Thursday, September 15, 2011

Housing glut 'won't cause dip in prices'

A PROPERTY expert believes new immigrant arrivals will continue to support demand and prevent prices from falling in the wake of an impending flood of new flats onto the market.
Dr Chua Yang Liang, head of research at Jones Lang LaSalle (JLL) South-east Asia, noted that past trends show that Singapore prices are driven largely by sentiment and not stock levels alone.

He said the strong demand will allow the sector to weather the impact of the estimated 100,000 public and private homes to be completed in 2014 and 2015.

The flow of new homes will have some effect on prices and might slow the gain in the Urban Redevelopment Authority's (URA) property price index to about an average of 1.8 per cent to 7.5 per cent a year from now until 2015, depending on immigration inflow.

The demand is likely to stay robust given the way the growing population has outpaced the housing stock, added Dr Chua in a paper released yesterday. The population has expanded by about 2.8 per cent on average in the past 10 years while the number of completed homes has increased by 2.1 per cent a year, he noted.

His view is in stark contrast to that of many experts who maintain that prices could fall in the coming years, especially in the mass-market segment where most of the soon-to-be-completed homes are.

The bumper supply of state land being released and the ramping up of new Housing Board flat launches have prompted some experts to predict that suburban home prices could plunge by as much as 15 per cent.

The global economic uncertainties and resultant share market weakness have also raised doubts among industry players that the market is sustainable. Developers want the Government to review the cooling measures in the coming months and to make greater use of the reserve list system in managing its land sales.

National Development Minister Khaw Boon Wan also cautioned in a June blog post that the upcoming supply is not a 'trivial number'.

But Dr Chua noted the market is 'fairly resilient' and has only corrected in the past due to external shocks such as the bursting of the 2000-01 dot.com bubble and the 2007-08 global financial crisis, when prices dived. He noted that even during a period of healthy supply such as in 2003 and 2004 when there were about 60,000 completed homes available for owner-occupation or leasing, prices remained flat rather than falling.

Furthermore, immigration - although expected to slow - is unlikely to stop as it is needed to support Singapore's economic growth. That should keep housing demand stable and support the injection of new stock over the next few years, Dr Chua said. 'Undoubtedly, the current increase in global economic uncertainty is likely to dampen sentiment here, resulting in short-term fluctuations in demand and prices but, overall, the mid- to longer-term outlook remains stable on the back on these fundamentals.'

JLL estimates that even with the Government's policies to increase the supply, demand for completed homes will be greater than supply until 2015 as the cumulative housing stock shortage had ballooned to about 87,000 homes last year.

This assumes a tighter immigration policy with the population growing to just 5.2 million by 2015.

Dr Chua added that policymakers should continue to release land to support the development of between 16,000 and 24,000 new homes a year, depending on the immigration level.

But other experts said the market is cyclical and ups and downs are inevitable.

SLP International research head Nicholas Mak said that given current economic uncertainties, there is more than a 50 per cent chance of a correction in the next three years. However, the rental market is likely to experience an oversupply over the next few years regardless as a significant number of buyers had bought units as investments. Whether this ultimately affects home prices will depend on the economic situation at that point in time.

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