Resilient residential market in Singapore

Buyers are snapping up new homes in excess of 2,000 units per month for the past 5 months. This figure includes sales of executive condominiums. Bearing in mind  the many cooling measures in placed and the coming supply over the coming years, the demand for homes appear to be strong.

Traditionally, the population-to-housing ratio is about 3.9 which is a fair estimate taking into account typical average family members size. This forms the basis for demand on homes.

For the past ten years, there was significant housing market undersupply due to under building of HDB & private residential properties compounded by new influx of residents from the relaxed immigration policies.

From 2000 to 2011, our population has risen from 4.03 million to 5.18 million which translate to about 2.3% growth annually with an additional 1.15 million more residents that require housing.

If the 3.9 population-to-housing ratio remain constant, then 295,000 residential units are required to house these 1.15 million residents.

On the supply side, there are around 133,000 new supply within the same period from 2000 to 2011. In 2000, the vacancy rate for private residential properties is about 7% or 13,000 units. Projecting the same vacancy for HDB flats, there would be about 59,000 vacant HDB flats in 2000 for a combined figure of 72,000 vacant units.

Adding all these supply, 72,000 in 2000 to new supply of 133,000 units from 2000 to 2011, we get an approximate total supply of about 205,000 units.

Therefore, there is a net supply shortage of around 295,000 – 205,000 = 90,000 units to meet the population growth from 2000 to 2011.

Moving forward, an estimated 140,000 to 150,000 residential units would be completed by 2015. Furthermore, let’s assume our population growth rate slows down to 1% from now till 2015 due to the tighter immigration policy, this will lead to an estimated population of 5.39 million by 2015 which is an addition of  210,000 by 2015. Using the same population-to-housing stock ratio of 3.9, we would require additional 54,000 units by 2015.

Therefore, there is a potential oversupply of 86,000 to 96,000 units by 2015.

However, remember this oversupply may just fully absorb by supply shortage of around 90,000 units that had built up in the past 11 years.

Looking from the supply and demand angle, one can project that home prices are unlikely to make a drastic turn downward in the near future bearing unforeseen circumstances as pent-up demand is now only being met.

29 June 2012