Comparing Growth of HDB vs Private Condominiums in 2024
In this research article, I’ll be focusing on answering the burning questions that I would frequently hear from my clients. How do the prices of HDBs compare to those of privately owned resale condominiums in the current real estate market? Is it the right time to purchase a BTO, a resale HDB, or a resale condominium? When will we start to see a decrease in HDB prices? I will be comparing the price growth of HDB vs private condominium over the last 10 years and also the difference between them post-COVID.
Another commonly-asked question that I have this year is when will HDB prices fall and is there a way that we can predict it?
Basis of Comparison
Firstly I’d like to share my method of choosing comparable when it comes to property prices. Currently, the CPF is giving you an OA of 2.5% return per annum. This means that if your property investment doesn’t give you a return of more than this percentage, I recommend that you leave it in your OA.
However, if the property I advised you on does give you a better return than 2.5%, you should invest in the property rather than your CPF. People normally lean toward property investment to hedge against inflation so to give you an idea of it, the average inflation price in Singapore since the start of the millennium is between 2.7%-3% whereas the global inflation rate is somewhere between 3% to 5%. These numbers are what you need to exceed for your hedging to be successful.
HDB vs Private Non-Landed Growth in the last 10 years
The first comparison I’ll be using is a comparison between HDB and condominium prices for the last 10 years using the property price index. My rationale behind this time frame is that this long timeline will give a clear viewpoint to ensure you that this is the ideal period to look at. Over the last 20 years, we have seen an increase of roughly 32% over 20 years in HDB prices detailing a 3.2% growth per annum.
This is a decent number as the government’s goal is to hedge against inflation. However, if we look at condominium prices and their increase of 50% and a per annum increase of 5%, whenever property prices exceed the 5% threshold, this is when the government would intervene with a cooling measure. They will remove the measure if the prices start to stagnate and increase by roughly 3% or less. From this, we can infer that the government’s sweet spot is around 3% to 5%. This brings me back to the magic numbers of 3% and 5%. This means that the government is successfully hedging against inflation without the risk of properties skyrocketing.
HDB vs Private Non-Landed Growth post-COVID
Let’s shift our attention to the data post-COVID which covers the past four years. We see a massive growth in HDB prices of 42% so we saw an increase of 10% every year. This fact raises alarm bells and so can we expect to see a cooling measure enforced by the government?
The answer is no because there’s not much the government can do other than issuing a couple of regulations such as the MOP which I will discuss later on. As for private property prices post-COVID, the growth of 32% is much lower. If we only look at private property, it seems as if it’s the optimal time to invest as they’re growing at a much lower pace than HDBs. Over the past 10 years, private property prices were expected to grow by 3%, but they have increased significantly closer to the 10% mark. This marks an approximate 8% growth compared to the previous 5% growth over the same period, indicating a smaller margin of growth for private properties.
When will HDB Prices Fall?
Many people frequently inquire about when HDB prices will fall, as they are eager to purchase resale units. However, given the current all-time high prices, I would tell them that it’s not the right time to enter the market. If we look at the data specifically in 2022, the rate of applications post-COVID was in surplus.
The median number per property was over 4% which means each property had 4 people in line. If we look at the properties in high demand such as the 4 or 5-bedroom units, over 200 people are fighting over a single unit. This data points out the demand for new BTOs and bigger units. When the likelihood of purchase becomes unlikely, the last option is going for a BTO.
This demand has also led to the inflation of HDB prices. If we explore the data in 2024, this number has actually dropped to 1.6 for first-timers. It’s still oversubscribed but the demand has receded. The demand for bigger units for second-timers has also shifted from 46 to 17 meaning 17 people are vying for one unit.
Looking at the data, it’s evident that there’s a consistent demand for larger HDB units, especially in mature estates like Queenstown and Woodlands. This trend is driven by second-time buyers opting for bigger units in established areas. However, the supply side presents a different picture. During the pandemic in 2020, less than half of the planned HDB units were completed. By 2022 and 2023, approximately 20,000 units were completed annually, with a similar projection for 2024.
This cumulative total of around 60,000 units entering the market between 2022 and 2024 raises questions about a potential oversupply. However, it’s unlikely to immediately impact prices due to the Minimum Occupation Period (MOP) of five years for HDB units. Looking ahead, around 60,000 MOP units are expected to enter the market by 2030, which could potentially lead to an oversupply situation reminiscent of the price drop seen in 2013.
This begs the question again “When will I see a drop in HDB prices?” I expect that HDB prices will start to drop around the 2027-2030 timeframe, gradually declining over the subsequent five years until 2035, due to the phenomenon influenced by the Minimum Occupation Period (MOP) leading to this cycle repeating itself over time. My prediction suggests a potential decline in prices for the next five years, which might concern those considering purchasing resale units at the current all-time high prices.
Debunking Some Common Myths
The first thing I’ll address is the difference between HDB and condo. In my previous slides, I highlighted that while condominium prices may seem higher due to their larger price quantum, the percentage change in prices over the last decade has been relatively similar for both HDBs and private properties, typically ranging between three to five percent.
Despite this, HDB prices are unlikely to experience a drop any time soon. I acknowledge that as more HDB units enter the market in the next five to eight years, there may be a possibility of HDB prices beginning to decline. However, it’s important to note that currently, HDB prices are at an all-time high.
In essence, as HDB sellers profit from selling their units at a high price, they gain increased spending power. This cycle creates a group of buyers and sellers with higher purchasing capacity, as they seek new properties to move into after selling their HDB units. This leads to more upgrades in the market from now until 2028. These upgrades will mostly focus on buying either bigger units or more mature locations.
The last myth I’ll be debunking is the notion that private property is expensive. In summary, despite the current perception of private property being expensive, its growth rate of five percent over the last decade suggests it serves as a reliable hedge against inflation. However, the slower growth rate compared to historical trends and its proximity to inflation values indicate that it may currently be undervalued.
The comparison between HDBs and condominiums in the current market reveals intriguing insights into property trends and investor sentiments. Despite initial perceptions, both HDBs and private properties offer distinct advantages and challenges.
While HDB prices remain at an all-time high, indicating a robust demand, the potential for a gradual decline in prices around the 2030 timeframe highlights the cyclical nature of the market influenced by factors like the Minimum Occupation Period (MOP).
Moreover, my analysis underscores the importance of considering various factors, including historical growth rates, inflation values, and market dynamics, in making informed property investment decisions. As the real estate landscape continues to evolve, debunking common myths and understanding the underlying trends will be crucial for navigating the market effectively.