Will HDB resale prices drop in 2022?

19 May 2022
Will HDB resale prices drop in 2022?

It's a headline only property sellers love to see: "HDB resale prices rise for 26th straight month". The sellers market continues to endure against all odds, even as GDP growth continues to shrink this year.

But can we expect HDB resale prices to drop in 2022? One way we can make an educated guess is by looking at the HDB Resale Price Index.

What is the HDB Resale Price Index?

The HDB Resale Price Index is an indicator of overall price movement of public housing. It is calculated using resale transactions registered each quarter across towns and flat types.

HDB Resale Price Index chart as of 22 April 2022 Source: HDB

The current base period is the 1st quarter of 2009 - which means 1Q2009 has an RPI of 100. The HDB Resale Price Index for the 1st quarter of 2022 is 159.5. That means in the past four months, prices of HDB resale flats are almost 60% more than what they were in 2009!

This is the highest price index we've ever seen, beating the previous records set last year. Prior to 2021, the highest HDB RPI was 149.4 in 2Q2013.

We can also see that the last time the Resale Price Index rose at this rate, it was over a period of 8 years between 2005 and 2013. Back then, the government had tried to introduce various cooling measures from 2010 onwards, but it was only upon introducing MSR and TDSR in 2013 that finally caused the HDB Resale Price Index to drop that year.

2021's cooling measures appear to be slightly effective

The cooling measures that came into effect at the end of 2021, appear to have slowed down the pace of resale prices.

The Resale Price Index of 159.5 represents a 2.4% increase quarter-on-quarter, which is lower than the previous increase of 3.4%.

The cooling measures have been much more effective in slowing down the growth in private property prices, as evidenced by the Residential Property Price Index.

source: tradingeconomics.com

This is because the main group of buyers affected by last year's cooling measures are those looking to buy investment property, with the increases in ABSD. Historically, ABSD on its own is not a very effective method of cooling HDB resale prices.

Why are HDB resale prices so resilient?

Even in the worst economic situation, HDB flats tend to be the least affected. With most units being owner-occupied, as opposed to being investment properties, most sellers will either keep their units or downgrade to another HDB flat.

In fact, in a recession, demand for HDB flats may grow as homeowners looking to sell their condos will likely buy an HDB flat from the ever-present resale market.

What does this mean for HDB resale prices in 2022

All this seems to suggest that, barring further cooling measures, we can expect HDB resale prices to continue to grow this year.

That said, there is one factor that might make a difference and slow resale prices.

We are expecting a record number of fresh resale flats to enter the market this year, with over 31,000 units hitting their 5-year Minimum Occupation Period or MOP. In fact, earlier this year we highlighted 7 BTO projects that would MOP this year.

Chart showing number of HDB BTO flats reaching MOP

However, this will probably be only a temporary salve, since the lower number of flats reaching MOP in 2023 and 2024 will eventually cause prices to skyrocket once again.

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