Housing Prices are Expected to Correct Further

Recently, property price indices released by the government have shown sharper falls in public housing prices compared to private homes. This might seem puzzling to many. In this article, we will like to examine public housing prices by looking from the affordability perspective.

Household Income of HDB Flat Dwellers Has Risen At A Faster Rate

Figure 1: Household Income Indices for both HDB 4-room and Condominium dwellers (Base year: 2000)

SPW Insights_graph 1

Source: STProperty, Department of Statistics (Singstat)

There has been a largely parallel uptrend in household income levels for both 4-room HDB and condominium homeowners. However, since 2008 (during the onset of the GFC), average income levels for 4-room HDB flat homeowners have outpaced condominium homeowners.

On an annualised basis, average income levels for 4-room HDB flat owners have risen by approximately 3.9 percent, whereas it has risen by approximately 3.3 percent during 2000 to 2013 for condominium owners.

HDB Resale Prices Rose More Consistently

Figure 2: Chart depicting price levels of HDB resale flats and Non-Landed Private Residential markets (Base year: 2000)

SPW Insights_graph 2

Source: STProperty,  Housing and Development Board (HDB), Urban Redevelopment Authority (URA)

The median HDB resale index has shown a gradual rise from its troughs in 2002, while URA’s Property Price Index (PPI) trends have been quite volatile. This could be attributed to the brief bouts of ‘shocks’ brought on by the GFC, eight rounds of property cooling measures, and curbs on foreign home ownership.

The above chart does not capture the recent declines in HDB resale flat prices. The latest 3Q 2014 flash figures showed declines in HDB resale prices by approximately 6.0 percent on a yoy basis compared to the same period last year. The declines could be due to a mix of issues, including the removal of the cash over valuation (COV) resale procedures in early March 2014, and the reduction of mortgage servicing ratios (MSR) from 35.0 percent to the current 30.0 percent in early 2014, which impacts the HDB resale flat market. The step-up increase in supply of new Build-To-Order (BTO) flats might have also contributed to the decline in HDB resale flat prices as more potential flat buyers are presented with greater living choices, and HDB upgraders have to sell their flats urgently at lower prices upon receiving the keys to their new flats.

Over a longer term perspective, i.e. since 2000, the rise in HDB resale prices has outpaced that of the private residential market. HDB resale prices rose by approximately 6.0 percent (annualised), 90.0 percent (un-annualised), versus condominium prices which rose by approximately 3.5 percent (annualised), 46.0 percent (un-annualised). The price resiliency shown in the HDB resale flat market shows that the government is willing to support the public housing market through various home ownership incentives that aim to enhance the wealth of each Singaporean. They are also careful not to engineer any major housing price disruption that might harm the welfare of Singaporeans. A HDB flat is a starting point to home ownership, and it will not be in the government’s interest to cause any major disruptions to public flat prices.

Public housing affordability levels stay consistent since 2010

Figure 3 – Housing affordability index by type of dwelling (Base year: 2000)

SPW Insights_graph 3

Source: STProperty, Department of Statistics (Singstat), Housing and Development Board (HDB), Urban Redevelopment Authority (URA)

By benchmarking household income against prices, and standardising the ratios to a common base year of 2000, we can compare the changes in both public and private housing segments, as shown in Figure 3.

We believe that the average 4-room HDB household income earners form the largest cohort of HDB buyers. Hence we shall use median 4-room HDB flat prices to form the basis of our analysis of the public housing market. We will also be measuring housing affordabilities for both 4-room HDB flats and condominiums based on the average household income levels, segmented by their respective type of dwellings to their median prices (Figure 3). It is also a measure of relative returns derived from every dollar change in property prices.

From 2000 to 2001, there appears to be a parallel uptrend in affordability levels shown for both the 4-room HDB flats and the condominium markets. However, the trend broke towards the end of 2001, with the average income of condo dwellers staying ahead of HDB flat dwellers (Figure 1). We attributed the gap due to higher income levels (the numerator effect) of most condominium households, while prices in the 4-room HDB market segment (the denominator effect) have outpaced the relatively stable prices in the condominium market. This might imply that condominium prices, in general, are priced more affordably than the HDB flats. That lasted from 2002 to 2005 before condominium prices start to rise (denominator effect) as a result of a combination of low interest rates, favourable  private housing market conditions in Singapore, and increase in foreign demand for private housing.

The onset of the Global Financial Crisis (GFC) saw private residential prices of most condominium households falling faster than that of HDB resale flats before recovering sometime at the end of 2008 and early 2009. The housing affordabilities of most condominium owners surged sharply at the beginning of 2009 due to the rises in household incomes seen in Figure 1, and sharp downward corrections in condominium unit prices seen in Figure 2, thus presenting opportunities for investors to seize the potential investment opportunities associated with relatively undervalued assets. We also believe that the sharp surge in housing affordabilities of many condominium households could be attributed to the faster recovery in household incomes as market confidence was quickly restored through a mix of timely central bank and government interventions.

Since 2010, affordability levels for 4-room HDB flats have remained relatively stable compared to the condominium markets due to the drive by the government to support public housing initiatives. These housing initiatives include reduction of the waiting time for first-time HDB homebuyers, reduction of the first-time HDB concessionary loan rates to the current 2.6 percent from the previous 3.5 percent in July 2014, and allowing singles above 35 years of age to apply for two-room flats, among others


We believe that households and investors in the private property market should not feel unfairly penalised by the various property cooling measures. Despite the severity of the measures, median private residential prices, measured by the URA property price index (PPI) have risen by approximately 3.5 percent on an annualised basis since 2000 to 2013. The average income levels have also risen by 4.2 percent on an annualised basis during the same period. This shows that, in general, living standards for many private residential homeowners have risen, thus private housing affordability remains intact. The current downward adjustments to prices are merely aimed at achieving price equilibrium and are in no way ‘destroying’ the home equity values of many private residential owners.

On the whole, we believe that HDB flat owners, over the long-run, stand to benefit from the continuous government support through various home ownership incentives. The average income levels for many HDB flat owners have also been steadily increasing since 2000, thus they were able to spend on home improvements. This has contributed to the positive home equity values. The question of public housing affordability has been thoroughly addressed by the government.

With the current downtrend in overall HDB resale prices, we believed that HDB resale affordability has yet to be fully restored to its normalised levels as seen from the consistent sharp rise in 4-room HDB flat prices since 2006 shown in Figure 2. There could be further recalibration of prices downwards, particularly with the expected economic downturn in the global economies (China, Japan and the Euro Zone countries), and no visible indications that the government will loosen up its existing property cooling measures.


Comments are closed.