It was reported in the media in early October that a 1,668 square foot HUDC unit at Block 315 in Bishan along Shunfu Road was sold for $1.1 million, or around $659 per square foot. It was also reported that the flat was valued at $900,000, so the buyer paid a Cash Over Valuation (COV) of $200,000, and that he did so because the unit was on a high floor and located conveniently just outside the city. There was also talk about the en bloc potential of the estate, similar to Amberville, to explain the unusually high price paid.

I took a look at the HDB website and it appears there is another unit of exactly the same size but a lower floor in Block 319 that has also sold for $1.1 million recently. Whatever the reasons the buyers paid such a high price for it, for most Singaporeans the thought on their minds might be: “Are million dollar HDB flats going to be the norm in the future?”

These million dollar units are not your typical HDB flats. Firstly these are HUDC flats, which were built under an already phased out special scheme the Government started in the 1970s to satisfy the “sandwich class” who could not afford private properties but aspired to larger homes and nicer estates – some were even gated to give residents more exclusivity. From 1995 these estates could be privatized, thus giving rise to the talk about enbloc potential.

Secondly, at almost 1,700 square feet, these units are very large. So the relatively high per square foot price of $659 is compounded by the large flat size to give you a high absolute value of $1.1 million. New HDB flats being built now mostly only go as large as 1,200 to 1,400 square feet, so these older but larger HUDC and Executive flats also benefit from the scarcity factor.

Thirdly, these particular units are located in a prime location in Bishan near the Circle Line MRT. Bishan is a hot area with high HDB prices, and in the months of September and October the prices of resale transactions for Executive flats ranged from $648,000 to $860,000. Contrast this with a less popular area for Woodlands where the same type of flats during the same period transacted in the range of $430,000 to $616,000.

So no, I do not think million dollar HDB flats are going to be the norm unless per square foot prices in the “hot” HDB estates start to approach the $700 to $800 per square foot levels, which is when we will start to see many more of these transactions. For now, these two transactions are one offs (although similar units in those estates could also transact above a million dollars).

Housing price anxiety

But whether we see many more of these million dollar HDB transactions or not, these stories are playing to an anxiety amongst many Singaporeans that housing prices are rising too quickly and moving out of their grasp. Indeed, from the first quarter of 2007 to the third quarter (flash estimate) of 2010, the HDB resale price index has risen by 60%, a pace which many consider too quick.

In response, on August 30 the government announced a suite of measures to drive out investors from the HDB resale market and stabilize prices. And on October 18, HDB announced further tweaks to the resale procedure for HDB flats, including enhancing the Resale Checklist for sellers and introducing a 7-day cooling-off period between the submission of the Resale Checklist and granting of the Option To Purchase.

Whether these will work to contain the rapid price increases remain to be seen, but in the near term we can expect transaction volumes to decline, with many buyers taking a “wait and see” attitude.

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