When Do HDB Flats Start Depreciating in Value?

Only 4 Percent Of HDB Will Be Eligible For SERs

In March 2017, National Development Minister Lawrence Wong announced that not all old Housing flats would be eligible for SERS. Only 4 per cent of HDB has been identified since SERS was introduced in 1995.

SERS is a short form for the Selection Enbloc Redevelopment Scheme where the government will acquire back your HDB and give you a new replacement home.  The HDBs acquired are usually old and are sitting on land with a plot ratio higher than its current usage. This acquisition allows for the government to build more units within the same plot and to increase the housing density. The entire process is no different from a private condo enbloc sale. However, instead of getting a windfall, you get a new home with the lease top-up back up to 99 years.

96% of Old HDB Flats Will Have Zero Value At The End Of The Day

Since the announcements, there are a lot of concerns from HDB owners on where the direction of HDB prices will go. If you don’t get selected for the enbloc, the value of your flat will become zero at the end of the day. So, the vital question is this. When will your HDB flat value start to drop? When is a good time to sell this “asset” before prices start dropping? Does this drop happen gradually? Or drastically?

I started researching this topic because I met up with some clients the other day. These clients wanted to upgrade to a condo and are currently holding on to an HDB flat. The idea was to sell off their HDB and use the proceeds to buy a new condo. When I showed them what their HDB could fetch these days, they were shocked. What used to fetch above $500k was now going for $400k. Selling this HDB would mean a negative sale of almost $100k. How to buy the condo now? More importantly, can the price go back up?

Understanding When HDB Prices Start To Drop

To understand more on the effects of the decaying lease on the price of the HDB, I found some data with a very clear-cut answer. I used two sets of past HDB prices for this comparison. The first set is two blocks of HDBs that were completed in 1975 while the other two blocks were newer in 1999. These HDB blocks are just beside each other.

Source: 99.co, URA

As you can see from the graph, the appreciation of all four blocks were pretty much the same over the years. However, once the 1975 HDB reaches 2013, prices start to inflex while the 1999 HDB is still able to maintain their value. With lease as the only difference, it would appear that once an HDB flat reaches 38 years old, price correction will start to happen. If you happened to purchase the apartment back in 2013, I am sorry to tell you that the valuation has dropped by 18.74% or 16.90%. However, my data only comprises of a particular location at the city fringe area. This data may not be the same elsewhere. But it is still an excellent gauge to understand when HDB value starts to depreciate.

Source: 99.co, URA

So What Next?

So going forward, what is going to happen? Will HDB prices continue to dip or stabilise? Will the enhanced housing grant help boost up the prices of these homes? Well, as I have written in an earlier article, it is impossible to predict Singapore’s property market because it does not follow the entire cycle observed by Homer Hoyt. In this case, however, the fall in prices is directly related to the tenure of the HDB. So I am confident to say that this price trend will likely continue in the future. And why your HDB can drastically lose value within a short time frame. Especially after a certain age.

Are you an HDB owner? Is this price trend similar to what is happening in my estate?  How much time and options do I have? Well, why not speak with us today and let us find the answers for you. Fill in the contact form for an obligation-free discussion, and we will help do an in-depth analysis of your HDB.

Article contributed by Jerry Wong

Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following

  1. How certain factors affect real estate prices. (Using historical transactions as references)
  2. Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
  3. Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!

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