Why Mass Market Homes Prices Have Shot Through the Roof

It all began with the under building of HDBs between 2000 - 2012. During that period, we let in unprecedented number of foreigners into Singapore. If you check Sing Stats, our population grew by around 100,000 - 150,000 per year. We needed between 28,571 and 42,857 new homes a year, assuming 3.5 persons per household. Instead, around 5,000 - 10,000 HDBs were built per year. In the private sector, only 6,000 - 12,000 were built per year. The total incremental supply was as little as 11,000 - 22,000 per year.

Look at Table 1: Median Resale Prices... A flat in Bukit Merah costs $712,000 for a 5 room. Table 2 shows the rise in HDB resale index, which rose by around 80% from 2005 to 2011. So a Bt Merah 5 room flat should cost around $395,555 back in Q2 2005. This meant that HDB has created $316,444 of profit for those who bought HDB on the resale market in 2005 in HDB.

If the average price of a HDB resale was $300,000 in 2005 Q2, the profit would have been $240,000 (see table 2). No wonder that the average household wealth of Singapore residents is over $600,000. If you add CPF, cash savings, other investments, the wealth adds up.

But the initial HDB profit has set up the average Singaporean household to upgrade to a private home. That is why condos in suburbs are hitting $1,000 - 1,400. It was the unintended consequence of supply crunch for the last decade.

Better still, based on table 3, if you had bought a flat in 1990 and held it till now, you would have a $586,427 of profit because you'd probably have bought a Bt Merah 5 room flat for $112,000. $586,427 is enough to foot the down payment of 2 private condos.

Going forward, our population will grow by 100,000 per year. We will need 28,571 new homes a year. HDB will build 20,000 new units per year and the private sector 20,000 - 35,000 per year. 2013 to 2015 will be very interesting years. It will be even more interesting when interest rates start to rise in late 2013 or 2014. There may be great opportunities then. I'll keep my powder dry in the mean time...

For those who believe that Singapore's residential market will never fall.... good luck... I hope you're right.

Table 1

Median Resale Prices by Town and Flat Type for Resale Cases Registered in 4th Quarter 2011

TOWNS	1-ROOM	2-ROOM	3-ROOM	4-ROOM	5-ROOM	EXECUTIVE
ANG MO KIO	-	*	$341,500	$468,000	$606,400	*
BEDOK	-	*	$331,500	$430,000	$545,000	*
BISHAN	-	-	*	$500,000	$650,000	*
BUKIT BATOK	-	-	$320,000	$427,000	$546,000	*
BUKIT MERAH	*	*	$376,500	$578,500	$712,000	-
BUKIT PANJANG	-	-	*	$404,900	$482,900	$565,000
BUKIT TIMAH	-	-	*	*	*	*
CENTRAL	-	*	$426,500	*	*	-
CHOA CHU KANG	-	-	*	$409,500	$465,000	$571,000
CLEMENTI	-	-	$361,300	$506,000	*	*
GEYLANG	-	*	$313,000	$495,000	*	*
HOUGANG	-	-	$331,500	$423,000	$517,500	$595,000
JURONG EAST	-	-	$325,000	$415,500	$495,000	*
JURONG WEST	-	-	$300,000	$400,500	$475,000	$569,000
KALLANG/WHAMPOA	-	*	$345,000	$515,500	$639,000	*
MARINE PARADE	-	-	*	*	*	-
PASIR RIS	-	-	-	$439,000	$500,000	$620,000
PUNGGOL	-	-	-	$475,000	$521,500	*
QUEENSTOWN	-	*	$370,000	$651,000	*	*
SEMBAWANG	-	-	-	$415,000	$465,000	$525,000
SENGKANG	-	-	-	$450,000	$511,000	$590,000
SERANGOON	-	*	$340,000	$467,500	$565,000	*
TAMPINES	-	-	$356,000	$450,000	$525,000	$630,000
TOA PAYOH	-	*	$348,000	$481,500	$645,000	*
WOODLANDS	-	*	$302,500	$392,000	$446,500	$565,000
YISHUN	-	-	$312,000	$382,000	$487,000	$574,500

Table 2:

Resale Price Index from 1st Quarter 1990 to 4th Quarter 2011

 

Year	Quarter	Index	% Change from Previous Quarter
2011	IV	190.4	1.7%
	III	187.2	3.8%
	II	180.3	3.1%
	I	174.8	1.6%
2010	IV	172.0	2.5%
	III	167.8	4.0%
	II	161.3	4.1%
	I	155.0	2.8%
2009	IV	150.8	3.9%
	III	145.2	3.6%
	II	140.2	1.4%
	I	138.3	-0.8%
2008	IV	139.4	1.4%
	III	137.5	4.2%
	II	131.9	4.5%
	I	126.2	3.7%
2007	IV	121.7	5.7%
	III	115.1	6.6%
	II	108.0	3.0%
	I	104.9	1.3%
2006	IV	103.6	1.0%
	III	102.6	-0.2%
	II	102.8	1.0%
	I	101.8	0.2%
2005	IV	101.6	0.4%
	III	101.2	-0.4%
	II	101.6	-4.8%
	I	106.7	0.1%
2004	IV	106.6	1.0%
	III	105.5	0.1%
	II	105.4	1.2%
	I	104.1	0.2%
2003	IV	103.9	1.2%
	III	102.7	2.4%
	II	100.3	2.1%
	I	98.2	1.6%
2002	IV	96.7	0.0%
	III	96.7	1.0%
	II	95.7	0.2%
	I	95.5	-0.8%
2001	IV	96.3	-1.4%
	III	97.7	-2.0%
	II	99.7	-1.6%
	I	101.3	-3.4%
2000	IV	104.9	-2.2%
	III	107.3	-2.2%
	II	109.7	-1.3%
	I	111.1	0.6%
1999	IV	110.4	2.2%
	III	108.0	8.1%
	II	99.9	1.4%
	I	98.5	-1.5%
1998	IV	100.0	-3.5%
	III	103.6	-4.3%
	II	108.3	-4.2%
	I	113.0	-7.1%
1997	IV	121.7	-6.0%
	III	129.4	-4.1%
	II	134.9	-1.0%
	I	136.3	-0.4%
1996	IV	136.9	2.7%
	III	133.3	6.0%
	II	125.7	12.8%
	I	111.4	9.3%
1995	IV	101.9	8.9%
	III	93.6	5.9%
	II	88.4	11.6%
	I	79.2	4.5%
1994	IV	75.8	0.4%
	III	75.5	5.6%
	II	71.5	2.6%
	I	69.7	2.8%
1993	IV	67.8	2.9%
	III	65.9	20.3%
	II	54.8	31.1%
	I	41.8	5.6%
1992	IV	39.6	2.3%
	III	38.7	2.1%
	II	37.9	6.2%
	I	35.7	2.9%
1991	IV	34.7	-0.6%
	III	34.9	-0.9%
	II	35.2	2.0%
	I	34.5	1.2%
1990	IV	34.1	-1.4%
	III	34.6	2.4%
	II	33.8	0.6%
	I	33.6