Widening Price Gap Between Private Homes and HDB: Existing Private Property Owners Expected to Support Market Demand

HDB resale price growth has lagged behind private home price increases, pricing out some HDB upgraders. Among private home buyers, the proportion of HDB upgraders has declined from the third quarter of 2020 to under 40% currently, with the private residential market expected to be anchored primarily by existing private homeowners moving forward.

In 2017, nearly half of the buyers of new projects in the Outside Central Region (OCR), representing mass-market private homes, were HDB dwellers. However, as of August this year, this proportion has dropped to 20.5%. A similar trend is evident in the Rest of Central Region (RCR), representing mid-tier private homes, and the Core Central Region (CCR), representing prime luxury properties.

Experts: Private Home Price Growth Far Outpaces HDBs, Curbing Upgraders' Purchasing Power

Earlier data revealed that among private property buyers, the share of HDB upgraders has fallen since 3Q 2020 to below 40%, whereas the proportion of buyers with private residential addresses has climbed to 60%.

Private home price growth has significantly outpaced that of HDB flats, likely curbing the purchasing power of HDB upgraders looking to enter the private market.

From 1Q 2009 to 3Q 2023, private home prices surged by 136.5%, compared with a 78.4% increase in HDB prices. This gap is anticipated to widen further, as the public housing market is subject to far more restrictions than the private property market.

Demand in the private residential market continues to be supported by existing private homeowners, as escalating private property prices have locked out some HDB upgraders. According to this year's buyer sentiment survey, those with home purchase budgets of $1.5 million or below were existing HDB dwellers, while respondents with budgets above $2 million were all current private home residents.

Increased Supply and Choices of Prime Flats and ECs Pose No Threat to Mass-Market Private Homes

Although there will be more choices of quality flats and Executive Condominiums (ECs) in the future, analysts believe this will not pose a threat to mass-market private properties.

With more new flats being launched, more first-time homebuyers will flow into the primary market, leaving the HDB resale market to face stiffer competition for buyers.

However, HDB resale prices will not experience the sharp surges seen over the past few years. Consequently, the number of HDB upgraders buying private properties may decline in the future.

The Government previously announced the implementation of a new flat classification framework from 2H 2024, categorising BTO flats into Standard, Plus, and Prime. Bayshore, an area predominantly lined with private homes, will see the launch of its first batch of 7,000 HDB flats next year, accounting for 70% of total housing units in the precinct, with the remaining 30% being private housing.

Given their prime locations, thoughtful flat designs, surrounding greenery, and integrated sustainability initiatives, flats in Bayshore and the future Greater Southern Waterfront will be highly sought after, but they are unlikely to impact the private housing market.

No matter how attractive flats in these areas are, households exceeding the income ceiling will still be ineligible to purchase them. They can only turn to resale flats and private residential options.

Academics: High Private Home Prices May Divert Prospective Buyers to the HDB Market

Elevated private property prices could prompt some prospective buyers to pivot towards the HDB market. The extent of the impact on private homes will depend on the supply of such flats and the trajectory of private home prices.

ECs remain the closest alternative to mass-market private homes, and "sandwich class" families earning under $16,000 a month will find ECs far more affordable.

An increased supply of ECs in the coming years will pile greater pressure onto mass-market private homes. If private home sales remain subdued, it could cap prices and potentially lead to a price correction.

The price gap between new mass-market private homes and new ECs stands at around 41%. While ECs are more affordable, they do not pose a direct threat to private homes because not everyone meets the eligibility conditions. EC buyers are predominantly first-timers and HDB upgraders.

There are also buyers eligible for ECs who choose to buy private homes instead to avoid being bound by the five-year Minimum Occupation Period (MOP).