By Mr. Propwise

With more than 80% of the resident population in Singapore being housed in Housing Development Board (HDB) flats, the supply and pricing of public housing is a significant factor that affects the demand for and hence pricing of private housing. In this article we will look at the relative price performance of private (as represented by the URA Private Residential PPI) and public (as represented by the HDB Resale Price Index) housing.

From Figure 2.2.1a, we can see that the Private PPI had massively outperformed the HDB Resale Price Index (RPI) until the end of 1994, when the outperformance rapidly contracted. Since then, it has moved largely in line with the HDB RPI, but in a more volatile fashion. As of 2012Q2 the PPI stood at 206.9 versus the HDB RPI of 194.

Except for a sharp spike in the HDB Resale Price Index in 1993Q2-Q3 as the government moved to market-based pricing for public housing, HDB prices have tended to be less volatile (especially on the downside) versus the Private PPI (Figure 2.2.1b). In 2012Q2, the PPI rose by 0.4% while the HDB Resale Price Index had a 1.3% gain.

The premium of the URA PPI has fallen from close to 100% in the early 1990s to 6.6% in 2012Q2, way below the historical average of 34.9% (since 1990Q1), making HDB flats look relatively expensive versus private property on a historical comparison.

Looking at the compounded annual growth rates

Another way to look at this issue is to calculate the compounded annualized growth rates of the PPI versus the HDB Resale Price Index. Over a 22-year period from 1990Q1 to 2012Q2, the PPI gained 5.8% per year versus the HDB Resale Price Index which gained 7.9% per year. Thus it is clear that HDB flats have appreciated significantly more than private property during this time period.

The issue is that given where the relative affordability of private property versus HDB flats is currently, the same might no longer hold true for today’s buyers of public housing. Certainly there are quality differences to be taken into account (HDB flats today are almost of a similar quality to private property, except without facilities), but it should no longer be an automatic assumption that HDB flats will continue to outperform private property as they have in the past two decades.

This article is adapted from Timing the Property Market – Invest Profitably in Singapore Real Estate By Using Market Cycles and Insights, a new book by Mr. Propwise.

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