Supply and the Singapore property market in 2015

2015 housing deficit in Singapore will stay even as new supply enters the market

Despite rampant talk of an impending residential market crash, Alan Cheong, head of Savills Research Singapore,  maintained that ‘barring external shocks, property prices, residential prices will stay elevated and resilient.

According to Business Times, Mr Cheong saw no threat of an oversupply situation in 2015. In fact ‘There has been a housing shortage since 2006’, he said, presenting calculations done by him and several SMU professors and researchers.

‘The number of units in deficit in the market has risen from around 5,174 units in 2006 to some 142,175 units in 2011.’

Mr Cheong forecasts a deficit of around 3,765 units which will help support prices, even with  the full expected  2015 supply pipeline on board .

He added that even as population grew at 1.6 per cent, its lowest in nine years, between last June and this June, Singapore  population will still compound  to about 7.1 million people by 2030.

Mr Cheong said, rental demand remains strong. Assuming about 20,000 new employment pass approvals each year, this works out to roughly 6,600 rental units of demand, based on an  assumption of average household size of about three.

Technically,  he believes the market is not overbought.

Using URA Property Price Index and a benchmark of 80 for the Relative Strength Index, he said ‘current property prices are not at levels before the collapse of Lehman Brothers in September 2008, nor are they at the extreme peaks seen here in 1980 and 1996.’

According to Savills research , there is plenty of hidden wealth or financial firepower still remaining in the market. The cumulative profit for property traders who sold their properties in 2011, after buying them in the years leading up to that from 2005, was about $709 million.

On the supply side, the top five local developers controlled nearly 48 per cent of new property sales in 2011, he noted.

"The developers have very strong balance sheet and very strong holding power. The market is controlled in some sense."

With a new total debt servicing ratio (TDSR) framework in place and land getting more expensive, ‘it's not easy for a new entrant to come into the real estate market anymore’.

But Mr Cheong acknowledged that the increasing entry of foreign developers last year has impacted the market with their aggressive land bidding.

"Unless you scare the hell out of the supply side and then the supply side is forced to dump", Mr Cheong believed developers would still wield some controlling power, and that there would not be a crash even if there was excess supply.

"It will only happen through an exogenous event or when banks pull the line," adding that excess supply may cause prices to "stabilise or come off a little bit".

Mr Cheong says the pace of sales and land releases will be more measured and paced out over time.

Investors will do well not to short-sell their homes. The upside is about 156 per cent for going long on one's home as against about 24.8 per cent for going short.

The numbers do not bode well for shorting your own home.

source: Business Times - October 28, 2013

Authorship: Zen Tan