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RESIDENTIAL PROPERTY | Staff Reporter, Singapore
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How badly will Singapore be hurt by the burgeoning supply of residential properties?

Analysts project a whopping 73,600 completed homes by 2016.

It has been predicted that there will be 50,000 completed units by 2014, but what really rattled analysts is the projection that a further 49,700 homes will be available to the market by 2015 and another 73,600 by 2016.

If the average population growth in Singapore hits 86,000 a year from 2014 to 2020, demand for physical homes will just hit a measly 29,000 per annum. This supply-demand miscalculation got analysts worried about how the Singapore market will be whipped.

Here are the effects that analysts are fearing:

Eli Lee, Kevin Tan, OCBC Research:

One significant headwind for the residential sector lies in the large physical supply expected over FY14-16. Including HDB, DBSS and EC completions, we anticipate that 50.0k, 49.7k and 73.6k homes will come into the physical supply in FY14, FY15 and FY16, respectively.

Assuming a 6.0m population target by 2020 from the latest Population White Paper, we forecast average population growth at ~86k
individuals p.a. from 2014-20, which translates to an average incremental demand of ~29k physical homes per year. In our view,
this mismatch points to a fairly clear physical oversupply situation ahead.

That said, barring a macro crisis, we do not believe headline prices will correct excessively (>20%) in 2014. This is due to three reasons:

1) The direct impact of a physical oversupply (of homes which are already sold) is first on vacancy rates and subsequently on rental prices. While falling rents will pressure home prices, we do not see many home-owners force-selling into a softening market given that a negative rental carry is the norm in Singapore historically and that the average individual balance sheet remains fairly benign.

2) The level of unsold pipeline held by developers (which forms the primary supply) is currently at 36k units. This is lower than the 10-year historical average of 43k units and is not overly onerous. While developers will likely ease prices ahead to move inventory, a fire-sale situation is unlikely to ensue given relatively strong balance sheets.

3) Finally, we believe the data currently point to a fairly high price elasticity of demand. That is, significant numbers of buyers will come into the market at every incremental price dip. This is illustrated when CapitaLand introduced discounts at its 1715-unit d’Leedon in 1Q13 and subsequently saw 543 more units sold by 3Q13. Similarly, developers which set lower prices at recent new launches (Sky Vue at Bishan and Thomson Three at Bright Hill Dr.) saw firm performances, despite the Jul-13 TDSR measures.

Brandon Lee, Tuck Yin Soong, Macquarie Research:

2014 will see the completion of 19,302 units (+6.6% in inventory), which would result in a vacancy rate of 9.3%. Historically, property price declines have coincided with vacancies of 8% and above. Downside pressures will come from both the primary and secondary markets, as developers could trim their price expectations (which some already have) to capture declining volumes and more resale units could become available post the 3-yr expiry of the seller’s stamp duty.

Overall, we are forecasting residential prices to decline 4% in 2014, led by the high-end (-5%)due to the continued  absence of foreign buyers, impact of ABSD and sizeable completions (30% of 2014 supply).

Mid-end and mass would decline by a lower 4% and 3%, respectively due to continued interest from HDB upgraders and investors in view of an improved macroeconomic environment and low short-term interest rates. We expect sales volumes of14, 000 units in 2014 (-5% YoY), as prospective buyers will continue to feel the effects of TDSR.

Min Chow Sai, Nomura:

While the introduction of sellers’ stamp duty (SSD) since February 2010 has helped to slow the secondary market over the past few years, our survey of caveats lodged for new private homes suggests that more sellers are willing to pay the SSD to move their units in the secondary market – 192 units changed hands in 9M13, vs. 99 units in 9M12.

The average SSD paid per transaction was also higher in 9M13 (SGD32,185), compared with 9M12 (SGD19,655).

It also showed that more sellers are apparently willing to sell at a net loss (taking into account stamp duties and agents’ commissions) – 26 such transactions in 9M13, vs. nine in 9M12.

Lastly, of the 192 units sold with SSD paid in 9M13 and the 26 units sold at a net loss, 136 units and 16 units, respectively, are scheduled for completion in 2013-14F.

Sentiments have turned more cautious and the market is rightly concerned about the projected surge in completions, in our view. About 9,000 units of non-landed private homes [excluding executive condos (EC)] were completed in 9M13 and we are
projecting another 28,570 units to be completed by end-2014F, about 51% of which are located in the outside central region (OCR, a proxy for the mass-market segment).

While a lot has already been said about the potential impact on the rental market, we believe the impact on the secondary market could also be significant, notwithstanding the introduction of sellers’ stamp duty (SSD) in February 2010.

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