Waiting for Housing Crash? Don't Bet on it.

Ong Chor Hao

Tuesday, Oct 29, 2013

SINGAPORE - Amid a sea of talk of a pending residential property-market crash, one prominent consultant here thinks otherwise, barring unforeseen systemic shocks.

Mr Alan Cheong, head of research and consultancy at Savills Singapore, made his case on Friday at an event at Carlton Hotel to mark Singapore Management University's (SMU's) homecoming celebrations for its Master of Science in Applied Finance programme.

"I think, barring external shocks, property prices - residential prices - will stay elevated," he said.

Mr Cheong argued that a fundamental concern that there will be an oversupply of homes come 2015 is not the case at all.

"The reason is in Singapore; it is a situation of undersupply."

There has been a housing shortage since 2006, he said, presenting calculations done by him and several SMU professors and researchers. The number of units in deficit in the market has risen from around 5,174 units in 2006 to some 142,175 units in 2011.

Even when the full expected supply pipeline comes onstream in 2015, Mr Cheong still forecasts a deficit of around 3,765 units, which will support prices.

He added that even as population growth in Singapore between last June and this June was at its lowest in nine years at 1.6 per cent, this will still compound to about 7.1 million people over the next 17 years.

This compares with the planning parameter of up to 6.9 million laid out in the Population White Paper earlier this year.

Also, rental demand remains strong. Assuming about 20,000 new employment-pass approvals each year, this works out to demand for roughly 6,600 rental units, Mr Cheong said, assuming an average household size of about three.

There is also plenty of financial firepower in the market. The cumulative profit for property traders who sold their properties in 2011 after buying them in the years leading up to that from 2005 was about US$709 million (about S$876 million), according to Savills research.

"So there is a lot of hidden wealth still in Singapore," Mr Cheong said.

On the supply side, the top five local developers controlled nearly 48 per cent of new property sales in 2011, he noted.

"The developers have very strong balance sheets, very strong holding power. (The) market is controlled in some sense."

With a new total-debt-servicing-ratio framework in place and land getting more expensive, "it's not easy for a new entrant to come into the real-estate market anymore".

But Mr Cheong acknowledged that the increased entry of foreign developers last year has had an impact. That said, he doubts developers will sit idle if these foreign players continue to bid for land aggressively.

Overall, he believes that even if there was excess supply, developers would still wield some controlling power, and that there would not be a crash - "unless you scare the hell out of the supply side and then the supply side (is) forced to dump".

"It will only happen through an exogenous event or when banks pull the line," he said, adding that excess supply may cause prices to "stabilise or come off a little bit".

However, Mr Cheong said the pace of sales will not be as torrid as it has been, and that releases will be more spread out over time.

Source: 29th October 2013 Business Times

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