2022 has been nothing short of a record year for the property market. And in particular, the resale HDB market.
After all, this year we saw what is probably the highest number of resale HDBs sold for over a million dollars, which is quite remarkable given that these flats were not the likes of jumbo flats or in highly coveted estates, but even “normal” flats like 5-room ones in estates like Woodlands, Punggol and Sembawang.
Naturally, this gives rise to concerns on how resale HDBs are increasingly becoming more and more unaffordable, should prices continue to climb and climb as we head into 2023.
This certainly begs the question: is there a solution to all of this? Should the government step in to play more of an active role in the sale of resale flats in order to control the market? We take a look into some of the proposed solutions offered by the online community, and how feasible they are in curbing surges in the resale market.
Unregulated free market for resale HDB flats
Before we dive into some of the proposed solutions, here’s a quick recap on some of the issues at hand.
Image credit: Nguyen Thu Hoai
The core problem really lies in the wild West that is the HDB resale market. After a BTO has hit its 5-year Minimum Occupation Period (MOP), most of the time it’s listed for sale at a significant markup, so that its original owners will enjoy a somewhat decent profit. Depending on factors such as unit type and location, it’s not uncommon to see appreciation as high as over 70% for flats in popular HDB projects.
While at first glance it seems like there’s nothing wrong with that, many argue that such high markups only further make such resale flats being increasingly priced out of reach by the general populace. Because the HDB doesn’t really control or manage resale transactions, it’s really left to free market forces to determine overall price trends, and as we’ve seen, resulted in surges in the resale market along with some pretty extravagant prices for flats.
As long as there’s a willing buyer to buy these flats at high prices, what happens on the broader scale is that these transactions set the precedent for similar flats in the estate to follow, resulting in a trickle effect of ever-increasing prices.
On the whole, the fear really is that the housing market will become unsustainable for future generations, potentially setting the stage for a collapse that will have severe implications for the economy.
5-year-old flats sold as ‘brand new’
Of course, this ‘wild West’ is also exacerbated by some black sheep who spoil the market. For instance, one of the most common critiques is how some BTO owners never actually live in their flats for the entirety of the 5-year MOP, and subsequently list it for sale at a significant markup marketing the flat “brand new”. A check on some property-listing platforms unearthed some interesting finds:
Image adapted from: PropertyGuru
A 731sqft 3-room HDB at Compassvale Cape being listed “as good as brand new”, freshly MOPed at an asking price of $498K. This translates to as high as 150% markup from its original launch price of $189K.
Image adapted from: PropertyGuru
In other news, a 1,001sqft 4-room HDB at Blk 292b Bukit Batok East Ave 6 listed at $728K. Note how the listing photos show an ‘empty shell’ of a flat with barely any renovation done.
Image adapted from: PropertyGuru
This is another 4-room 1,000sqft flat at 29 Ghim Moh Edge being listed for $950K. Similar to the previous listing, note how the photos show an empty HDB with just some minor work done; considering that the flat is 5 years old, it certainly looks suspiciously new.
In case you were wondering, this is definitely not allowed, in terms of HDB regulations. Apparently, this seems to have been such a common occurrence that Minister for National Development Desmond Lee had to clarify in a recent Facebook post that this was not allowed, and that a BTO flat must be owner-occupied for the full MOP period, else it needs to be returned to HDB.
Should the HDB regulate all resale flat transactions?
So, what can be done about all this? Well for one, the online community has been alive with discussions on possible solutions.
Image adapted from: Reddit
On the Singapore subreddit, one suggestion brought up by user u/proscuittojane was to ensure that HDB flat transactions – both buying from and selling to – should be from the HDB only. Essentially, the HDB will act as somewhat of a ‘central bank’ where people buy and sell to the HDB, rather than with other homeowners.
In addition, the suggestion included pegging sale price to the number of years left in its lease, and thus having the HDB flat becoming more of a depreciating asset rather than an appreciating asset. This would theoretically prevent profiteering off public housing, and thus ensuring affordable housing for Singaporeans.
Of course, one counter to this radical idea was the practicality and feasibility of implementing said suggestion. Some users pointed out that this would mean a massive amount of resources needed by the HDB, since now they would be obligated to buy every HDB. It would also be challenging for the HDB to decide on who to sell what flats to, plus the issue of maintenance and upkeep of these flats when they’re sold back to HDB.
Image adapted from: Reddit
Another concern would be that if this solution is implemented, it would greatly disincentivise people from selling their flats. This would, in turn, severely limit the supply of flats, which means people who want to buy one can’t do so easily. Plus, it would create market inefficiencies for various segments of the population who would have otherwise sold their flat.
Image adapted from: Reddit
Introduction of a capital gains tax?
One possible and more feasible solution would be to implement more taxes for sellers – somewhat similar to the Sellers’ Stamp Duty that we have, but implementable regardless of how many years the seller held onto the flat. Progressively taxing profits off resale HDB sales helps to disincentivise listing flats at high prices, and so in a way curbing the potential for gross profiteering.
Image adapted from: Reddit
Introducing a capital gains tax on property sales seems to be quite a popular solution, as seen by the many other users who echoed this proposed solution.
Image adapted from: Reddit
Of course, this also opens up a can of worms, as pointed out by u/2080finances. They highlighted that not all HDB homebuyers are greedy for profit; some bought expensive resale flats just so that their family can have a roof over their heads.
Our take on this is that this can be a double-edged sword. Even if there were steeper taxes slapped on property sales, there’s technically nothing stopping sellers simply passing this ‘cost’ along to potential buyers, through increasing the asking price.
This is somewhat similar to what we already see today, where rental costs have been increasing simply because of how landlords have been passing this increase in cost along whenever banks increase the interest rate of mortgage loans.
However, if there was some way to ensure that this capital gains tax achieved its intended effect without it being indirectly passed on to the next buyer, then perhaps that might present itself as a more feasible solution.
For instance, perhaps there can be a cap implemented on how much the unit can be listed for, so that while the seller can still enjoy a fair amount of profit, it wouldn’t be left ‘unchecked’ and thus remaining still somewhat affordable.
The future of the HDB resale market
To conclude, there really is not much of an answer yet, at least for now. While the HDB can step up enforcement measures to ensure that “black sheep” do not spoil the market and inadvertently drive up prices across the board, the resale market is still ultimately driven by free market forces, which reflect the attitude and perception of homebuyers and sellers in the market.
In the meantime, one suggestion that we had largely echoes that of u/2080finances: government agencies such as HDB and MND should step in with more proactive education and strategic messaging, to drive home the message that no Singaporean should be profiteering off an asset at the expense of another fellow Singaporean.
If and when attitudes shift, this would lead to the free market forces calibrating accordingly, and that is perhaps when we’ll finally see the HDB resale market operating on a more even keel.
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Cover image adapted from: Nguyen Thu Hoai, PropertyGuru
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