Friday, January 16, 2015

Enough home supply for up to 2030



Many property market participants remain in denial about the housing oversupply situation, with investors and real estate agents hoping that the outlook will improve while they ignore the growing difficulties in securing tenants amid stiff competition among landlords.

It should be clear by now that the residential property segment is heavily oversupplied.

Vacancies of private homes at 7.1 per cent equate to more than 21,000 empty units at the end of last September, Urban Redevelopment Authority (URA) data showed. Meanwhile, the stock of vacant Executive Condominiums (ECs) rose sharply to 2,375 units, or 16.2 per cent, at the end of September from 1,634 units, or 12.2 per cent at the end of June. And more homes are being built, putting further pressure on the market. We can expect a total residential supply of 150,689 units within three years and possibly another 35,000 units in 2018.

Table 1 shows the expected completion of new residential units — private, EC as well as HDB — from this year to 2017. The figures are compiled from projects currently under way and in various stages of completion, starting from land sales and HDB’s Build-To-Order (BTO) launches. Given that the pace of construction is usually ahead of developers’ planned schedules, we can expect the large supply to come into the market earlier.

Those who deny there is an oversupply of homes point to the Population White Paper published in January 2013 that outlined Singapore’s plans to allow for the population to increase to 6.9 million by 2030. In the same paper, it was stated that “sufficient land has been set aside for an additional 700,000 homes from today, and more in the longer term if there is a need”.

This implies that over the 17-year period from 2013 to 2030, we can expect population growth of 94,000 and an increase of 41,000 residential units per year on average. So those hopeful investors and property agents hold the opinion that while there may be some oversupply in the next few years, the excess supply will be small.

In my opinion, the forecast number of housing units is overestimated — and by a large margin. An increase of 94,000 in the population per year does not require an increase of 41,000 housing units, or about 2.3 persons per residential unit, because:

1. New population growth in the categories of “Dependants of Citizens/PRs/Work Pass Holders”, “Work Permit Holders” and “Foreign Domestic Workers” (which together take up 74 per cent of our non-resident population) does not take up significant additional housing units as the majority have their accommodation provided for by their employers at home or in workers’ dormitories;

2. New foreign students in Singapore (accounting for 6 per cent of non-residents) often choose to stay in hostels.

Furthermore, if we look back to the period with the highest population growth and look at the increase in the total number of homes, we will realise that the 700,000 additional housing units is grossly overestimated.

During the last decade, Singapore’s population growth averaged 130,000 per year, with the peak increase of 251,000 in 2008 (see Table 2). We managed to accommodate 1.3 million more people with an additional 151,475 residential units — or about one additional housing unit per 8.6 new persons in Singapore. This means that the 150,689 units that are expected to be completed from now to 2017 can accommodate another 1.3 million population growth.

Singapore’s population was about 5.4 million at the end of last June. Taken together, it means that if we simply allowed the current residential projects in the pipeline to be completed, we can already accommodate a population of 6.7 million. And if we take into account the current vacancy of 23,375 private residential and EC units (as at end-September last year), we can just about accommodate the 6.9 million planned for 2030.

About the author:

Ku Swee Yong is a licensed real estate agent and the chief executive of property firm Century 21 Singapore. He recently launched his third book “Real Estate Realities – Accommodating the Investment Needs of Today’s Society.”

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