Monday, December 30, 2013

HDB resale prices took 10 years to recover from a crash

Property price! Property price! Property price! Why does property price keep rising? This has been a much talked about topic for quite some time. Everyone talks about rising property prices but why doesn't anyone remember falling property prices? I'll tell you a secret. It took HDB prices 10 years to recover from a crash! Yes, 10 long years. Now what was I doing 10 years ago? I was still in secondary school. To be exact, the crash happened in 1997 when I was just 9 years old. So how did I know or remember it? The truth is I don't but history is always documented somewhere.

Let me show you the evidence.

HDB resale prices from 1994 to 2013

The year 1996 was the prelude to the Asian financial crisis. I'll skip all the nitty gritty of what exactly happened. If you're interested, you can search for Asian financial crisis and find out more about it. Briefly, it began with the Thai baht currency collapsing and the negative effect spread to the rest of the Asian countries.

It'll be hard to remember how much HDB prices cost exactly during that time so I'll be using an indicator called HDB resale price index(RSI). This index tracks the average HDB resale prices in Singapore for each Quarter. The RSI was at a high of 136 in 1997 before it crashed to 95 in 1998. After that prices remain stagnant in the 95-110 range for 10 years until 2008.

It's hard to imagine the trend so here's a chart from HDB themselves to show the RSI trend:

As you can see, prices of HDB were up steeply before the crash. In percentage terms, RSI increased almost 100% from 1994 to 1997 before crashing 30% in 1998.

What caused the crash?

Interest rates. I'm referring to home loan interest rates. When interest rates are cheap, people take loan to buy property and when interest rates are expensive, people put on hold their buying of homes. This is one of the factors but there are many other factors too such as available number of properties, number of buyers, government policy for loans and the property market.

Will prices fall again?

Recently, the news on property market have changed. No longer does the news keep saying that property prices are hitting record high. We hearing things like number of housing sales decline, cooling measures slows down rising prices. Analyst are predicting that property prices may fall around the 5% range next year. Will prices fall again? It does seem like it will at least decline marginally or stay stagnant since there's a huge number of supply now and more coming, government has imposed many cooling measures, and interest rates are set to rise soon as US begins tapering.

What does it mean for young couples planning to get their first home now?

If you're getting married and planning to buy a new house, take into consideration that prices may fall. By how much, no one will know exactly.

Here's how you can decrease the impact that may affect you:

1)  Take the HDB housing loan.

It's higher than the housing loan offered by banks now but at least it'll save you the worry of rising interest rates. Interest rates on bank loans are definitely lower now but banks will only offer fix rate for a limited amount of time. The longest i've seen is the POSB home loan which fix the rate for 4 years. HDB housing loan is not a fixed rate but it's pegged to 0.1% above the CPF OA interest rates which rarely changes. You don't want to take a bank home loan at 1% now to see it rise to 4% in the future.

2) Buy a house that you can afford comfortably.

Everyone wants to buy a big house. But who thinks of whether you can service the loan for 30 years? Avoid stretching yourself by taking too much debt. You don't want to end up having the difficulty to pay for your house forcing you to sell it prematurely. And if just nice its during the property crash that you are forced to sell, you'll sell it at a loss for sure. Remember if the property market does crash, it'll mean that the economy is not that good and it also means you're very likely to lose your job.

3) Always have an emergency fund ready

No matter what, it is important to put aside some savings for rainy days. In case you lose your high paying job, you still can survive for at least a few more months.

Retrenchment? It'll never happen to me since i'm still young. Don't say it too early. You will never know if it will happen to you. Read: Recession Heroes Ep 4 - Got retrenched at a young age of 23 but still full of passion in life


In conclusion, don't forget that property prices can fall. When it falls, it can stay down for 10 years or more. It has happened before and it can happen again. It may be worse or it may not be worse. Whatever it is, stay safe and don't get caught in it.

This post was sparked off by a conversation with my colleague that his sister just sold her house for a small 30k profit recently. They bought their house at the peak of 1997. That's only 30k profit after 16 years. They had to wait more than 14 years just to breakeven!

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Related Posts:
1. The dangers of over leveraging on debt
2. How rising interest rate affects the housing loan you pay? [Guest Contribution]


  1. SGYI,

    Your colleague's sister broke even in nominal terms. Adjusted by inflation, the 30K "profit" hardly made up for the loss in purchasing power after 14 years...

    Timing and luck is everything.

    In early 2003, I bought my resale 3 room HDB near the lows (pure dumb luck; I just turned 35 as single).

    Bought $125,000; now valued at $375,000 - 3 bagger after 10 years!?

    My colleague bought his 5 room HDB at Yio Chu Kang near the peak. 2 years later, he found out his neighbour bought the same unit directly 1 floor down for $100,000 less than him... (Pure dumb "luck" again; he got married that year)

    Unless you are willing to rent while you wait for the market to correct, there is little else we can do if we die die need a place to stay :(

    2nd investment property another story.

    1. Hi SMOL,

      30k in 14 years is really nothing if we take into consideration inflation. I agree luck plays a part. I actually wanted to put the advise of delaying buying of HDB flats now but I realised it is impossible to predict when will prices stop rising. Thus I changed to the advise of getting fixed rate loans and not over stretching oneself.

      You must be really lucky to buy at the low. My parents bought our 4 room flat at $70,000 only back in the 80s.

      Your colleague must have regretted buying too early. $100,000 is no small sum. Life wouldn't be so hard if that amount was saved.

    2. Then she still have to buy another unit to live in at current price.

  2. I have the opportunity to live through 1997 as a working adult and I have seen two clashes in property prices since then.

    The reality is that very few people dares to buy anything at that time. AFC is not just an economic crisis. We are also talking about life and death of this country. Remember that we are a small country and we are still a little red dot. Interest rate hike may kill a property bubble, oversupply may push the prices down, but other more important and dire political climate will kill the property market.

    Keep your cash no matter how low the interest rate is. Next 2 years may not be as wonderful as the last few years.

    1. Hi Anonymous,

      I'm cautious on the property market now also. Few people dare to buy during a crisis but those few people who bought have made it.

      Durng the AFC, Singapore was actually the least affected. During the 2008 global financial crisis, Singapore was not really affected also. Just because we have reserves to counter all the crisis.

  3. 14 years free rent is bad? Imagine if your colleague's sister had rented all 14 years.

  4. Hi CharlieK,

    You're right. Its better to own rather than rent. But who doesn't want to buy when its cheaper? Everybody loves discount

  5. yes, my personal experience on property mkt in singapore.
    i bought my small personal landed property for 200k+in 1988.for matrimonial home. Resigned from MNC and became self employed.
    Need a place tø work and decided to work from home. Bought 3rm Hdb to live in with family in 1995(125K). With sufficient saving for deposit, bought a bigger landed house in 2000. Have to sell 3rm due to hdb regulation for (145K). Only break-even (inc interest). Got to live in rental free før 5yrs.
    Sold my small landed house last yr for 1.6mio.
    Its nothing to do with foresight or intelligence but pure blessings from our great and mighty God.

    1. Hi sureok,

      Thanks for sharing your experience here. :)

  6. Hi sgyi,

    This blog post is a gd reminder to pay for a home within our reach. my own guide line is buy a house within 5 yrs of the household income. if household income is 80k annually, the property price should nt exceed 400k. e.g

    i am very happy to know your blog this year. keep up with the quality posts, Happy new year!

    Have an excellet yr ahead.

    1. Hi Solace,

      Good guideline you have. It's important to practice financial prudence.

      I'll definitely write more quality posts. You're a good writer too. If you want you can guest post here too :)

      Happy new year and a prosperous 2014 to you!

  7. I suppose in whatever market you invest in, there is always up and down. Every Singaporeans thought that property prices will always go up over the long term. They are wrong.

    By the way, I like this article very much and has created a link in my blog, SG Wealth Builder ( to this article.

    Keep it up!


    1. Hi Gerald,

      What goes up will always come down. This is Newton's law. I think most people forgot what they learned in school. :p

      Thanks for your support for my post. Feel free to share it. Happy new year and have a prosperous 2014 ahead!

  8. Great article!

    It would be even better if you place the median and average income of Singaporeans on top of the hdb resale price index chart. That can tell if the prices has run away from fundamentals

    1. Hi liaogz82,

      That is a good idea. This means if median income is falling but hdb resale price is rising, prices has run away from fundamentals? I'm not very sure how it works out.

  9. Did you know that cpf interest rates ever hit 4 over % in 1998? Meaning that HDB rates were 4% plus as well.

    1. Hi,

      Yes, I'm aware of that. If interest rates were to go back to 4%. Mamy people now would be in deep trouble. A carsh may then happen again.

    2. Bro,

      The problem now is alot of people are over confidence in the property. As they have not been through 1997. Comparing 1997 to 2008. 2008 seems like a walk in the park due to liquidity and low rates from FED Reserve QE programs. It was supposed to correct but pushed up further by low interest rates and banks willingness to lend.

      I was just out of army in 1997 and times were so bad even for a 22 years old young man like myself. I was on 6 months contract jobs without much cpf contributions for almost 7 years until 2004. Just imagine how bad it was then. Banks rates went up to 8% in 1998 and alot of people was burnt and removed from the market.

      With the influx of FTs buying at high prices for the past 5 years because they have not seen the bad times in Singapore property market. They have too much confidence and thus willing too pay alot more than the locals. If they were to rent, they will have to pay the rental in cash. And their cpf in their account doing nothing. That is why they are willing to pay alot more buying resale because they can utilize their cpf balance. Keeping the rental savings to spend. Problem is will they ever run away like those FTs in dubai when they become jobless during to recession and assets in negative value?

      Now that FED is stopping their QE program and china slowing down. I believe that the coming one will be worst because if combined 2 corrections together into one. One correction that was supposed to happen in 2008 but delayed by QE. Another one which is supposed to happen in 2014/15/16.

    3. Hi,

      Thanks for sharing your experience. I've asked a lot of young people and most are ignorant of the fact that a recession might happen. It just doesn't reside in our minds since a major one has not happened for a long time. I'm sure another one will come again. The higher we rise, the greater the fall.

    4. I used to save every cent I could back in the days after AFC but my bank balance never ever saw 5k in the numbers. Because jobs were offered on 6 months contract so you get to work for 6 months and then another 3-4 months idling at home until you find the next 6 months contract job. I had a couple of times when my bank balance fell under $100. You basically work to survive and not buying assets like condos then.

      I remember a brand new 4 rm bto at redhill mrt was selling at 230k back in 2004 and nobody dares to commit. But a 3 room resale worth 140k in 2006 was selling at 310k in 2012. It increased by 120% after a short period of 6 years. Even if you accumulate 15k into you cpf ordinary account every year. You will not be able to catch up with the level of increase within that period of 6 years. This is not sustainable if a recession comes. Alot of people will find themselves swimming naked because when you are paying high mortgages every month, you will not have enough savings to buffer during bad times.

    5. The prices now are getting ridiculous where people are literally working just to pay the house. The cooling measures to limit the amount of debt one can borrow certainly helped to stable prices now. What will happen next is another story.