A recent study published by the National University of Singapore (NUS) revealed that Housing and Development Board (HDB) flats that are older than 30 years have a higher resale value and depreciate less compared to other private freehold and leasehold properties.
They say that physical real estate is one of the best types of investments, especially to earn semi-passive income. However, what is our assurance that your property now will still have value in the market 30 years from now? Amidst the political and social news that everyone is occupied with, there is always room to talk about housing. Thanks to the study conducted by NUS, we have some numbers to compare when it comes to choosing between different property types which could be beneficial in decision-making as well.
The study showed that starting from the 10th year, the differences in depreciation among HDB flats, private non-landed freehold properties, and 99-year non-landed leasehold housing begin to occur. Those three categories and their historical resale transaction prices were used for the study. The examination period covered 20 years, from 1997 to 2017.
Aside from building age, on which depreciation is relative to, land tenure and the size of the property were also taken into consideration. The data, mapped based on age-related depreciation rates against transaction prices of resale properties, was provided for by the Urban Redevelopment Authority (URA) and HDB.
The findings
The following were some of the results released by NUS on February 13, 2019 (Wednesday):
- Depreciation rates for all three types of properties were almost similar during the first ten years
- HDB flats depreciated 1% faster compared to the other two types of properties within the first decade
- When the 10-year mark has been reached, private non-landed freehold properties experience a slower rate of depreciation while the other two types depreciate at similar rates for up to 20 years
- After 21 years, HDB flats have a depreciation rate of 3% while leasehold and freehold properties experience more than 10% depreciation
- Private leasehold non-landed properties depreciate more than 30% once they reach this age mainly due to “aging effects caused by lack of maintenance of the building and its surroundings,” said Associate Professor Sing Tien Foo, a co-author of the study
- HDB flats continue to be maintained which help reduce aging such as upgrading initiatives by the Singapore Government’s Home Improvement Programme
- Professor Sumit Agarwal also added that “In addition to redevelopment schemes that slow down the declining prices of older HDB flats, subsidy grants of up to S$50,000 for first-time buyers of resale flats also help mitigate the price depreciation as the property ages.”
Authors of the study include: Professors Sing and Agarwal, NUS Business School professor Low Tuck Kwong and PhD student Zhang Xiaoyu
Member of the public Ang Yee Gary made a sensible analysis and said that depreciation to zero value may be slow in the early years but will increase in speed during the latter years.
Either way, further research can be conducted on housing with other variables being used as comparisons the more time passes.