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21-12-22, 10:25
Unsold private housing stock hits 15-year low, likely to help support prices in 2023
Inventory expected to stay low in coming year; strong demand, high land and building costs will also keep prices elevated
Dec 11, 2022
THE stock of unsold private housing under construction has been dropping for nine straight quarters to a 15-year low, and is not expected to increase in the new year.
Combined with strong housing demand and high land and construction costs, private housing prices will likely remain elevated in 2023.
Based on data that was compiled for The Business Times by ERA Research and Consultancy, the stock of unsold private housing units has been on the decline from Q2 2020 to Q3 2022 – or a total of two years and three months – to reach 5,320 units.
This represents the longest period of consecutive quarters of declining stock since such data was made available by the Urban Redevelopment Authority from Q2 1998.
The current level is the lowest since Q3 2007 – when unsold stock hit 4,666 units – during the property market bull run of 2004 to 2008, when developers sold many private housing units.
In this study, developers’ inventory of unsold private housing excludes executive condominiums and is defined as the sum of three types of units – those under construction without pre-requisites for sale, under construction with pre-requisites for sale but not yet launched for sale, and under construction that are launched but not yet sold. It does not include supply in the longer term pipeline of future land sales, that has yet to be released into the market.
According to the data, the most recent peak of unsold private housing stock was in Q2 2020 at 20,919 units. The all-time historical peak since such data was available was in Q2 1998 at 26,615 units.
Housing stock and property prices
When there is weak home-buying demand and a high level of unsold units, such as during the Asian Financial Crisis of 1998, there will be downward pressure on property prices.
But when there is strong home-buying demand and a low number of unsold housing units, there will be upward pressure on property prices.
For instance, from Q2 2005 to Q3 2007, developers’ supply of unsold units fell from 13,936 to 4,666 units. Meanwhile, the private residential property price index increased 39 per cent over the same period.
“There were no cooling measures back then, so property prices could rise even faster,” said Nicholas Mak, ERA’s head of research and consultancy.
From Q2 2020 to Q3 2022, as developers’ supply of unsold units fell from 20,919 to 5,320 units, the private residential property price index rose 23.1 per cent.
https://i.imgur.com/JGdzYtt.png
The beginning of the current cycle of housing demand can be traced to the start of the Covid-19 vaccination programme in Q2 2021, said Mak.
Homebuyers’ confidence in the property sector recovered and it showed in the robust take-up ratio in the primary housing market, that is, the ratio of the number of new housing units sold to the number of units launched for sale each quarter.
The take-up ratio of the residential launch volume exceeded 100 per cent – meaning the number of units sold by developers exceeded the number of units launched – in six consecutive quarters from Q2 2021 to Q3 2022. This resulted in a decline in the number of unsold housing units.
In those 18 months, the quarterly take-up ratio of private housing ranged from 123 to 298 per cent. Developers launched 10,804 private housing units and sold 15,943 units, resulting in a take-up ratio of 147.6 per cent.
The six consecutive quarters from Q2 2021 to Q3 2022 when the take-up ratio exceeded 100 per cent each quarter was also the longest period when the ratio was above parity since such data was made available 26 years ago in 1996.
Implications for property market in 2023
Despite two rounds of property market cooling measures in the past 12 months, residential housing prices have not fallen. Given that their inventory of unsold housing units is diminishing in the face of strong demand, developers are unlikely to lower prices at their property launches in the near future, said Mak.
https://i.imgur.com/74mSrtw.png
Meanwhile, condominium construction costs have risen 22 per cent from the start of the pandemic in Q1 2020 to mid-2022, according to construction and property consultancy Rider Levett Bucknall.
Furthermore, higher interest rates have led to higher land acquisition and property development financing costs for developers.
“Many developers are not actively acquiring residential development land to replenish their diminishing inventory of housing units due to the economic uncertainties on the horizon,” said Mak.
They are also waiting to observe the impact of the latest round of cooling measures. Hence, the inventory of unsold housing units is not expected to rise in the short term.
Mak projects developers to sell about 7,500 to 8,000 private housing units this year. While 2022’s primary market sale is about 38 to 42 per cent lower than those in 2021, it is still enough to diminish developers’ inventory of unsold units.
And even if developers were to sell about the same number of housing units in 2023 as they did in 2022, their inventory would still remain below 10,000 units throughout the year, said Mak.
“As a result, developers would have little incentive to lower the prices of their residential projects… again,” he added.
https://www.businesstimes.com.sg/property/unsold-private-housing-stock-hits-15-year-low-likely-help-support-prices-2023
Inventory expected to stay low in coming year; strong demand, high land and building costs will also keep prices elevated
Dec 11, 2022
THE stock of unsold private housing under construction has been dropping for nine straight quarters to a 15-year low, and is not expected to increase in the new year.
Combined with strong housing demand and high land and construction costs, private housing prices will likely remain elevated in 2023.
Based on data that was compiled for The Business Times by ERA Research and Consultancy, the stock of unsold private housing units has been on the decline from Q2 2020 to Q3 2022 – or a total of two years and three months – to reach 5,320 units.
This represents the longest period of consecutive quarters of declining stock since such data was made available by the Urban Redevelopment Authority from Q2 1998.
The current level is the lowest since Q3 2007 – when unsold stock hit 4,666 units – during the property market bull run of 2004 to 2008, when developers sold many private housing units.
In this study, developers’ inventory of unsold private housing excludes executive condominiums and is defined as the sum of three types of units – those under construction without pre-requisites for sale, under construction with pre-requisites for sale but not yet launched for sale, and under construction that are launched but not yet sold. It does not include supply in the longer term pipeline of future land sales, that has yet to be released into the market.
According to the data, the most recent peak of unsold private housing stock was in Q2 2020 at 20,919 units. The all-time historical peak since such data was available was in Q2 1998 at 26,615 units.
Housing stock and property prices
When there is weak home-buying demand and a high level of unsold units, such as during the Asian Financial Crisis of 1998, there will be downward pressure on property prices.
But when there is strong home-buying demand and a low number of unsold housing units, there will be upward pressure on property prices.
For instance, from Q2 2005 to Q3 2007, developers’ supply of unsold units fell from 13,936 to 4,666 units. Meanwhile, the private residential property price index increased 39 per cent over the same period.
“There were no cooling measures back then, so property prices could rise even faster,” said Nicholas Mak, ERA’s head of research and consultancy.
From Q2 2020 to Q3 2022, as developers’ supply of unsold units fell from 20,919 to 5,320 units, the private residential property price index rose 23.1 per cent.
https://i.imgur.com/JGdzYtt.png
The beginning of the current cycle of housing demand can be traced to the start of the Covid-19 vaccination programme in Q2 2021, said Mak.
Homebuyers’ confidence in the property sector recovered and it showed in the robust take-up ratio in the primary housing market, that is, the ratio of the number of new housing units sold to the number of units launched for sale each quarter.
The take-up ratio of the residential launch volume exceeded 100 per cent – meaning the number of units sold by developers exceeded the number of units launched – in six consecutive quarters from Q2 2021 to Q3 2022. This resulted in a decline in the number of unsold housing units.
In those 18 months, the quarterly take-up ratio of private housing ranged from 123 to 298 per cent. Developers launched 10,804 private housing units and sold 15,943 units, resulting in a take-up ratio of 147.6 per cent.
The six consecutive quarters from Q2 2021 to Q3 2022 when the take-up ratio exceeded 100 per cent each quarter was also the longest period when the ratio was above parity since such data was made available 26 years ago in 1996.
Implications for property market in 2023
Despite two rounds of property market cooling measures in the past 12 months, residential housing prices have not fallen. Given that their inventory of unsold housing units is diminishing in the face of strong demand, developers are unlikely to lower prices at their property launches in the near future, said Mak.
https://i.imgur.com/74mSrtw.png
Meanwhile, condominium construction costs have risen 22 per cent from the start of the pandemic in Q1 2020 to mid-2022, according to construction and property consultancy Rider Levett Bucknall.
Furthermore, higher interest rates have led to higher land acquisition and property development financing costs for developers.
“Many developers are not actively acquiring residential development land to replenish their diminishing inventory of housing units due to the economic uncertainties on the horizon,” said Mak.
They are also waiting to observe the impact of the latest round of cooling measures. Hence, the inventory of unsold housing units is not expected to rise in the short term.
Mak projects developers to sell about 7,500 to 8,000 private housing units this year. While 2022’s primary market sale is about 38 to 42 per cent lower than those in 2021, it is still enough to diminish developers’ inventory of unsold units.
And even if developers were to sell about the same number of housing units in 2023 as they did in 2022, their inventory would still remain below 10,000 units throughout the year, said Mak.
“As a result, developers would have little incentive to lower the prices of their residential projects… again,” he added.
https://www.businesstimes.com.sg/property/unsold-private-housing-stock-hits-15-year-low-likely-help-support-prices-2023