, HDB price growth will be muted, only keeping pace with inflation.

Other reasons to consider upgrading;

  1. Low interest rate environment of between 1 and 2%
  2. Attractive launch prices of ECs and mass market condominiums by developers
  3. A buyers’ market in the EC and private property market
  4. Upgrade to a higher standard of living while you are still young and with less commitments
  5. Ensure greater capital appreciation of your property in the long term to unlock it during your golden years
  • Shawn Ang

    Great article