Historical Returns of Singapore Residential Real Estate

hdb private

The Singapore government’s HDB (chart 1) and URA (chart 2) have public and private residential property price records dating back for more than 2 decades.  Let us analyse what the price histories have to say.

The recent record highs in the property markets seem to have peaked in 2013.  The first peaks on the charts are in 1997 for both the HDB and private residential projects.  Since there’re no longest-term trough-to-trough records for both HDB and private, we’ll settle by measuring the peak-to-peak annualized returns.

HDBs peak at 206.6 in 2013 and peak at 136.9 in 1996.  The annualized return will be 2.5%.  For URA’s records for private residential, it peaks at about 215 in 2013 and peaks at about 165 in 1997.  The annualized return will be 1.7%.

It seems that both increases for the prices of public and private housing are pretty low and are not much higher than increases in the consumer price indices.  Thus, I would think that the main benefits of owning properties would be for its rental yields or imputed rents if it’s owner-occupied.  Currently, rentals for a HDB are higher than private residential but markets are fickle, so we do not know what holds for the future.  Anyway, the total returns of capital gains and rentals should be reasonable for such a major asset class.

On a side note, for the private residential, if we compare the trough of 100 in 1999 and trough of 135 in 2009, the annualized return will be 3.0%, which is higher.  This is a consolidation but do take note of the shorter time span of only 10 years which might make it to be not as statistically significant.

I’ve one particular fear with regards to my calculations because of my lack of understanding with regards as to how the charts are drawn.  The indices might be derived by holding variables such as floor size, remaining tenure and location constant.  If that’s the case, the price increases I calculated might be a mirage as HDBs and a lot of private housings are based on 99-year tenure.  Brand new housings should thus take a depreciation hit by about 1.01% every year.  This will make your residence a consumption item instead of an investment!

As a final thought, it’s important to note that properties should not be bought at high valuations as you might be forced to sell it on the wrong side of the cycle whether be it due to a chronic unemployment, major illness, decision to migrate or other reasons.  By the judgement of most authoritative experts, now the property markets are too high – Deputy PM Tharman thinks so, so does Minister Khaw Boon Wan.  The slew of property cooling measures is a manifestation of that train of thought.  It’s best to buy Singapore properties when the markets have cooled down and the government will signal this event by removing at least some of the cooling measures.

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