We have been told that the property market in Singapore has been softening, especially in the residential sector. At the same, prices of new Build-To-Order (BTO) flats have also become more affordable in the past few years.
So it was surprising when news broke out earlier this week that a resale 5-room flat at Toa Payoh sold at $955,000. And before everyone at Toa Payoh starts shouting “Huat Ah”, let’s first take a step back, and understand for ourselves what are the possible reasons why some flats are able to command such high prices.
1. The MRT Factor
In Singapore, getting a HDB flat that is within a 5-7 minute walk from the nearest MRT station has the same effect as builing your base camp in Warcraft near a goldmine.
You are going to get rich, and yet, at the same time, there will be a lot of people vying to get the asset away from you. Except that they will pay you, rather than attack you, to get the flat.
There are a few reasons for that. Firstly, like goldmines in Warcraft, MRT stations do not just appear out from nowhere, especially in space constraint Singapore. Secondly, not needing to be beholden to the reliability of the feeder service buses on a daily basis appears to have a high premium attached to it. Lastly, with car prices at ridiculously high level, most of us have little choice but to rely on the MRT.
With all these, come sky-high prices for properties that are within a walking distance from the MRT station.
2. Limited Supply
If you take a quick look at the HDB website for the medium price of 5-room resale flats at Toa Payoh, you would have realized that the data is not available in 2Q2015.
In fact, you have to go all the way back to 3Q2013 to find the last time medium prices for 5-room flats at Toa Payoh were published. HDB will only release the information if there are at least 20 transactions taking place for the town and flat type for that quarter.
This goes to show that such flat types in the estates are limited, which is one further reason for the high prices.
3. Near Work Places
Generally speaking, housing estates that are nearer to work places tend to command a premium compared to estates that are mainly residential in nature.
It is no rocket science. Living near your office saves time on daily commuting. When it comes to renting, it is also a lot easier to find tenants that are working in the area, and who are willing to pay a little more for that convenience. These factors contribute to a higher price.
Toa Payoh has quite a few offices situated within the estate. You have the SLF and MSF Building, the Samsung Hub and of course, the HDB Hub. Pockets of light industrial buildings can also be found around the estate.
4. The PR Factor
You simply cannot ignore the Permanent Resident (PR) factor when discussing about resale HDB prices. Because PRs are not eligible to buy new BTO flats, they can only choose between private properties and resale flats.
Due to the low interest rate environment, prices of private properties have increased sharply over the last few years. Naturally, a resale HDB flat, which acts as a good substitute for those who cannot afford private properties, would move in tandem with the increasing prices of private properties.
Unlike Singapore citizens, who have the option of opting for cheaper BTO flat as an alternative, PRs do not have such choices, and are thus forced to compete and pay more flat in the resale market.
Looking Ahead
Moving forward, there are some key factors that would affect the ability of HDB resale flats to continue commanding such high prices in the short-run. For starters, interest rate are increasing, with SIBOR reaching a 7-year high just a couple of days ago. The slower population growth, coupled with the increase in BTO sales launches over the past few years are factors in our opinion that would point to a weakening demand for resale flats.
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