Massive Home Supply To Hit Outskirts

2013 is less than two years away. I am feeling less lonely in expressing my views about the physical completion supply of residential units. It has been five years since I started to scrutinise the total stock of residential units in the pipeline, that is, current stock plus expected completions minus demolitions from en bloc programmes.

Occasionally, people still ask: "Why look at completed supply when land sales are hotly bid and developers sell out most of their stock before construction has completed?"

Regardless of the take up of pre-sales, physical supply and demand will ultimately influence future prices, rentals and returns.

Two weeks ago, in an entry titled My Worries, National Development Minister Khaw Boon Wan cautioned in his blog (http://mndsingapore.wordpress.com) about the "massive supply that will hit the market from 2013". As of March 31, the official supply numbers for the next four years are as in the table.

Mr Khaw's worry is about the total 50,826 units that could be completed in 2013 to 2015. With a historical long-term average supply of 8,000 units per year, the average of 17,000 units per year of supply from 2013 to 2015 seems risky should demand from users and tenants not increase in tandem.

I have pointed out in previous commentaries in this newspaper and in my recently published book, Real Estate Riches, that there are inaccuracies in the supply data.

IPA's own estimates are that the completions will take place earlier than what is reported by the Urban Redevelopment Authority (URA), which compiles and presents data based on submissions by developers. For our discussions in this article, let us assume the numbers above to be accurate.

Where are the areas we shouldbe concerned about?

Almost all of the completions expected in 2013 and beyond were launched after the 2008 Lehman crisis. In fact, as the luxury home market struggles to find its feet from the depths of 2009, the mass market residential segment has taken off in terms of value and the number of transactions.

From its trough in 2Q2009, the price index for non-landed residential properties in the Core Central Region (CCR) increased 42 per cent to 204 points from 144 points. The same index for Outside Central Region (OCR) climbed more rapidly, up 54 per cent to 185 points from 120 points.

Many Singaporeans are not surprised to hear of transactions in the outskirts, such as Jurong West, Pasir Ris and Yishun, at S$1,000 to S$1,500 per square foot - even for mass market finishes on 99-year leasehold land.

In terms of the number of homes being constructed, the proportion of units in the more luxurious locations inside CCR will decline from 33 per cent in 2013 to 26 per cent in 2015.

This means the proportion of units in the outskirts (OCR) and mid-tier locations (RCR) of Singapore will rise from 67 per cent to 74 per cent. Now, the percentage rise may seem mild but in absolute numbers, we can expect 8,686 units to be completed within the OCR and RCR in 2013, 13,014 units in 2014 and 14,510 units in 2015.

For the optimistic, those numbers may still be matched by demand from strong job growth, new Permanent Residents and other pass holders - assuming a generous talent attraction programme,

However, when we include the additional supply of public housing and its accelerated pace of building, the numbers start to pile up. We can expect the 16,000 units of HDB flats launched last year to be completed in 2013 and another 22,000 (very likely more) units to be completed in 2014 and 2015.

And with Mr Khaw calling on HDB to build ahead of demand, it has effectively moved from Build-to-Order to Ordered-to-Build. So the completion of HDB units in 2015 and beyond could also be significantly ratcheted up.

Now, we know that the mature estates have limited land to accommodate new HDB units. We estimate that almost all of the 22,000 units launched this year to be completed in 2014 and, say, a ratcheted-up 28,000 units to be completed in 2015 will be in the OCR and RCR.

In terms of physical supply and demand from end users, new HDB flats in mature estates such as Holland Road (situated inside CCR) do not compete with private homes priced at well above S$1,000 psf.

However, new HDB flats - and the vast supply of them - in OCR locations such as Hougang, Bedok or Bukit Panjang will compete for attention from first-time home owners or parents who are financing their children's first marital homes.

Therefore, I perceive the risks of the "massive supply" weighing heavily against private residential projects in the outskirts. Even riskier would be the smaller-sized apartments in the outskirts that were purchased at prices 20 to 40 per cent above the neighbourhood's average psf prices.

Conversely, with very few residential land sales and en bloc programmes in Districts 9, 10 and 11 since 2009, we can hardly expect significant fresh supply in CCR in 2013 to 2015. A significant number of completions in CCR come from the projects delayed since the previous peak, such as d'Leedon (en bloc), Leedon Residence (en bloc) and South Beach (Government Land Sales).

While many investors may be concerned about short-term market jitters, others are looking to take advantage of the uncertainty by searching for solid long-term value buys that offer strong downside protection in the older CCR properties. Our recommendation will be to explore the larger-sized apartments of 2,000 to 4,000 sq ft that were completed before this century.

The investment search might take a lot more effort as many gems lay hidden from us and probably hidden from the risks of the impending "massive supply".

Ku Swee Yong is the founder of real estate agency International Property Advisor, which provides services to high-net-worth individuals. He is the author of Real Estate Riches: Understanding Singapore's Property Market In A Volatile Economy (Marshall Cavendish).

Edited June 25, 2011 by bepgof

GMC · June 25, 2011

http://www.todayonline.com/Business/Property/EDC110624-0000182/Massive-home-supply-to-hit-outskirts
***Pay attention to those underlined.
by Ku Swee Yong 04:47 AM Jun 24, 2011
2013 is less than two years away. I am feeling less lonely in expressing my views about the physical completion supply of residential units. It has been five years since I started to scrutinise the total stock of residential units in the pipeline, that is, current stock plus expected completions minus demolitions from en bloc programmes.
Occasionally, people still ask: "Why look at completed supply when land sales are hotly bid and developers sell out most of their stock before construction has completed?"
Regardless of the take up of pre-sales, physical supply and demand will ultimately influence future prices, rentals and returns.
Two weeks ago, in an entry titled My Worries, National Development Minister Khaw Boon Wan cautioned in his blog (http://mndsingapore.wordpress.com) about the "massive supply that will hit the market from 2013". As of March 31, the official supply numbers for the next four years are as in the table.
Mr Khaw's worry is about the total 50,826 units that could be completed in 2013 to 2015. With a historical long-term average supply of 8,000 units per year, the average of 17,000 units per year of supply from 2013 to 2015 seems risky should demand from users and tenants not increase in tandem.
I have pointed out in previous commentaries in this newspaper and in my recently published book, Real Estate Riches, that there are inaccuracies in the supply data.
IPA's own estimates are that the completions will take place earlier than what is reported by the Urban Redevelopment Authority (URA), which compiles and presents data based on submissions by developers. For our discussions in this article, let us assume the numbers above to be accurate.
Where are the areas we shouldbe concerned about?
Almost all of the completions expected in 2013 and beyond were launched after the 2008 Lehman crisis. In fact, as the luxury home market struggles to find its feet from the depths of 2009, the mass market residential segment has taken off in terms of value and the number of transactions.
From its trough in 2Q2009, the price index for non-landed residential properties in the Core Central Region (CCR) increased 42 per cent to 204 points from 144 points. The same index for Outside Central Region (OCR) climbed more rapidly, up 54 per cent to 185 points from 120 points.
Many Singaporeans are not surprised to hear of transactions in the outskirts, such as Jurong West, Pasir Ris and Yishun, at S$1,000 to S$1,500 per square foot - even for mass market finishes on 99-year leasehold land.
In terms of the number of homes being constructed, the proportion of units in the more luxurious locations inside CCR will decline from 33 per cent in 2013 to 26 per cent in 2015.
This means the proportion of units in the outskirts (OCR) and mid-tier locations (RCR) of Singapore will rise from 67 per cent to 74 per cent. Now, the percentage rise may seem mild but in absolute numbers, we can expect 8,686 units to be completed within the OCR and RCR in 2013, 13,014 units in 2014 and 14,510 units in 2015.
For the optimistic, those numbers may still be matched by demand from strong job growth, new Permanent Residents and other pass holders - assuming a generous talent attraction programme,
However, when we include the additional supply of public housing and its accelerated pace of building, the numbers start to pile up. We can expect the 16,000 units of HDB flats launched last year to be completed in 2013 and another 22,000 (very likely more) units to be completed in 2014 and 2015.
And with Mr Khaw calling on HDB to build ahead of demand, it has effectively moved from Build-to-Order to Ordered-to-Build. So the completion of HDB units in 2015 and beyond could also be significantly ratcheted up.
Now, we know that the mature estates have limited land to accommodate new HDB units. We estimate that almost all of the 22,000 units launched this year to be completed in 2014 and, say, a ratcheted-up 28,000 units to be completed in 2015 will be in the OCR and RCR.
In terms of physical supply and demand from end users, new HDB flats in mature estates such as Holland Road (situated inside CCR) do not compete with private homes priced at well above S$1,000 psf.
However, new HDB flats - and the vast supply of them - in OCR locations such as Hougang, Bedok or Bukit Panjang will compete for attention from first-time home owners or parents who are financing their children's first marital homes.
Therefore, I perceive the risks of the "massive supply" weighing heavily against private residential projects in the outskirts. Even riskier would be the smaller-sized apartments in the outskirts that were purchased at prices 20 to 40 per cent above the neighbourhood's average psf prices.
Conversely, with very few residential land sales and en bloc programmes in Districts 9, 10 and 11 since 2009, we can hardly expect significant fresh supply in CCR in 2013 to 2015. A significant number of completions in CCR come from the projects delayed since the previous peak, such as d'Leedon (en bloc), Leedon Residence (en bloc) and South Beach (Government Land Sales).
While many investors may be concerned about short-term market jitters, others are looking to take advantage of the uncertainty by searching for solid long-term value buys that offer strong downside protection in the older CCR properties. Our recommendation will be to explore the larger-sized apartments of 2,000 to 4,000 sq ft that were completed before this century.
The investment search might take a lot more effort as many gems lay hidden from us and probably hidden from the risks of the impending "massive supply".
Ku Swee Yong is the founder of real estate agency International Property Advisor, which provides services to high-net-worth individuals. He is the author of Real Estate Riches: Understanding Singapore's Property Market In A Volatile Economy (Marshall Cavendish).

The supplies of public housing is decreasing, forcing most to take up resale public housing or private properties. All these over supplies will be taken up eventually. There will be some who will bleed but I believed stronger holding power as compared to 6yrs ago.

bepgof · June 28, 2011

Citigroup hold different opinion, let see what it says:

Published 28 June 2011

The Business Times

By Uma Shankari

It says scenario is not likely to happen in 2013/14, citing 'severe shortage' Citigroup believes that the expected surge in the supply of new HDB flats and private homes over the next few years will not lead to a housing glut in 2013 and 2014 - a view that is contrary to that held by most other analysts.

The bank's property analysts also said in a new report that the current 'severe shortage' of HDB flats is likely to provide support for mass-market prices and demand. This is again different from most analysts' predictions that a step-up in HDB supply will dampen demand for mass-market private homes and hit prices in the segment.

'We believe the prolonged period of under-building in the 2000s has resulted in the current severe housing shortage,' wrote Citi's property analysts, led by Wendy Koh, in their June 26 report.

'We estimate that the deficit in housing units is in excess of 50,000 currently and this undersupply situation will likely take several years to clear, just like the oversupply situation in the early 2000s.'

'With a severe shortage, we are not overly concerned about the rise in supply in both HDB and private residential units . . . A housing glut in 2013/14 is an unlikely scenario, based on our estimates.'

Citi's estimates show that the upcoming HDB supply and the potential increase in the income ceiling for new HDB flats will reduce HDB resale transactions by 7-15 per cent at most. The impact on the private property market would be even smaller, Citi reckons. Ms Koh also said that the undersupply situation in the HDB market will support demand for and prices of suburban mass-market homes.

'Occupancy rate for mass-market properties are at an all-time high of 97.5 per cent. With yields averaging at around 4.2 per cent versus mortgage rates of just between 1.2-1.6 per cent, investment demand for small units and mass-market units could remain strong,' Ms Koh said.

However, the report cautioned that any further price increase or spike in volume in the mass-market segment risks more property measures as the government is monitoring the market closely.

Citi's views are a departure from the prevailing industry consensus that a housing glut is likely. CIMB analyst Donald Chua, for example, said that 'looming oversupply' from both the private and HDB markets is a big worry for the sector.

'We believe an oversupply situation is looming, going by rising private and HDB physical completions and expectations of a less liberal immigration policy,' Mr Chua said in a note last week. 'Population growth, if it normalises to 65,000- 80,000 per year (from around 162,000 annually in 2006-2011), implies a mere 20,300 units of incremental demand, based on 3.5 persons per household. This would not be sufficient to absorb net supply (HDB and private) of 33,300 units per year, on our estimates.

Morgan Stanley also recently said that it continues to see a risk of oversupply in terms of physical completion and units available for sale, and expects residential prices to fall by about 7 per cent over the next two years.

Citi's analysts were more negative on the outlook for high-end and luxury homes as well as the office market.

Demand for high-end homes is likely to remain lacklustre given the uncertain global economic outlook and the strong rental competition among newly completed units, Citi said.

'We believe rental for the high-end segment has probably peaked and downside risks outweigh upside risk in the coming 6-12 months,' said Ms Koh.

'The current rental yields averaging at 2.4 per cent provides very little room for further yield compression.'

However, as long as interest rates remain at current low levels, prices are likely to hold, she added.

And in the office market, Citi's report said that competition for tenants is likely to intensify as around one million square feet of new space that will be completed this year is still uncommitted.

'Leasing activities have slowed and major financial institutions appear to have satisfied their space needs,' Citi said. 'Rental rates are likely to flatten out, and capital values are likely to have peaked.'

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