Homes near MRT on track for smaller premiums

Some truths are cast in stone. In real estate, “location, location, location” is said to be the most important thing that determines a property’s value. In economics, the law of supply and demand – the more there is of one item, the lower its price – is often the foundation of all market theories.

Both of them are about to converge in Singapore’s housing market, where at least 10,000 new homes could become available around MRT stations in the next 10 years. The result: You may not have to pay too much of a premium for that ideal home.

Given the rising cost of private car ownership in Singapore in recent years, proximity to an MRT station has become an important attribute many homebuyers look for when choosing their dream houses. Due to their high popularity, private residential properties located within easy access of MRT stations may be able to command a significant price premium over those in the vicinity but farther away.

Based on recent transaction data, it could be estimated that the premium ranges from 15 to 25 per cent.

If all goes to plan, Singapore’s MRT network will expand significantly over the next 10 years. Currently, the network runs for 138km across 78 stations served by four lines – North-South, East-West, North-East and the partially completed Circle Line.

With the Circle Line expected to be completed by the end of the year and with the addition of the Downtown Line in stages from 2013 to 2017, the number of MRT stations will increase to 124 in six years.

In addition, with the planned Thomson Line and Eastern Region Line, expected to be completed in 2018 and 2020 respectively, Singapore’s MRT network could more than double to 278 km within the next decade.

Based on recent Government statements, future high-density housing in Singapore could be concentrated around transport nodes such as MRT stations. This much is expected from the fourth-quarter unveiling of Concept Plan 2011, the latest of the Urban Redevelopment Authority’s (URA) once-in-10-years blueprint for Singapore housing.

To achieve this goal, the Government might set aside more land around MRT stations for residential purposes and also increase the plot ratios for residential land near the stations.

At a URA seminar in April, it was highlighted that the Government could add more than 10,000 HDB flats and private homes in vacant land around three existing MRT stations – Bishan, Commonwealth and Queenstown – in the next decade and beyond.

This should help address both the issues of housing shortage and road congestion, as residents staying near MRT stations would have less need to drive.

Combining both parts of the equation – the significant expansion of Singapore’s MRT network and the URA’s plan to build more high-density housing around MRT stations – the logical conclusion would be a significant increase in the supply of residential properties near MRT stations over the next 10 years.

This could narrow the price premiums that homes near MRT stations could command in the long term. While this scenario is still far away, other factors such as proximity to a “good school” may become more important for homebuyers with a long-term view.

By Tan Chin Keong – analyst at UBS Wealth Management Research

Join The Discussion

Compare listings