Over the last few days, this has been a hot topic of discussion in the media and over the dinner table.
Let’s start with what has been said in the media.
- There are more than 30,000 unsold new properties for sale
- Developers will take 4 years to sell off the current supply
- Developers plead for more time to sell off units
While the massive new property supply is a fact, people should not be surprised because it is a direct result of the En-bloc boom that started in 2016. My clients and readers would have been informed about this since early 2018.
Let’s look at an infographic that I did to showcase the property supply issue.
What I did at the end of 2017 was do an estimate of how many potential units will be launched from the En-bloc redevelopments and edited on top of the URA supply chart. As this is meant to be an estimate, I used this powerpoint slide to warn some of my clients not to rush into the market (also published in an older blog post), but to really cherry pick good deals only. Six months after I prepared this, cooling measure was implemented in July 2018.
My point here is that when buying a property in the current cycle, its important to know the supply coming into the market and make a well-informed decision if you should buy in an area where there is real oversupply. We will dive into where the supply of property is later in the article.
Back in 2017, there was also some property agents that used the chart on the left to sell new properties, stating that the supply is tapering. What the chart did not show was the huge wall of supply incoming. Whether these buyers will be profitable remains to be seen, and it depends what type of properties they bought.
Let’s look at the same pipeline chart now:
We can clearly see that there is an increasing wall of supply coming into the market from 2021 with the peak likely to be 2023. This figure could increase as more projects get approval from URA. While the actual numbers as Q3 2019 (see Image 2) are lower than my projected numbers in Image 1, it is likely that the numbers will move upwards in the coming quarters.
Knowing that there are currently more than 30,000 homes unsold made some panic, however, I wouldn’t be so pessimistic about the market. While the fact is there are 30,000 homes unsold, we should identify where are majority of the supply?
Where are the supply of properties?
From Image 3 above, we can see that the top 3 districts with huge supply are D5 (Clementi area), D19 (Kovan, Serangoon area), D18 (Tampines area). District 10 (Holland) area has a good number of units to be launched as well. Note that the chart only represents supply from En-bloc redevelopment and data is estimated from Q2 2018.
If you are interested in our updated data of units launched from both GLS and En-bloc redevelopment by district, do check back or drop us a note and we will update you when the data has been collated.
Now that you know where the districts with huge supply are, it will be helpful to analyse them individually to see if there really will be over supply, or the supply can be soaked up by high demand.
Will developers get more time to sell their units?
Having a deadline for developers to sell units is nothing new, the same policies were in place in the last 20 years. When there was weakness in the market, the Singapore Government extended the deadline from five to seven years, so there is precedence to extending the deadline for developers. As can be seen in the November 1997 surprise package (Image 4).
The question now is how fast can developers sell the units and will the government grant extensions if there is a need?
In my opinion, the current unsold developer stock will require longer than 4 years that analyst expects to be cleared. This is because the government has been pushing their Built-to-Order (BTO) flats as well, with in my view, unprecedented online advertisements and videos. I could be wrong, but I am pretty sure we don’t see HDB adverts often.
With the recent policies that attracts buyers to purchase HDB flats with grants, it is likely that more first-time buyers will pick up HDB flats while condo demand will likely be from upgraders, investors and Singapore PRs.
If the above scenario comes true, will the government grant developers their wish?
There is a possibility, but it will depend on wage growth. As the government rightly puts it, their goal is to allow property prices to rise in-line with wage growth. Currently, property prices are leading wage growth.
If I had to guess, I think that the government won’t allow an extension to the penalty, unless we experience a financial crisis and they need to float the property developers. Then again, if the developers don’t get an extension and are forced to lower prices, most new property prices still remain expensive.
Some of my readers asked me, should they wait for developers to lower prices?
I would be very careful here. If the developer has to lower prices to sell, it does not mean you are getting a good deal. The property cluster may be facing a real oversupply situation with little demand. It does not make sense to buy into an oversupply cluster if you are investing. If you are buying a home and don’t mind a crowded neighbourhood, then, it could be a good time to buy then.
Conclusion and Final Thoughts
After having discussions with some of my clients, I thought the best way to end of this article was to provide some decision making pointers for different groups of property buyers and owners. I hope that this will be interesting and insightful for you. You are welcome to contact me to discuss further too.
What should homeowners consider?
If you own a property in a potentially oversupplied area:
- Consider if you or your family will be affected by increased crowd within the area
- Consider if you think such oversupply will be negative for your property value in the long term
- Consider if you will find it more difficult to sell your unit in the future if demand is not sufficient to soak up units
If you intend to buy a property in a potentially oversupplied area:
- Consider if you want to live in an area that could be overcrowded (to some people this could affect their happiness level)
- Consider if your property value will hold in the long term
- Consider which unit types will be oversupplied to make a well-informed decision
What should investors consider?
If you own an investment property in a potentially oversupplied area:
- Consider if your unit type will have much more competition from upcoming supply
- Consider if your rental income will fall due to new supply and potentially increased vacancy rate if tenants move to newer condo options
- Consider if this will affect your property returns in the long term and if there are better options
If you intend to buy an investment property in a potentially oversupplied area:
- Consider if there will be sufficient tenant demand for the numbers of supply incoming in the years to come
- Consider if what you intend to buy has some form of scarcity factor that will allow you to have competitive advantage
- Consider if there is still room for capital growth in the area
- Consider if you can accept a lower rental income or higher vacancy period when renting out your unit
In this article, I have tried to provide a balanced view about the issue of oversupply, and I hope that this will be helpful in helping you make a better decision.
As every individual home buyer is different, I would love to hear your views, and if you would like to discuss further, feel free to drop me a note.