You might have seen the various headlines about how the HDB resale price index has been inching upwards since end 2020 with the trend continuing to 2021.
You might also have seen the ever-increasing COV (Cash Over Valuation) that more and more buyers are paying in order to secure a flat in the resale market.
What does all this mean in this current post-pandemic period?
Does this mean that 2021 is the best time to sell your HDB flat?
Let’s explore the reasons behind the sudden surge in demand that helped some sellers achieve record-breaking Cash Over Valuations and transaction prices.
Why The Strong Demand For Ready-To-Move-In Homes?
COVID-19 has derailed plans for a lot of people.
This has resulted in knock-down effects and consequences as the impact of the pandemic ripples out to everyone.
#1: Delay in many BTO construction projects has affected a lot of families
Imagine being told that your keys will be ready for collection by a certain date.
So you make your plans and start preparations.
However, the pandemic has delayed the ongoing BTO projects and right now your plans are being disrupted.
For some, they might be able to wait.
But there exists many families who will not be able or willing to wait. For these families – they are willing to pay that premium if they need to.
#2: An Increasing Desire For Larger Homes Due To WFH Trends
Thanks to the effect of circuit breaker and being stuck at home due to pandemic – a lot of families are realizing the value of having a larger home.
So there is an increasing trend of families wishing to upgrade to bigger flats – from 3-room to bigger 4-room and 5-room HDB flats.
The Work From Home (WFH) trend is also fuelling the increasing demand to upgrade to bigger homes.
The demand for EAs and EMs are also growing despite the fact that these flats are aging and face the danger of lease decay.
With the fact that there might be lesser commuting from work and home – I noticed a trend that location matters less now.
It seems there is a greater demand for a bigger Woodlands HDB flat than a studio 1-bedder unit that is nearer to the central city region.
#3: Low interest rates on mortgage loans
Governments around the world has released huge economic stimulus packages in their efforts to save jobs and jumpstart the economy.
This has resulted in lower borrowing costs and interest rates.
And this has encouraged people to consider upgrading to bigger homes.
#4: PRs are finally deciding to sink some roots in Singapore
PRs are no longer as mobile as they are used to be before the pandemic.
With border closures and limited travel – some PRs have made a decision to sink some permanent roots in Singapore.
And this means buying a HDB flat from the resale market is a choice that they will take seriously.
This is based on some of my conversations with potential buyers – they are PRs who are looking to finally own their own HDB flat instead of just purely renting.
An Opportunity For Sellers Has Emerged In 2021
Back in 2013, the Mortgage Servicing Ratio (MSR) was applied in the wake of rising property prices.
MSR is capped at 30% of a borrower’s gross monthly income.
It applies only to housing loans for the purchase of an HDB flat or an executive condominium bought directly from a developer.
Since MSR was implemented, it has helped to cool down HDB prices over the years.
In fact, there’s been a drop of 13.8% in resale prices for the past 20 quarters till 3rd quarter of 2019.
This headline on 2 January 2019 – HDB resale prices drop for sixth straight year, declining 0.9% in 2018 – was another grim reminder for HDB owners who were planning to sell then.
I remembered calculating a lot of negative cash sales back then for a few families.
It really discouraged a lot of HDB owners – especially those who owns aging HDB flats from taking action – as it would turn their paper loss into an actual loss.
But the pandemic has presented a new dynamic opportunity.
I am not sure how long this trend will last.
Thanks to various factors which has come together – for the first time ever in 8 years – we are witnessing HDB resale prices creeping upwards.
HDB transaction prices in 2021 and 2020 – are now higher than it was back in 2019 and 2018
Below I extracted the transaction prices for 635A Senja Road. You can observe the 2021 prices vs 2019 prices.
Below is transaction data from 476B Choa Chu Kang Ave 5. Again, you can observe the rising trend of prices between 2018 and 2021.
As far as we know – as HDB flats become older and as its lease diminishes – the value of the HDB tends to depreciate.
But this is the first time I am observing an opposite trend – older flats transacting at even higher prices!
Below is another set of transactions from 336A Yishun St 31.
Again you can observe a trend that 2020/2021 transactions are higher than back in 2019.
Below is transactions for a 5-room HDB flat located all the way in the west side of Singapore.
Again, we are observing similar trends of higher transaction prices in 2021.
This trend is more noticeable for the bigger HDB flats and less applicable to smaller HDB flats.
The reason is very simple – people are preferring bigger homes and 5-room HDB flats are in greater demand.
In fact, this is even more obvious when I see cases of families selling off their 3-bedder EC units to purchase a 5-room HDB flat for the much bigger space it can provide.
A downgrade from an EC to 5-room HDB is considered as an upgrade for some families.
Why Do People Sell Off Their HDB Flats?
In my past 14 years in real estate, I have seen many reasons why people sell off their HDB flats.
Here are some of them:
- Retirees are downsizing to a smaller HDB flats as their children have all moved out. Any cash proceeds is an additional addon to their retirement nest egg.
- To move closer to their parents
- To upgrade to a bigger home
- To have a shorter commute to their workplace or school
- To upgrade to private property
This list is not exhaustive.
But it is important to check which stage of your life you are at…. and find out if necessary steps should be taken.
If You Have Been Thinking About Selling, Now Is The Time
Selling off your HDB flat is a very big move and it has to be considered carefully.
It is not a decision to be made lightly.
However, if you have been thinking of selling your HDB flat for awhile – then 2021 really presents a great opportunity for you.
With this rising transaction prices, there is even a chance of converting that negative cash sale to a potentially positive or at least break-even transaction.
Even older 10-15 year old HDB flats are being sought after with this current market demand.
I have no idea how long this trend might last but I know eventually HDB resale prices will start to stabilize once the BTO supply catches up.
And when supply starts to overtake demand, the prices of HDB might start to trend downwards again.
If you have plans or unsure on what choices are open to you – I invite you to contact me for a no-obligation consultation.