Why are DBSS flats achieving high prices in the HDB resale market?

Even as the HDB resale market has generally stabilized since 2016, we are still seeing record prices for resale Design, Build Sell Scheme (DBSS flats) in recent times. Such examples include the high transaction prices of about $1 million for a unit at City View in 2016 and recently for Natura Loft, where a high floor unit was sold for about$1.18 million.

The DBSS scheme was suspended in 2011, due to seemingly over-pricing in new projects launched by developers. However, it seems DBSS flats which have cleared the Minimum Occupation Period (MOP) have been attracting good buying interest in the resale market. How should we view such record high transactions of selected DBSS flats in the HDB resale market and what do these price trends say about DBSS flats in general?

Why DBSS flats are being sold at record prices

The high prices of DBSS flats are mainly paid for units with excellent, exceptional attributes. For Natura Loft, it is very well located in Bishan where 5-room flats are commonly sold at above $850,000. Moreover, the higher the unit is located, the higher is the transacted price.

That said, it was still within expectations that there will be record price transactions for a strategically located and considerably new flat.  There is certainly a premium for DBSS flats which have been enjoying upmarket positioning, but as to how much that premium can go, such an intrinsic value can only be derived from the buyer – one who sees the value of paying a high price for the flat  (and willing to pay for it). 

Also, it is interesting how buyers view premium properties such as DBSS flats during weak market conditions. The majority of resale flat buyers will be cautious and work within their budget, but a small number of buyers will see the worth of the flat beyond the statistics. These buyers will eventually end up paying for these DBSS flats because they’re confident of further appreciation upon price recovery in the years ahead.

We should note that not all DBSS flats can fetch very high prices – that very much still depends on location. Prices of City View and Natura Loft are definitely way higher than that of The Premiere at Tampines. Tampines is an upmarket estate but it still is a suburban location.

Is paying over $1 million for a HDB unit realistic?

Strangely enough, there are some benefits. There is higher land value for sites in mature estates and requirement for the government to acquire older centrally located flats in order to redevelop them either through en-bloc or SERs.

Some savvy, strategic wealthy buyers of flats in mature estates do factor these longer term considerations before making their property purchase. For example,  those who buy from the HDB resale market are increasingly taking cues from SERs to buying to a mature estate.  There seems to be buyers looking to purchase flats in mature estates who felt that eventually, centrally located flats have more potential to be replaced them with a brand new HDB flat many years down the road when their flat becomes old and the the lease shortened. 

It is actually still fine to pay more than $1 mil for a 99-year HDB flat but it has to be very much substantiated by its central locality or the project’s special attributes. In terms of price appreciation, for buyers who purchased recently the flat at above $1 mil, it is a likely scenario to resell the unit with a 8 percent price appreciation (factoring interim fluctuating market conditions), assuming they choose to resell after ten years.

This article was written by Ong Kah Seng, Director of R’ST Research on behalf of 99.co.