Saturday, November 1, 2014

Random thoughts: The singapore property cycles.

I was thinking about property cycles.

I think to myself, there are plenty of unsold units from various listed developers, mostly the luxury segment. 

Given that in another 1-2 years, most will be hit with penalty for holding them vacant, they either can pay the penalty or reduce price to move them. 

When they slash price to move them in the environment of increasing interest rate as well as supply, wouldn't it create a domino effect? 

Maybe it would be a good time for some property shopping for this new property cycle in a year or two.

I decided to check my "theory" or thoughts.

http://www.ura.gov.sg/uol/media-room/news/2014/oct/pr14-64.aspx

Indeed, there is no shortage of supply, there are planned supply of 74kof private 
Properties units excluding EC units, 12k remain unsold. Not bad, most already have buyers. 

But include the planned GLS and EC, planned supply become 97K, so we need to find 30K of owners over the next few years.

It did not seem really like an oversupply to me. Given that every year, singapore register about 27 k of new marriages. Granted, most will start with HDB. But non-residential population is big in Singapore. About 1.6 million, excluding tourists. These are the people who cannot buy HDB. It used to grow at around 4% annually, assume the tightening continue and they grow at 2%, ,that is still 32 K increase per head. Some will rent, some are families etc, but the 30K supply do not seem scary then.



Refer to page 11, 
http://www.singstat.gov.sg/publications/publications_and_papers/population_and_population_structure/population2014.pdf

Most importantly, I think due to the highly regulated property sector in Singapore, through GLS, it seems supply decisions are based on price, rather than price a result of supply demand balance. 

Looking at the last graph from property cycle. 

http://www.singaporepropertycycle.com.sg/market-trends/singapore-property-price-index-and-supply-in-pipeline/

The supply directly correlated with the price, I would expect an inverse correlation. I tried to search backwards on the data during the 1997 year, where the property price went on freefall. I could not find detailed details on non residents growth, although from 1994 to 2004, resident population growth rate is stable at around 2.

Anyway, take sometime to take a look at this page
(http://www.singaporepropertycycle.com.sg/market-trends/)

Various macro trends, Sibor does show some inverse correlation with PPI. The next will be vacancy.



The website has the same conclusion, that barring population growth of 0.5% or lower or unexpected economic hardship, there do not seem to be a case of over-supply. Also barring above average of 4% sibor rate, which hardly will happen in the next 2 years, the impact on PPI will be mute too, but watch the vacancy rate.

In conclusion, I do not think waiting for a year or two will cause a big downturn in property cycles. But I think there is plenty of ammo for the news to be alarmists, oversupply, vacancy, interest rate.



14 comments:

  1. I think you mean every year having 27k instead of every week? :")

    ReplyDelete
    Replies
    1. LOL, Thanks for the alert ...

      Every week we will have no baby problems

      Delete
  2. Hi,

    It is unlikely for every new foreign resident, he/she will purchase a newspaper. Half of our foreign residents are of the lower wage group in waitressing, service and construction. Assuming foreign resident population grows at 32k per year annually from now, and say half of the foreign resident are of the higher wage groups. This means there is only a demand of about 15k units. Lets assume out of the 27k new marriages, 2k couples opt to buy condo instead of BTO. That leaves a supply gap of 13k which has to be filled by HDB upgraders, which is difficult as these group has been doing this for years.

    In my view the 30k per annual units is frightening.

    ReplyDelete
    Replies
    1. Typo should be "new units" instead of "newspaper" on the first line

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    2. Will like to revise my number on foreign residents who are of mid-high level skills. According to a credible source below, approx 25% of our foreign residents are skilled. Thus, the supply gap has now widened to 20,000 units which HDB upgraders have to fill up. For your info as well, there are only 670k of 4 and 5 rm and executive HDB flats. So it is a very big ask to get 3% of these group to upgrade to condo

      http://population.sg/resources/population-composition/#.VFWzITSUeDs

      Delete
    3. Hi Chan Yuan,

      Thank you for your thoughts on the matter. The 30K surplus is not over 1 year, but the next few years. Given the GLS take years to convert into real units.

      I believe the govt will scale down GLS to control the supply, but they might err too. Like the pend up demand due to AFC, the clearing of stocks and they stop increasing for some years, then come the post SARS boom and the super low rates. The rest is history.

      Unlikely they will stop GLS, but think they will not allow over supply to cause a crash either. There are plenty of curbs measures to remove anyway.

      The sector is less treachery as compared to China if u ask me, but there might be a better time for things, when sentiments get bad.
      It
      It is difficult to be balance all time, think a slight over supply is possible, and different property companies will fare differently. But the party is over for now

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    4. I think non residents population growth will not slow to a 32k. That is only 10% of my estimate of 2 % growth from a base of 1.6 million.

      Some 25% higher skill labour is still 80k.

      That's why there is a 6 million target on 2020.

      Delete
    5. Hi,

      Thanks for the explanation, but isn't a 2% growth annually from a base of 1,600,000 only 32,000 increase of foreign residents a year. Secondly, I guess the "30k surplus" you are referring to are current projects which will be completed from 2014 to 2017,

      So a 320k increase of foreign residents from 1.6mil base means the govt will increase the foreign residents number more by 20% until 2020, which means your projected foreign resident growth is about 3.1% per year

      Delete
    6. Hi Chan Yuan,

      LOL, you are right!!! 2% is 32 K I must be sleeping. I will correct it accordingly. Problem with doing mental sums with lack of sleep.

      I believe the white paper is just a projection of needs and demand, I think 2% is more plausible. If 3.1 % is possible than hardly any oversupply ...

      Thanks for pointing my error, my apologies

      Delete
    7. Chan Yuan,

      After reading again, I think 30k surplus till 2017 did not take into account GLS in the future.

      So I agree with u, it might be a tough call to absorb the 30 K over the next few years by real demand, and I think the curbs and the Interest rate will keep speculative demand in check

      Delete
    8. Chan,

      I reproduce our discussion in a post. Think it is important that I correct my error.

      Thanks for the discussion, I hope u dun mind. I want to correct the error quickly as I think it is very misleading, hope u are not offended about not consulting u on the matter first ...

      Thanks again

      Delete
  3. well researched. i am quite clueless on this. thanks for the write up!!

    ReplyDelete
    Replies
    1. Hi lady killer,

      Thanks for the kind words, the answers I am looking for, actually come from the property cycles websites. I thought I have to piece info together, but it seems they have already done that.

      Felt like plagarism, but I acknowledged the source. I was looking at few counters, I think some companies do not actually time the market, they just bid and develop, and sell.

      Some however wait for land sales to be in a "sale" before bidding ...

      Many has discount to RNAV. Hoping to grab 1-2 counters but they never hit my target price.

      Delete
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