This is Blk 45 Sterling Road, it is one of the first 3 HDB blocks (together with 48 and 49) ever built in Singapore. It was built in 1960, about 57 years ago as of this writting in 2017. Personally, i feel that in order to better understand how property prices fluctuates in Singapore, it is best to have as much data as possible, and what better way than to look at older buildings in Singapore.
A picture of Blk 45 back in early 1960s
Looking at just Blk 45 may not give you a full picture, as within the block, there are limited 3 rooms flats to have a big enough sample size for appropriate analysis. Instead, i took a look at 6 blocks of flats that were built in the year 1970 instead, these are Blk 164,165,166,169,170 and 171. They have similar characteristics, all of them are along the same Sterling Road, i chose flats that are strictly 60 sqm in size, 3 room flats, same leasehold remaining, same flat model (improved).
The above chart shows the transacted prices of 3 room HDB flats in the 6 blocks as mentioned
I can only get data from Mar 1991 till last transacted date on Jun 2017.
Highest Price : $345,000 transacted on Aug 2013 (43 years old flat)
Lowest Price : $38,000 transacted on Mar 1991 (26 years old flat) I can't find any data prior to this date from HDB, so this price was the lowest.
This is pretty surprising to me, i would thought that HDB prices would drop drastically after it reaches the 40 years lease period, as the amount of CPF and loans allowable to purchase older flats is reduced. Then i realize that this ruling only took into effect when the date of purchase is on or after 1st July 2013 for HDB flats, and 19 July 2005 for private property. This is probably the main reason why you see the downtrend from the peak of Aug 2013 rather than after 40 years lease. It did not drop at 40 years purely because the rule has yet to be in effect, but once it did, prices fell.
Obviously there are others factors in play that may affect resale prices, like units on different floors or the direction in which the units are facing. I feel that these factors will cause price fluctuations but they will eventually cancel out each other. What matters will be the marco economic and regulatory restrictions that affect the demand and supply of HDB flats.
So in conclusion, the 40 years rule does affect flats that are close to reaching 40 years lease, as more upfront cash will be needed to purchase these older flats once it reaches 40 years old. Cashflow wise, the number of buyers who are able to cough up more cash will be lesser, therefore prices will naturally fall. Could this be just a one off case study?
This is the HDB resale price index for every quarter. Let us now look at a more general picture of resale prices in Singapore over the last 3 decades.
Highest : 149.4 (2013 2Q)
Lowest : 24.3 (1990 1Q) the earliest data i can find in HDB website.
This shows the average price of resale in each quarter, and you can see that prices tappered down from 2013 2Q. Again it coincides with the ruling for 40 years leases flats. The rationale here is that people transacting older flats will be more mindful of the issues of buying an older flat. For the earlier part of the cycle, a peak can be observed in 1996 Q4, followed by a crash which was largely due to Asian financial crisis that happened in 1997. What causes the prices to shoot up?
Apart from rulings, does interest rates affect singapore HDB prices?
SIBOR 1 month from Jul 1987 to 22 Sept 2017
Highest : May 1990 8.25%
Lowest : Aug and Sept 2011 0.19%
From the graphs above, the correlation between interest rates and HDB prices seems to be one of an inverse relationship. Makes perfect sense, but i feel that the people who bought flats back in 1990s, would have used HDB loan to fund their purchase rather than bank loans judging by not only the sky high rates, but also the high volatility interest rate environment provided by the banks back then. After the 2008 global crisis, more people started using bank loans to buy their property. As shown below, the amount of bank loans taken up during the 2009 period increased by quite abit. I would assume as long as bank interest rates falls below HDB loan rates, one would try to benefit from the situation and take up bank loans.
The source is from data.org. It shows the number of bank loans taken up for purchases of resale HDB flats during the period from 2006 till 2015. Unfortunately, i am unable to find records prior to this. So you may ask, what about CPF rates? CPF rates affects in 2 ways, one is the accrued interest that you are borrowing from your future self, the other would be a more direct effect that is the HDB interest rates, which are said to be peg at 0.1% above prevailing Ordinary account rates.
The graph above shows the OA rates from 1977 to 2007. The data for SIBOR is only from 1987 so i am unable to give a fair comparison back the. So starting from 1987, you can clearly see that from then till 1992, using HDB loans would be of a clear advantage, average of 4% in OA rates. Maybe at times in 1992 to 1995 bank loans would be the preferred choice but CPF was still pretty low at 2.5%. Banks rates start rising again after the Asian financial crisis in the hopes of retaining foreign funds. Again during this period CPF would be of the preferred choice. After the fall in SIBOR in around Jun 1998, banks loans were becoming more attractive. In 2004, over in the US, the fed had done about 17 rate hike after the dot com bubble and sept 2011 attack, when economy started booming. These hikes resulted in SIBOR increasing its interest rate to stay relevant as compared to US interest rates. Then 2007 2008 where lehman brother crisis took place, interest rates went to new lows and never recovered until only recently, in end of 2014. Stock markets in US has been booming since the crash of lehman brothers less the oil surplus crisis in 2016.
So back to the HDB resale prices, interest rates, be it from HDB or bank mortgages has been on a lower side, from 1987 about 4% to 2.6% from 1992 to 1995 from HDB, bank loans 2.5% 1995 to 1997 , 1997 to 1999 HDB loans at 3.1%.Early 2000s, one can borrow from banks at 2.5% downwards to less than 1 % in 2004. CPF rates tappered off at 2.5% since 2000, so borrowing can be considered as pretty cheap as compared to the past decade. In 2008, more people took advantage of bank loans, and HDB resale prices naturally rise partly due to low cost of borrowing.
It seems like the lower interest rates environment from banks are a huge contributing factor leading to price increases from 2007.
So what really cause the increase in price back in 1993?
The answer to that is population boom. Growth in population was 16% from 70s to 80s, 26% from 80s to 90s, 32% from 90s to 2000, 26% from 2000 to 2010, and 10% from 2010 till 2016.
There was a huge demand for housing back in the 1990s, demand far exceeds what the government can build. The population growth of 32% was the main reason for the increase in prices from 1993 all the way till 1996.
Govenment encouraging home ownership to create a sense of belonging saw the home ownership rates increased from a mere 58.8% to 87.5% in the 1990. These stats provided by singstats.
Some more macro economic data from 1970s to 2010s
Data from https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2543&context=soe_research
Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time.
Gross national product (GNP) is the market value of all the products and services produced in one year by labor and property supplied by the citizens of a country. Unlike gross domestic product (GDP), which defines production based on the geographical location of production, GNP indicates allocated production based on location of ownership. In fact it calculates income by the location of ownership and residence, and so its name is also the less ambiguous gross national income.
GNP is an economic statistic that is equal to GDP plus any income earned by residents from overseas investments minus income earned within the domestic economy by overseas residents.
These 2 economic indicators are used frequently to gauge how well the country is doing, the higher this figure is in real (after adjusting for inflation) terms, the better off the countries' citizens will be, the better the standard of living the country will be. There was a huge increase in GDP, could be largely contributed by the increase in population, but more importantly GNP per capita doubled in 1990s and 2000s. On average, people are getting higher incomes, could be a reason attributing to the boom in 1993. Supply of flats was much lower than the increasing population.
Obviously, this is a very simplistic way of viewing market supply and demand, but it does matches in a sense with the resale prices, especially so in the 2000s, where prices stabilizes for a number of years. The higher the ratio, the higher propensity for prices to increase. Also note that family sizes tend to be getting smaller as of recent times. A family of 6 to 8 would be more comment back in the older days as compared to today.
In conclusion
A lot have been mentioned, plenty of factors affecting the HDB resale market. Rules have been introduced to help as well as to cool certain types of properties by the government. Overall, HDB prices have gone up, although the market is still relativity young, issues could still arise when we see leases start to run out. Economic conditions, population growth, aging population, interest rates, government regulations all do affect prices. For now, whether or prices are sustainable, really depends on the next generation's ability to take on more debt then ever, CPF certainly helps cash flow issues, but mortgage loans will be ever increasing. Average salaries tell a skewed picture, what you have to do before buying is to really evaluate base on your circumstance and ability to afford, rather than where future prices will be. Do your own due diligence and exercise prudence are certainly what new buyers will want to bare in mind.
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