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Oversupply, Yes. Crashing Down? No.

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It is estimated that on a yearly basis, the average population growth in Singapore is 75,000 individuals per annum from 2014 to 2020. Assuming a conservative 3 to one home, it meant that 25,000 new homes are needed every year. Now comes the tough part. Total estimated new supply for 2015 is 50,300, 71,500 in 2016 before coming down to 37,200 units in 2017. The reason for 2017 being down by so much is easy to see. The slowdown in both buying and new developments have started to slow since 2013. Thus, the total supply definitely is coming down by 2017. According to Eli Lee, an analyst at OCBC, all these numbers meant that from 2015 onwards, there is an oversupply situation. An estimated 50,300 new residential units are set to be added to the market in 2015, followed by 71,500 in 2016 and 37,200 in 2017. In fact, it is a heavy oversupply situation.

However, for those expecting prices to drop further before buying may be disappointed. Prices are expected to decline but it will never crash. In fact, perhaps only between 5 – 10 percent. One major reason? 2015 is a potential election year. There’s no way the government is going to let prices crash and thus affecting its results during an election year. Buyers are still waiting and sellers are still holding. Developers? Well, prices that they are offering are still holding. Perhaps they are offering other incentives to get more sales but the prices have been resilient thus far. According to Credit Suisse, 47% of household assets are tied up in real estate. In other words, any sudden fall is likely to be very bad to majority of everyone. Lee said that price crash in excess of 20 percent is highly unlikely due to the high elasticity of demand in the housing market. In short, should the prices go down to an attractive level, it would quickly be supported. Demand is still there, just that the current prices are not deemed attractive. Even the foreign purchasers are staying away. Major reason is because of the additional buyer’s stamp duty of 15% of the purchase price. Come on, assuming you buy with the intention to sell, you lose 15% even before you start. Not such a great incentive to buy anymore, right?

I personally feel that there are still a lot of things which can be done should the property market slowed down way too much to the government’s liking. Removal of the stamp duty for foreigners would jump start demand pretty quickly unless the whole world is in a crisis. The reason is because Singapore continue to be regarded as a safe haven, especially for many foreigners who wants to work in Asia. It’s really safe and progressive compared to many other countries. Shanghai is another huge magnet but these days, it’s harder to get a great position in Shanghai as their talent pool has increased by leaps and bounds for many years. Thus, much of the needed positions are starting to be filled by locals who have gained many years of experience from all the foreigners who were based in Shanghai for the past many years. Singapore is however a very small country and relying just on locals to propel continuous economic would not be a good idea. How do you get more MNCs to invest if you cannot provide a huge supply of talents to them. To these MNCs, I need talents and it does not need to be locals. These are the reasons why the property market in Singapore will slow down but I personally agree with the assessment of many analysts thus far, there’s little risk of Singapore property market crashing in 2015. I do not own any property in Singapore and has no plans to get one in 2015. Happy searching and buying if you intend to get one.

written on 28 Dec 2014

Next suggested article: Singapore beats both China and Hong Kong in buying overseas real estate

 

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