Making a case against million-dollar HDB resale flats – why it may not be good for buyers

The day of the million-dollar HDB resale flat has finally arrived. 

Just last week, not one but two HDB resale transactions were reported to have set new price records.  One was an executive maisonette in Bishan that was transacted just $20,000 shy of the million-dollar mark.  The other, an executive maisonette in Queenstown, breached the $1million price point and it will earn the distinction of being the most expensive HDB resale flat ever transacted once the deal is completed.

To some HDB owners, such record HDB prices may appear to be a good thing.  After all, being able to sell their flats at such high prices will translate to more profits.  However, for the buyer, a million-dollar HDB flat may not necessarily be a positive thing.  Here are some reasons why…

The market is cyclical – those who pay excessively high could be affected during the next downturn

It is well established that the property market is cyclical – this applies to the HDB resale market as well.  Figure 1 shows the HDB resale price index and we can clearly observe that there are phases of growth (in blue colour) and contraction (in red colour).  From the chart, those who were unfortunate to buy a unit during the last HDB peak in 1996 (when the index was at 136.9) had to wait 46 quarters (or about 11½ years) before prices exceeded the 1996Q4 peak.

Figure 1: Price Index of HDB Resale Flats (1994Q1 to 2012Q2)

Qtr/Year (Click for an enlarge view) 

1) The index is based on average resale price by date of registration.
2) 4Q98 is adopted as the base with index at 100. 
3) Weights are based on 12-quarters moving average transactions.

Source: HDB and Ascendant Assets Pte Ltd 

In 2 Jul 2007, the local newspaper published an article titled “Bishan no longer a property hotspot” and some of the Bishan maisonette owners where interviewed.  One of them, a retiree, shared that he bought a top floor unit for $760,000 in 1997 (at the peak of the last market cycle).  At the point when the article was published in 2007, it was reported that the valuation of his flat was only $480,000.  In other words, his unit had been unprofitable for 10 years.  In the article, some of the owners lamented that, “given a chance they would like to downgrade”, however many of them were reluctant to sell as it would translate to a loss for them.

Unfortunately, no one knows for sure when the next HDB resale market downturn will strike and for how long it will last.  However, based on the HDB Resale Price index, we can see that HDB prices are at an all time high.  Hence, if the HDB resale market were to drop in the near future, those who have paid excessively for their “rare” HDB units would unlikely go unscathed.

How many people can afford high Cash-Over-Value (COV)?

From the recent transactions, both buyers were prepared to fork out high COV for the units.  Specifically, the COV for both flats were reported to be more than $150,000.

This brings several questions to mind.  First, why is there such a big gap between the unit’s valuation and the final transacted price?  Was the professional valuer more conservative as there were certain factors that impeded the value of the HDB flat?  More importantly, when it is the million-dollar flat owner’s turn to sell, could the value of his flat increase significantly or would he have to rely on a high COV to realise a profit?  In that event that the million-dollar flat owner has to rely on a high COV to make profits, how many people can afford or be willing to pay a significantly higher COV? 

All things considered, the million-dollar flat buyers would likely face considerable price pressure when they eventually try to sell their units. The price pressure could come from neighbours who may also want to sell their units at around the same time. Unlike the million-dollar flat owners, the neighbours would have bought their units at comparatively lower prices and would be able to ask for lower prices.  This in turn puts some pressure on how much the million-dollar flat owners can ask for their units.

Apart from that, people with a sizable amount of cash generally have a wide variety of properties to choose from.  Hence it is questionable whether someone else will come along to pay even more and own those units.

Wrapping it up

To wrap up, I do understand the impetus of the million-dollar flat owners.  In today’s market, unless buyers have a budget of more than $1.5million, they are unlikely to find spacious private properties in popular locations like Bishan or Queenstown.  A case in point would be one of the more recent transactions of Bishan Loft; a top floor Executive Condominium unit with the size of 1979sq ft was transacted in Dec 2011 for $1.82million.  This works out to be about $919psf, which is almost twice the unit price of the Bishan executive maisonette. 

I believe that the buyers of the million-dollars HDB flats must have carefully considered their options and ultimately concluded that those units were good deals.  Nonetheless, those who have yet to make up their minds may want to seriously consider the benefits as well as risks before joining the million-dollar HDB club.  As the saying goes, “those who do not learn from history are destined to repeat it”.  Hopefully this article has provided you with some useful information to make a more informed decision.

Getty Goh is director of Ascendant Assets, a real estate research and investment consultancy firm.  He has a Masters in Real Estate and holds property talks regularly.  For more information on him and his talks, please visit