Is the music for the asset enhancement policy coming to a stop?

Is the music for the asset enhancement policy coming to a stop?

It has been reported that the resale prices of Housing and Development Board (HDB) flats have stopped increasing for the first time since June 2020, holding steady in February 2023 compared to the previous month, according to flash figures released by SRX and on Thursday (Mar 9).

Notably, the prices of larger flats fell, with the resale prices of five-room flats and executive flats dropping by 0.8% and 0.3% respectively.

The HDB Resale Price Index increased by about 1.7% p.a. from 149.4 2Q 2013 to 177.0 Jan/Feb 2023. Since inflation was about 1.0% p.a. from 2013 (Consumer Price Index (CPI) 2013 98.474) to 2022 (CPI 2022 108.37), does it mean that the real return on the sale of HDB flats was only about 0.7% (1.7 – 1.0) p.a.?

In contrast, the HDB Resale Price Index increased by about 4.6% p.a. from 72.5 2Q 2003 to 177.0 Jan/Feb 2023. Since inflation was about 1.8% from 2003 (CPI 2003 75.261) to 2022 (CPI 2022 108.37), does it mean that the real return on HDB flats was about 2.8% (4.6 – 1.8) p.a.?

If based on the above returns, it would suggest that flat buyers who are selling their flats of 10 years of age would have a lower return than those whose flats are 10 or 20 years older. While this does not make financial sense for someone to get a lower gain by selling a flat that is newer than flats that are older, it may simply suggest that the gains are higher for flats that are 20 to 30 years old because they were bought at a lower price.

For example, a 5-room flat bought in a non-mature estate such as Chua Chu Kang in 1993, the minimum price one would expect to pay is S$103,100. Later in 2003, it became S$180,000. And just in 2013, it became S$308,000.

HDB flats in Choa Chu Kang
Year of flat purchase Minimum Purchase Price Selling price in 2023*
1993 $103,100.00 $580,000.00
2003 $180,000.00 $528,000.00
2016 $284,000.00 $580,000.00

This runs contrary to the notion that buying HDB flats is an excellent way to shore up your retirement fund, as it was touted in the late 90s and 20s. One may actually gain more if the money used to buy the property is put in the Central Provident Fund account to have its interest compounded.

Furthermore, we all know by now that, typically, the older (over 40 years) your HDB flat is, the lower value it holds. So, in a sense, your retirement funds may be depreciating every year you decide to live in your flat and not sell it off.

Therefore, unless you are deciding to sell your BTO flat after the five years Minimum Occupation Period (MOP), before the value typically starts to depreciate after 40 years, dumping too much money in your HDB as your retirement strategy may not be advisable.

This brings us to the question that everyone has been asking: Is HDB flats meant for property speculation and for ordinary citizens to live and build their family in? If it is the latter, why are some of us, arguably, hoping that the price of BTO flats will rise higher and higher so that the flat resale prices can be pushed even further? Is this sustainable for the people?

In a statement prior to the General Election in 2011, former National Development Minister Mah Bow Tan argued that lowering the prices of new HDB flats would not be in the interest of Singaporeans and could be dangerous.

But with the declining returns of the sale of HDB flats, can Mr Mah’s argument still hold true when it burdens the new buyers with a high price of public housing and deprives them of the opportunity to build up retirement assets by leaving it in their CPF account?

*based on HDB resale price data

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