The gap between HDB Five-room flat and Private Condo

While the current economic difficulties are the worst in Singapore’s recorded history, what may not be so apparent is the relative wealth of HDB owners and the potential size of pentup demand which has positively surprised in the last three months. In light of this, we take a deeper look into the HDB home owners’ balance sheets as we think they are likely to be the foundation of the recovery.

On our estimates, the average home equity of households in owner-occupied HDB flats is S$190,000 or 2.3X annual household incomes. For 5-bedroom or bigger flats, the predominant upgrader pool, the average home equity is almost 20% higher than the average HDB home owner at S$230,000. To put this into perspective, this equity covers about 30%-35% of the purchase price of a mass-end apartment, and is more than sufficient as a down-payment plus surplus. If only a small portion of the 270,000 units of 5-bedroom or larger HDB home owners decides to upgrade, we expect that the potential unsold supply—some 42,387 unsold units to come onstream in (2009-2013E)—would be gradually absorbed. The number of 5-bedroom or larger flats is six times the total unsold supply in the private market.

Affordability (defined as mortgage payment as a percent of total income available for mortgages), a dominant factor in the demand equation, has improved meaningfully to 31% from 48% in 4Q07, on the back of mortgage rate cuts and falling asset prices. Nearly 80% of the population lives in HDB flats and we see the top 30% of households in Singapore by income as the potential pool of buyers for private residential properties. Along with expectations that we are now closer to an economic recovery, we think mass end private property is better supported at these affordability levels, as compared to the 35%-40% level, where we think affordability could be stretched.


Last weekend we visited the private preview of Volari @ Balmoral, an 85-unit freehold development at the Garden Hotel site. Average pricing was ~S$2,000psf and within several hours of preview on Friday afternoon, 30 out of 50 units which were released were snapped up. By Sunday afternoon, all units were released for sale and approximately 70% were sold out. City Developments bought the site in June 1999 for S$108mn from Kechapi Pte Ltd.

We also visited another project near Bedok Reservoir – Waterfront Key, a 437 unit development by Far East and Fraser Centrepoint. Of the 150 units launched for sale, 120 units were sold. Pricing for the units range between S$700-800psf and a 10% discount is offered during the preview period. Prices for this leasehold project is approximately S$100psf higher than neighbouring Waterfront Waves by Fraser Centrepoint which was relaunched in March this year.

Sales momentum for the primary market continues to strengthen, registering 1,825 new unit sales in June 2009 (vs. 1,668 in May 09 and 801 in June 08). Top selling developments during the month include 8 @ Woodleigh (by Fraser and Neave), One Devonshire (by Allgreen) and Vista Residences (by Far East). Majority of sales stemmed from the Rest of Central Region, accounting for 47% of total volumes. Units priced above S$1,000psf continued to grow, up 17% MoM to 748 units, representing 38% of total sales. In the luxury segment, transaction volumes crept up and 23 units were transacted at above S$2,000psf level including one unit of Nassim Park Residences being sold at S$3,813psf.


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