Conflicting signals spark property debate | Singapore Property
By Lynette Khoolynkhoo@sph.com.sg@LynetteKhooBT
How strong is demand in the Singapore residential property market? The picture is different depending on what one looks at. And this has not just sparked a debate in property circles but could pose a dilemma in future government land sales.
ST PHOTO: KUA CHEE SIONG
Oct 20, 20165:50 AM
HOW strong is demand in the Singapore residential property market? The picture is different depending on what one looks at. And this has not just sparked a debate in property circles but could pose a dilemma in future government land sales.
If one goes by buying demand - as reflected by the encouraging residential sales this year - the market is vibrant. But the actual housing demand - which refers to the demand for owner-occupied and rental housing - sends a different signal if one looks at vacancy rates.
This apparent disconnect between buying demand and actual demand is fanning the hot debate in property circles: whether there is an oversupply or undersupply situation.
With the economy sputtering and more cracks surfacing in the jobs market, real housing demand is seen to be increasingly beset by lower growth Singaporean household formation, immigration and job creation.
The buying demand and actual demand disconnect has become ever more pronounced in an environment of prolonged low interest rates, a lack of higher yielding investment alternatives, and heightened risks across all asset classes. Such buying behaviour of home buyers is not underpinned by real housing demand.
How does this pose potential problems in land sales deliberations?
One school of thought says that going by the pace of developers' sales in some property regions, the government will have to release more land to meet the buying demand - nevermind that these regions may be plagued by an oversupply of completed residential units.
One study that arrived at this conclusion was undertaken by JLL. The study, which concluded that there was a private residential undersupply in the suburbs but an oversupply in the prime areas, stoked market rumblings of disbelief among those expecting a potential oversupply in the suburban region.
One major bugbear of the JLL study is that it tries to project purchasing demand for residential properties by using the ratio of unsold units as at end-Q2 2016 to developer sales last year for each region. Based on the ratio, the Core Central Region (CCR) is deemed over-supplied, while the glut in the city-fringe or Rest of Central Region (RCR) was more moderate.
The suburbs or Outside Central Region (OCR) had the lowest unsold units to take-up ratio.
Some would argue that there are limitations in using developers' sales in one year to gauge future demand, especially since the take-up has typically been launch-driven. The low take-up of 407 units in the CCR last year could hence be attributed to a lack of new launches in the region, which made up only 5.5 per cent of total new sales of private homes last year - a low since the global financial crisis. New sales in the CCR have since picked up to 422 units in just the first half of this year.
There are other exclusions in the JLL study, such as delicensed projects.
Executive condominiums (ECs) - the public-private housing hybrid - are not factored into the analysis, though their potential buyers' pool does overlap with mass-market condominiums in the suburbs. The supply analysis could also be made more complete by considering developers' launch pipeline and the remaining government land sales (GLS) sites to be launched this year, including the reserve sites that can potentially be triggered for sale.
But what's more critical here is that JLL is projecting homebuyers' purchasing behaviour - one that is increasingly detached from real housing demand.
To get a sense of real housing demand, it is common to look at the vacancy rate of private residential units, which was at a 16-year high of 8.9 per cent as at end-June; the vacancy rate in the North-east region, in particular, was at an all-time high of 12.6 per cent. For condominiums alone, the vacancy rate in North-east region spiked to 20.2 per cent - the second time it ever crossed 20 per cent.
High vacancies and weak leasings possibly hint of a slower growth in housing demand and this will continue to assert pressures on rents and prices. This will be weighed further by an expected record completions of 26,208 units (including ECs) this year, up from 22,267 units in 2015. It is important to bear in mind the over-20,000 new HDB flat completions this year too.
Therein lies an irony. Visibility for housing demand is clouded by bleak economic indicators and heightened jobs insecurity but potential buyers are still showing up at some showflats of new launches by the thousands, as seen in recent launches of The Alps Residences in Tampines and Forest Woods in Serangoon. MCC Land's 626-unit The Alps Residences in Tampines was 43 per cent sold in just the first day of launch while CDL's Forest Woods sold 65 per cent in the first launch weekend.
Of course, sales performance is project-specific. But on the whole, buying demand for residential properties has been sustained by low interest rates and a lack of attractive alternatives. Besides stock market gyrations, investors now have to contend with rising risk of bond defaults.
Commercial and industrial strata properties too have lost their lustre.
For developers, their appetite for mass-market sites is also stoked by how briskly such projects can sell with well-calibrated prices. Post-TDSR (total debt servicing ratio), developers have found the sweet spot by "right-sizing" their units to make price quantums palatable to buyers and have grudgingly accepted slimmer margins as a new norm. With a winning formula of pricing, product concept and location, some projects have performed well.
In the first nine months of this year, developers found buyers for 5,744 private homes, just 1.6 per cent shy of the 5,837 units in the corresponding period last year. Consultants expect this year's primary sales to exceed last year's.
Generally, the continued price declines have helped and some fence-sitters are done with waiting for cooling measures to be lifted. While OCR and RCR projects often report higher proportion of upgraders than investors among buyers, some property agents observe that many buyers are biding their time, making decisions on whether to rent out or stay in their new homes only when these units are completed three to four years down the road.
Notwithstanding the economic gloom, some believe there is always the latent demand from a populace ever-aspiring to upgrade or own a second property and government development plans such as the Punggol Creative Cluster and Learning Corridor that could help buoy housing demand in the north-eastern suburbs. It is also widely recognised that the government has the levers to calibrate immigration policy or cooling measures if such support to the housing market is so needed.
The downside risk here, however, is how such optimism will stake up against the odds of a deep recession and steeper job cuts. Sustained high residential vacancies may eventually deal a blow to rents and capital values.
Going by developers' land bidding behaviour, which supposedly reflects their reading of buying demand, one would expect the government to release more residential parcels in its upcoming land sales. The question then is whether this should come even as more homes are left vacant.