Singapore is soon headed for a property crunch that will send prices for rental and sale even higher, industry experts predict. The primary reason for this is the convergence of the frenzy of collective sales (entire developments sold en-bloc), which are taking a large number of private residential units in prime district areas away from the market over the next year or so, and the ongoing increase in population, which has risen 100,000 annually for the past five years due to an influx of foreigners.
“With all the en-bloc sales since 2005, a total of about 9,000 units have been, or will be, demolished between 2006 and 2008,” explains Ku Swee Yong, Director of Marketing and Business Development at Savills Singapore.
“Though these are expected to be redeveloped into between 14,000 and 16,000 units, the first completions will only start to come onto the market in 2009, reaching a peak in 2011. We estimate that there will be only a net new supply of 2,000 apartments completed per year in 2007 and 2008, before the net new supply reaches at least 11,000 a year in 2009 and 2010,” he added.
In the past four quarters, developers have been revising estimates for the number of private residential units scheduled for completion in 2007, 2008 and 2009. In the latest set of statistics published by the Urban Redevelopment Authority (URA), net supply in the first quarter of the year was a negative 169 units despite the completion of 716 new units, indicating approximately 885 units have been demolished during the quarter. According to the developers’ data, there are only 4,573 units scheduled for completion for the rest of 2007, nearly half what was predicted a year ago.
Wendy Koh, a property analyst at Citi Investment Research, points out that demand for physical units for this year is likely to be around 8,000. “If we assume the current rate of demolishing, based on the 880 units demolished in the first quarter, about 2,700 units could be demolished between the second and fourth quarter of this year,” Koh said.
“This would leave a net increase supply of just 1,700 versus a demand of 8,000. If that’s the case, the occupancy rate for private residential properties could rise from an already current record high of 95.5% to 96.6% by the end of the year.”
A total of 72 collective-sales transactions were made in 2006, generating S$8.14 billion, four times more than the S$1.99 billion transacted in 2005 and the highest in the past decade. In the first five months of this year, a total of 39 collective sales generated $6.87 billion. Given the current pace, collective sales could top S$10 billion for 2007, predicted Lui Seng Fatt, Regional Director and Head of Investments at Jones Lang LaSalle.
Squeezing prices
higher
Tay Huey
Ying, Director of Research and Consultancy at Colliers
International, said rents were rising sharply in the prime
districts, especially for large units. “We’re really seeing an
acute shortage of available units for rental, partly due to the
spate of collective sales in the prime districts,” Tay said. “The
sudden rise in demand for rental units, particularly large-sized
apartments, by the many displaced tenants looking for replacement
units amid shrinking stocks have driven rents through the
roof.”
She pointed that expatriates who have been priced out of the prime districts due to limited housing budget or allowance have had to look further afield, thus putting pressure on rents of residential properties outside the prime districts as well. “The spike in rents across the island is thus the result of the filtering down effect of the supply crunch at the luxury and high-end tiers.”
Tay attributes the surge in collective sales to property developers’ confidence in the future prospects of the property sector, due to the ongoing restructuring of the economy. Interestingly, professionals generally agree that this latest wave of collective sales activity differs from the previous ones in 1994-1997 and 1999-2000.
There are now many more property buyers around, as foreign funds and private equity groups have also entered the residential market, often tying up with local property developers. There is also now a faster turnaround between the purchase of a site and its redevelopment. Many of the collective-sale sites purchased in the last two years can expect to be launched this year as fresh launches.
While last year’s collective sales were confined mainly to the prime districts (9, 10, 11), Districts 15 and 16 (East Coast), Districts 19 & 20 (Serangoon/Thomson) and District 21 (Bukit Timah) are now also in favour with developers. This is also leading to a noticeable increase in interest in large development sites (those with land area exceeding 100,000 sq ft), which professionals say are cheaper and more easily found in non-prime districts.
“There has been a heightened level of sales recorded in the secondary areas and we expect this filtering effect to the secondary areas will continue,” Lui said. “This will help secondary areas, especially those around the East Coast districts that are near or along major transportation routes to set up net record prices for sales in the next 18 months.”
Citi Investment Research recently raised its forecast for the price of private homes to increase to up to 20-25% this year, substantially more than the 12-15% increase the bank predicted as recently as April.
Forward
planning
But
while the supply-chain bottleneck will last until the end of this
year or early next year, Lui noted that current construction
activity and changes in government policies mean there’s supply in
the pipeline that will help meet future demand. In the short term,
the government has been tweaking some of its housing policies to
alleviate the crunch.
In March, the Housing and Development Board relaxed its policies on subletting whole flats, which expanded the supply pool available in the overall rental housing markets to an estimated 645,000 HDB flats. In the two months immediately following this policy relaxation, around 1,800 flat owners were granted approval by HDB to sublet their whole flats.
There are now 42,200 units of private housing in the pipeline (i.e. those under construction or with planning approval), which, according to developers’ estimates, will be completed by the end of 2010. “These will add to the existing private housing stock of 243,200 units to meet demand,” noted Choy Chan Pong, the URA’s Director of Land Administration.
Moreover, the government has also recently made eight new sites available for residential housing under the Government Land Sale (GLS) Programme, bringing to 20 the number of residential sites available in the second half of this year. These could yield an additional 8,000 homes for 2009-2010.
“In the long term, the government will set aside sufficient land to support our projected growth,” Choy explained. “In our Concept Plan, we have used a planning parameter of a 6.5 million population to guide the planning of Singapore’s infrastructure, housing and other land use needs over the long term, for the next 40-50 years.”
Loading...
