Why it's too early to panic about property oversupply

The trend now is for every unit taken out from en bloc deals, three to four redeveloped units replace it.

Each unit taken out in the recent en bloc deals will be replaced by three to four units in the redeveloped project, causing worry amongst the property market, Maybank Kim Eng said.

"Whilst this is a valid concern if the trend continues, we opine that it is far too early to be worried as the redeveloped properties won’t resurface until 2020-21E," said analyst Derrick Heng.

About 7,900 private housing units are scheduled to be completed from redevelopment. Enbloc deals could lead to the demolition of over 3,000 units in 2018.

Moreover, even after accounting for their completion in 2020 to 2021, average net supply is still not excessive at slightly over 11,000 units per year.

This is below the five-year average absorption rate of 13,200 units and also far below the 19,500 units that were added annually between 2014 and 2016.

The brokerage sees a window of opportunity for stronger rents and prices in the near term on tighter net supply.

Here's more from Maybank Kim Eng:

New home sales have been strong and are on track to hit 11,000 units for 2017E.

With prices now at a clear turning point, we expect potential buyers who have been waiting on the sidelines to take the plunge. This shift in sentiment could lead to a sustained recovery in home sales volume.

Furthermore, the 3,000+ property owners that have been displaced in the en bloc process will now be on the hunt for their new homes. While some may choose to downgrade and purchase a home from the HDB resale market, we believe the spillover effects remain positive.

The HDB owner that sells to this en bloc household could also be upgrading into the private market. This chain effect will still lead to positive net demand for property developers.

The 17,400 unsold units on the market today are significantly smaller than the 40,400 peak in 2011. As long as home buying sentiment is maintained, we believe fresh inventory from the GLS and en bloc deals can comfortably be absorbed.

Furthermore, any delay or dispute in the en bloc deals could push out the availability of new inventory for sale. This should keep the supply of unsold units in the market in check. 

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