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Mega Supply Of Properties From 2013 to 2016 – Where Is The Risk

By on January 7, 2013

It is becoming more and more obvious that a mega supply of properties are going to hit the market. How the market is going to react to this remains to be seen. The most basics of economics teaches us that when demand is greater than supply, prices go up. When supply is greater than demand prices go down. How demand copes with the impending supply is of interest to every Singapore property watcher. The latest figures for the upcoming private property completion is as follows:

 EYOC 2013 2014 2015 2016
Private 16,092 18,350 23,667 18,408
EC 680 2,940 4,033 2,171
Total 16,772 21,290 27,700 20,579

EYOC – Expected year of completion; Source: URA

In case this is the first time you are looking at numbers like these and don’t know why it should matter, you will be excused for falling off your chair when you find out that the total number for 2010 was estimated to be 7,584 at the end of 4Q09. These are not the number of residential units that are planned to be built, but the number of residential units that will be completed. Note that HDB BTOs are not yet included.

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If you just have to know, HDB launched 28,000 flats in 2011 and 27,000 in 2012. The time needed to build average HDB flats is less than 30 months. For your information and comparison, HDB launched 9,000 flats in 2009.

The average number of expected completed residential private properties is 21,585 for each year. This really looks like the mother load of housing supplies being readied on a conveyer belt. Let’s go deeper into the private property supply details without including ECs.

EYOC 2013 2014 2015 2016
CCR 3,967 5,446 3,030 2,482
RCR 4,141 4,868 5,016 3,062
OCR 7,984 8,036 15,621 12,864
Total 16,092 18,350 23,667 18,408

CCR – Core Central Region
RCR – Rest of Central Region
OCR – Outside Central Region
Source: URA

We can see from the above data that the make up of OCR from total will rise from 49% to 69%. CCR will drop from 24% to 13%, while RCR will shrink from 25% to 16%. This a pretty significant shift in a very short time.

For people who always look on the bright side of things, the mega supply of properties will be easily absorbed by the property thirsty crowd. There is strong job and population growth which translates to more rental demand will entice investors to cough up their parked funds to buy more properties. There are after all 4 big groups of property buyers that have been muffled by the property cooling measures. Ever ready to pounce:

1) Sub sales speculators
2) 2nd home buyers
3) Investors needing more leverage
4) Foreigners

But for those who are pessimistic, this might be what you are seeing in your dreams waking up with beads of sweat on your forehead. Mature estates like Toa Payoh and Ang Mo Kio have very little unused land left that can erect new buildings. So the mass majority of the 55,000 BTOs will be built in outskirt areas like Punggol, Seng Kang and Hougang. And assuming it takes 30 months to complete the BTOs, the HDB flats will start to be handed over to owners in 2013- 2014. This is alarming information to investors who have put their money on a bet for mass market condominiums in these outskirt areas. Even more weight has to put into these information if you have bought a small shoebox apartment for investment in these areas. Here is a little more on shoebox apartment investments. As an investor, your expected rental yield should justify the purchase price. This means that there is a point where prices will not make sense to an investor who digest market data like a cookie monster.

Must… build… more…

Taking a look at the price of Watertown and Treasure Trove, one might be taken aback by how big a contrast they are selling per square foot when they are just opposite each other. From an investment standpoint, you could probably make a far greater yield from Treasure Trove than Watertown because of the comparably lower per square foot prices. But when you factor in the massive number of HDBs coming up, it may start looking like a tough ride coming up no matter where you put your money.

The next interesting comparison is Luxurie and La Fiesta. Although Luxurie was launched some time ago, there are still a number of unsold units. La Fiesta will be launching soon and it will be interesting to put the prices of these 2 project side by side as a comparison. These 2 new developments are situated right next to each other built on squarish land.

Of course, this mega supply might just turn out to be a small statistic if there is a demand to accompany it. So to draw conclusions on what will happen with this supply without accurate numbers on population and job growth is jumping the gun. Where your investment goes depends on how you read these data. For me, a lot of these so called mass market private properties seem overpriced.



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