Little the government can do to ease the supply crunch until the new apartments areup

By Colin Ng

A Dow Jones Newswires Column


SINGAPORE (Dow Jones)--Singapore's move last week to make available more land for development in the second half of 2007 was clearly aimed at cooling an overheated private property market. But it is likely too late to prevent a supply crunch in the next few years, and that's going to hurt the country's competitiveness.

The city-state has enjoyed a rising foreign population (compared to a falling foreign population in Hong Kong) partly thanks to its liberal immigration policy, low taxes and attractive living and working conditions.

But a sharp rise in the cost of housing - the average rent rose 18% in 2006 and may rise 30%-40% this year - is undermining Singapore's attraction. Anecdotal evidence suggests many expatriates are facing a doubling of rents from two years ago.

This means businesses, which are already having to cope with rising commercial rents, may have to cough up higher residential allowances or raise salaries to avoid losing staff.

Rising costs in Singapore have already been noticed - a recent Mercer report ranked Singapore as the 15th most expensive city (of 143 cities surveyed worldwide) for expatriates, up from 17th place last year and one rank above New York.

The government's plan for the biggest-ever land sales program for the second half of the year was clearly a move to stem the rise in property prices and rents, and prevent a bubble in the real estate market.

More specifically, it could be viewed as an attempt to stop the dramatic price surges in the prime district from moving into the suburbs. All the residential plots released were outside the prime district, likely to cater to upper-middle class locals as well as the expatriate population.

But the government's moves won't help in the near term.

The 41 plots of land slated for release could potentially yield up to 8,000 private homes. That's likely to help the supply crunch - but only in about three years, when the new buildings are completed.

Citigroup forecasts that the growing foreign population will need about 15,000 to 18,000 private residential units a year. The Urban Redevelopment Authority estimated (before news of the land sales program) that only about 4,500 private apartments would be completed in 2007, 7,700 in 2008, with a jump to 16,800 in 2009. That isn't going to meet demand from foreigners, let alone demand from the local population who want to move from public housing.

Some of the demand for housing from expatriates could be reduced if more singles start sharing apartments, as is common in other expensive cities, but that's unfeasible for expatriate families who'll either have to bear rising rents or move elsewhere.

There seems little the government can do to ease the supply crunch until the new apartments are up. In the meantime, the foreign companies which the authorities are so keen on attracting to the island will have to cope with continued rises in rents and property prices.


-By Colin Ng, Dow Jones Newswires; +65-6415-4142, [email protected]


(END) Dow Jones Newswires