The million dollar question
As news of a record-breaking million dollar HDB flat being “in the works” started to surface recently, I had a sense of déjà vu.
I remembered during the property boom of 2007 and 2008 (before the global financial crisis), similar reports were making the news. Singapore’s property market was in the throes of a bull run led by luxury homes boosted by the inflow of foreign money and the effect was felt all across the property landscape right down to the low-end of the sector.
Sellers in both private and public markets were asking for ridiculous prices to “test the market”. On the odd occasion that they were successful in finding a buyer, these stories would make the headlines.
First it was a Queentown flat sold for $890,000 in January 2008, then a four-room flat in Jalan Membina that sold for a record $609 per square foot (psf) a few days later. But the financial crisis came and prices flattened out.
But as soon as the market picked up again, another record was set for a four-roomer at Strathmore Avenue at $674 psf in November 2009.
Needless to say, as HDB flats started achieving record psf prices, the concerns of average homebuyers reached emotive highs. Everyone was asking the million-dollar question: when will an HDB flat breach the $1 million mark?
Well, the answer came last week when an executive flat at Mei Ling Street changed hands for that amount or at about $620 psf. (It was a record in absolute amount, but not on a psf basis.)
I wasn’t surprised. In a rising property market, home prices are bound to achieve records.
But what is more important is that for every flat that sells at a record price, there are an overwhelming majority that do not.
In fact, we should not pay any attention to reports of buyers asking for record prices. I could put my home on the market and ask for, say, $10 million, but this is purely hypothetical. Anyone can ask for a ridiculous price - but is someone willing to pay for it?
Sure, there will always be the unusual flat with a great view and location, or stunning interiors that will make someone think it’s worth forking out that cash.
But obviously, buyers looking for an indication of price movements should be looking at average or median prices instead.
Also, we should remember that the perceived value of homes differs relative to an individual’s affordability. While $1 million seems stupidly expensive for the average homebuyer, it might appear as a bargain to a buyer wanting to purchase a similar-sized home in
Queenstown, where the only alternative - a leasehold condominium unit - is about twice the price at $1,300 psf.
Similarly, the record set for the HUDC maisonette along Shunfu Road for $1.28 million is not surprising when you consider that prices were already transacting above $1.2 million in recent years, and that at $762 psf, it is about a third cheaper than similar sized units in that area. And don't forget, HUDC units command a slight premium due to its enbloc potential.
Buyers may be comforted to know that median prices for a four-room at Queenstown is at a saner $638,000, while executive apartments in the Bishan / Toa Payoh area are transacting at $700,000 to $800,000 according to HDB’s website.
First-time buyers could, understandably, be startled by the $1 million price, but these buyers should ideally be buying directly from HDB, where prices have remained relatively stable (below $500,000 for most units) compared to the resale market.
National Development Minister Khaw Boon Wan said as much recently when he advised Singaporeans not to be “traumatized” by the price tag. Million-dollar HDB flats may also become more common when homes at Pinnacle@Duxton flats enter the resale market in a few years, he added.
In addition, analysts have warned that the property market may sizzle in the coming quarter as fresh capital flows into Asian cities due to the latest round of quantitative easing in the United States.
This could spell further records in the coming months. So it looks like we’ll have to start getting used to the idea of $1 million flats.
Just as long as they are the exception, not the norm, life should carry on for the rest of us.