Published August 7, 2009


Demand for private homes on an upward curve

'Natural demand' may be higher as immigrants step in; supply not a nagging issue


(SINGAPORE) Even as Urban Redevelopment Authority yesterday launched the tender for a plum 99-year leasehold site for condo development at Dakota Crescent, expectations are running high that developers will trigger the launch of more housing sites from the government's reserve list in the coming months.

This is against a backdrop of strong sales for mass-market projects, the latest being the Optima condo next to Tanah Merah MRT Station.

Mass-market home prices have risen about 10 to 20 per cent from the recent low in Q1, according to property consultants.

One concern is whether the market is running out of supply of mass-market condos and whether this will set the base for further price hikes.

The current pipeline has about 7,500 mass market homes yet to be launched on sites sold in the past, according to CB Richard Ellis data. These include three 99-year leasehold condo projects in Toa Payoh, Yishun and West Coast Crescent on earlier sites sold by the government.

The rest include 99-year projects by Hong Leong Group on a large historic landbank in Pasir Ris, projects by Far East Organization and Frasers Centrepoint on remaining land on the former Waterfront site along Bedok Reservoir, and a host of freehold projects by various developers in places like West Coast Road, Tampines Road, Yio Chu Kang Road, Toh Tuck Drive and Hillview Avenue.

After the recent launch of two housing sites (at Dakota Crescent and Chestnut Avenue) from the government reserve list following successful applications by developers, this list still has sites that can potentially generate a total of about 5,800 private homes. Some are attractively located near MRT stations in places like Bishan, Serangoon Ave 3, Bartley Road and Bedok. The last two sites will be ready for application by developers in November and December respectively.

The government could add more sites to its reserve list for first-half 2010, or even reintroduce the confirmed list, where sites are launched according to a prestated schedule, unlike reserve list sites, which are launched for tender only upon successful application by developers undertaking to offer minimum bids acceptable to the state.

It will take some time for site launches to translate to new condo launches. However, ensuring there's enough supply should not be a nagging issue.

But beyond looking at supply, one needs to also understand why demand has spiked since February. Developers have sold a total of 7,250 private homes in the first six months of 2009 - exceeding the 4,264 units sold in the whole of last year. Some consultants are predicting the number for the whole of this year may reach the record of 14,811 units set in 2007.

The current home buying wave began in the mass-market segment, then permeated upwards. Some of the buying represents pent-up demand. People are also taking the opportunity to pick up their dream home at current prices - which despite recent price hikes are still below peak-2007 levels - for fear of missing the boat as they did during the property run-up in 2006 and 2007.

Property speculators are also busying themselves.

But other factors are also at play that are creating a paradigm shift which could suggest that 'natural demand' henceforth may be higher than the average 8,000 private homes developers sold annually over the past 10 years (between 1999 and 2008).

These include an increase in immigration into Singapore over the past few years as it embraces foreign talent and wealth and a gradual 'internationalisation' of the Singapore property market as foreigners are drawn by Singapore's emergence as a global city.

Another point to consider when understanding why there could be higher natural demand for private homes is to look at the public housing segment.

The Housing & Development Board's construction of new flats has slowed down over the years. During 1981-85, an average of about 37,000-plus flats were built by HDB per year. In 1998 too, some 36,600 new flats were built. Later in the face of a supply glut, HDB scaled back building new flats; the figure eased to about 10,000 units a year completed in 2002 and 2003, and fell further to about 5,000 units completed in 2007.

A smaller supply of new HDB homes has made it easier for HDB residents to sell their flats in the resale market and upgrade to entry-level private homes in the suburbs.

Incomes of Singaporeans have grown over the decade, making more aspire to own a private home.

The low-interest rate policies adopted by governments around the world to cope with the global financial meltdown have translated to near-zero returns on fixed deposits and low mortgage rates - making property an attractive investment option. The strong distaste for structured financial products post-Lehman has made property more sought-after.

The home-buying frenzy of late has also come about due to a confluence of two important factors - a recognition of value by buyers (following price chops by developers in Q1) and an improvement in sentiment.

More value-recognition will emerge for real estate as Singapore's railway network is doubled to 278 km by 2020, boosting connectivity and cutting travel time from homes in locations once called suburbs to the city.

Perhaps we should not be too surprised if strong demand for private residential properties persists. Of course, if another international disaster takes place and foreign property investors again exit, demand could dive, like it did last year during the global financial crisis.

Spikes and dips in home buying and property prices could become more pronounced by virtue of Singapore's real estate market becoming more international.