Decoding the Million Dollar HDB Dilemma

Credit: The Business Times Samuel Oh

Million-dollar HDB flats have been causing quite a stir lately, but this latest record-breaking transaction really takes the cake. The impact of it all is quite seismic, attracting heavy media. Coverage, and at the same time, leaving the public bewildered. Has the HDB market gone completely bonkers?

The first thing to note is that HDB is public housing. For most Singaporeans, HDB has always been seen as a reliable housing option for the masses. The HDB mission itself states the aim of providing affordable quality homes. But a price tag of $1.73 million is far from affordable for the average person. This surge in HDB prices has sparked concerns about the affordability of their primary housing choice. While news of billionaire James Dyson purchasing a penthouse unit at Wallich Residence for $73.8 million may be interesting, it doesn't pose a threat to the public as it belongs to a different league of residential options. In contrast, HDB flats have always been within reach for most Singaporeans. To see them being transacted at prices out of reach for many is quite unsettling for the average individual.

On the other hand, some argue that million-dollar HDBs are rare occurrences and make up a small fraction of all HDB transactions. Taking reference from June’s statistics, there were 96 million dollar HDB units transacted, accounting for a modest 4.4% of all transactions. This is in spite of a drop in resale transaction volume, down 13.1% from the previous month. With over a million HDB flats in Singapore, each with unique characteristics, focusing solely on the eyeball catching million dollar HDB units may paint an incomplete picture of the HDB market. When considering the overall affordability, a small percentage of million-dollar HDBs should not disrupt the larger picture.

This transaction is quite a curious one. Based on affordability calculations, this couple was eligible for a loan amount that could have gotten them private properties north of $3 million (assuming enough cash for downpayment), which would be something like a landed property in certain OCR areas. Without further context, most people might have opted for the landed option without a second thought. Even if they don’t max out their loan and opted for a property around $2.5 million, they could have gotten a good sized condominium in a superb location. So, was it for the views? The location? Or did they see the HDB as a steal compared to similar private properties in the area? If the buyer's intention is for personal use without the need for condo facilities, this could indeed be a rare opportunity for them to own a spacious unit with stunning views in a beloved location. Given their income level, they might view $1.73 million as a reasonable price tag for a forever home that meets all of their needs.

Credit: The Business Times

Obviously, they are not the average income couples that you usually see. Hence, in the grand scheme of things, this news may not hold much weight. Not all HDB units will attract such interest from wealthy buyers willing to pay such a premium. This situation highlights the "lottery effect" that the government aims to control – owning a unit in a desirable area could potentially yield significant returns. The new HDB classification may address some of these issues, but its effects may only become apparent in the future.

Ultimately, the key here is to manage expectations. Unchecked expectations of asset inflation can become a self-fulfilling prophecy if not handled carefully. HDB should and would continue to serve as public housing, and thoughts of it becoming otherwise should be discouraged. With over 80% of Singaporeans living in a HDB unit, we can expect the Government to continue in their steadfast approach in ensure that HDB prices remain stable.