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Business Times - 26 Apr 2011

Analysts flag risk as home supply builds up


Overall rise in URA private home price, rental indices slows even as supply pipeline swells

By KALPANA RASHIWALA

(SINGAPORE) The number of private homes in the pipeline has never been higher.

And it is poised to climb even further with the Government Land Sales Programme recently rolling out a large supply.

As at the end of the first quarter, there were 68,887 private homes in the pipeline from projects with planning approvals (comprising projects under construction and those where construction has yet to begin), up 4.9 per cent from a quarter earlier. These figures are based on developers' declarations and the actual completion schedule may change as developers adjust their plans and schedules.

The Urban Redevelopment Authority (URA) said that the latest supply number was the highest since such data was first made available in 1999. Of this, 34,266 units were unsold - reflecting about three years' supply based on the annual average take-up of about 11,400 units.

DTZ's South-east Asia research head, Chua Chor Hoon, attributes the increase in the supply pipeline 'mainly to an increase in the Government Land Sales Programme since last year and the fact that developers are bidding enthusiastically for the sites and pushing out launches of new projects; and people are buying these units'.

'In a way, demand is supply-led. New project launches are attracting people to come to the market,' Ms Chua added.

'There's also a certain element of investment demand among private home buyers as not everyone is buying for owner occupation. The potential risk is that a few years down the road, when all these units are physically completed and if interest rates go up and the economy doesn't do well, demand for private homes may come off.'

And as the owners of these properties try to rent them out or sell them, this will put pressure on rents and prices, she added.

As it is, URA's overall price and rental indices for private homes posted smaller quarter-on-quarter gains in Q1 this year than in Q4 last year.

The numbers also point to a rising stream of private homes being completed in the years to come - save for a projected dip in 2012.

Some 10,256 units are slated to be rolled out this year followed by 9,475 in 2012. They are then expected to gather pace, with 12,990 units slated for completion in 2013, 18,341 units in 2014 and 19,495 units in 2015.

Jones Lang LaSalle's SE Asia research head Chua Yang Liang warns of excess supply of completed units in 2013 and 2014 but added: 'The big question is how much more immigrants and expats will be allowed to enter into Singapore over the next five years.'

International Property Advisor chief executive Ku Swee Yong said that some of the supply projected for completion in 2015 may be brought forward to 2012 and 2013 - 'in which case those who may already be carrying quite a lot of property assets may consider divesting some of their investments sooner rather than later'.

URA's private home price index rose 2.2 per cent quarter on quarter (q-o-q) in Q1, a slower increase than the 2.7 per cent q-on-q gain in Q4 2010.

Bungalow prices gained only 4.1 per cent in Q1, about half the 8.5 per cent increase in Q4 2010. However, the terrace home price index climbed 3.9 per cent in Q1, slightly faster than Q4's 3.7 per cent rise.

It was also a mixed bag in the non-landed segment. The apartment price index increased 0.8 per cent in Q1, compared with a 2.4 per cent hike in Q4; however, the condo price index picked up 2.1 per cent in Q1 after rising 1.6 per cent in Q4.

The hike in rental indices for non-landed homes in all three geographical regions slowed considerably, with the sharpest slowdown in Rest of Central Region which posted a 0.4 per cent q-on-q hike in Q1, compared with a 3.8 per cent increase in Q4. Nomura Singapore property analyst Sai Min Chow observed a significant slowdown in rental growth for non-landed homes in RCR and Outside Central Region as well as for HDB subletting flats. 'This should temper price expectations for shoebox apartments in RCR and OCR, taking into account a four-year holding period (to avoid) the seller's stamp duty.'

He estimates as much as 32 per cent of completions in RCR and 9 per cent in OCR in 2013 are units below 50 sq metres each. 'Hence for those purchasing these units for investment purpose, there's a lot of competition for either rental or secondary sales,' he added.

URA office price index climbed 4.9 per cent in Q1 2011, slightly less than the 5.1 per cent hike in Q4 2010. However, URA's All Industrial property price index gained momentum, rising 8.3 per cent in Q1, compared with 6.5 per cent growth in Q4.

Colliers International noted the faster growth for industrial prices came on the back of sustained interest and sales activity in strata-titled industrial space, which was fuelled by high liquidity, low interest rates and diversion of investors' attention to other property sectors following the latest round of cooling measures for the residential sector in January.