15 November 2010

Will HDB Apartments Appreciate Forever?

It has often been said that HDB apartments are appreciating assets, especially if the Singapore economy continues to grow.

The HDB Resale Price Index was at its all-time high at 167.8 in Q3 2010.

However, the HDB Resale Price Index did not show an uninterrupted rise over time.  It fell from 136.9 in Q4 1996 to a low of 95.5 in Q1 2002, and did not surpass its previous high until Q3 2008, an anguishing almost 12 years later, when it was 137.5.

The HDB Resale Price Index is a composite index.  The weights are based on 12 quarters moving average transactions.

Finally, even if the HDB Resale Price Index is rising, the resale prices of HDB apartments in any given neighbourhood cannot keep rising forever.  An HDB apartment is "sold" with a 99-year lease starting from the date of the first lease.  As the years pass, the remaining lease becomes increasingly shorter.  Upgrading programmes may halt or even reverse the time-related decline, but the effect is temporary.  Sooner or later, age catches up.

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