The imminent housing glut?


Responding to the strong demand for private housing and land for private residential developments, the Ministry of National Development last week released its “highest potential supply quantum” per half year since 2001.

Comments from the industry suggest they expect the impact of this strong signal to be immediate, in terms of cooling home sales and dampening land bids.

Well, the experts have been swiftly proven wrong.

The first tender to close thereafter saw a record price for Executive Condominium (EC) land. The level of interest has also not waned. The number of bids – seven – was about on par with recent tender exercises for EC and Design, Build and Sell Scheme sites.

Just how large is the newly-announced housing land supply? Assuming developers do not trigger any sites from the reserve list for the second half of the year, the estimated 8,135 private homes from the confirmed list sites for the second half is only 30 per cent more than the actual first-half supply (including triggered sites).

Given that demand from developers has been enthusiastic, a 30-per-cent growth rate for the next six months may not be too unreasonable.

At the same time, it might be necessary to close the tenders for the next few sites at the same time, to thwart further rises in land prices.

If it is not a big problem for developers to absorb the increased supply, what about the demand side? Will there be enough buyers?

Yes, if the results of a recent property survey are to be believed. The survey with a sample size of more than 2,200 people found that three out of four potential home-buyers feel that the prices of private homes and resale Housing and Development Board (HDB) flats in Singapore are too high.

I think most of us know that already, but wait for this: Out of a sub-set of 657 active property seekers, 75 per cent still hope to buy a home within the next two years. They constitute 22 per cent of the total sample size. And this after saying in the same survey that they expect HDB resale prices and private property prices to rise between 6 and 10 per cent over the coming year. The survey was conducted last month and this month – after two sets of cooling measures were already introduced.

Last year, we had about 1.1 million households in Singapore. If we apply the 22-per-cent finding, this means there would be 242,000 households actively seeking to buy a property within the next two years. That is a lot of buying potential. Even if we were to take just one-fifth of this to allow for a very high margin of error, that is still 48,400 households.

This is the conundrum facing the Singapore housing market – the liquidity problem. Potential buyers know that housing prices are high but are still intent on buying. Developers sense this even if they cannot quantify it.

The trick is to turn things around fast, from land award to securing a sales licence before any correction can take place. The only crucial factor is whether the downpayment is affordable: If this cannot be done, throw in branded furnishings. Which tenant can resist such fine living?

As one property consultant noted: The bullish demand is largely driven by sentiment rather than a supply shortage. Quite right, as most buyers are investment driven, not need-driven.

Will it all come to grief eventually? You do the math. The capacity to occupy the homes is only 8,700 units per annum (average for past decade). The land supply for this year will be at least 14,400 units. The remaining owners will have to find other better uses for their homes when completed.

Source : Today – 28 May 2010

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