A study by the National University of Singapore (NUS) reveals that Housing Development Board (HDB) flats survive depreciation effects better than private non-landed housing, when they are 30 years and above.
According to the study, differences in depreciation among freehold and leasehold residential properties and HDB flats appear only after 10 years.
The study was co-authored by Associate Professor Sing Tien Foo, Dean’s Chair and Director of Institute of Real Estate and Urban Studies; Professor Sumit Agarwal, Low Tuck Kwong Distinguished Professor in Finance from the NUS Business School; and PhD student Zhang Xiaoyu of the Department of Real Estate at the NUS School of Design and Environment.
Methodology
Age-related depreciation rates was mapped against transaction prices of resale properties using data obtained from the Urban Renewal Authority and HDB. The team studied the depreciation rates of resale houses from 1997 to 2017 using historical resale transaction prices of HDB flats and private non-landed residential properties such as condominiums and apartments.
These transacted properties were divided into three housing types: 477,665 HDB flats, 68,407 for 99-year leasehold non-landed residential properties and 72,006 freehold non-landed residential properties.
Control measures were also accounted for non-age-related factors such as housing size, housing type, number of housing units in the neighbourhood and distances to the nearest Mass Rapid Transit station and to the Central Business District.
Findings
The researchers found that housing prices for all three housing types showed decline as the house aged. Please refer to Annex A for the price change of properties as they age.
Within the first 10 years, the depreciation rates were similar; with HDB flats depreciating one per cent faster than the other two classes of private residential properties. Depreciation rates are related to building age, while other factors such as land tenure, size, etc. have been adjusted in price changes.
After 10 years, private freehold residential properties generally depreciated at a slower rate relative to private leasehold residential housing and HDB flats. In fact, the latter two housing types depreciated at similar rates for up to 20 years.
When houses are 21 years and above, the depreciation rate for HDB flats is approximately three per cent while freehold private residential property prices depreciated by more than 10 per cent. Leasehold private residential property prices depreciated by more than 30 per cent when they reached the same age.
The findings further indicated that the price declined at a much slower rate for HDB flats aged 30 years and above, when compared to private residential properties.
“The increasing aging effects of private properties above 30 years old is probably due to lack of maintenance of the building and its surroundings. HDB flats enjoy the benefits of upgrading efforts such as the Singapore government’s Home Improvement Programme that help reduce the aging effects more effectively than private properties,” said Assoc Prof Sing. “The problem seems more serious for leasehold private property owners who face both aging and lease decaying effects as aging can hasten economic obsoleteness of older buildings.”
Aside from the redevelopment schemes that help retard the decline in prices of older HDB flats, Prof Agarwal said, “Subsidy grants of up to $50,000 for first-time buyers of resale flats further mitigate the price depreciation as the property ages.”
Annex A
Price change in residential properties as they age
*Note: For HDB flats, the age group “<=6” includes only properties aged between 5 and 6 years old.