Time for investors to reflect?

Three newly-unveiled plots to yield 3,150 units in total; supply rate is now at 150 units a day


by Colin Tan 05:55 AM Apr 17, 2010

SINGAPORE - The simultaneous release of four residential sites on Tuesday just three weeks after the first set of three plots were unveiled must give cause for concern for the 1,761 buyers who bought units from developers last month.

Together, these seven sites are expected to yield 3,150 units. To put it across in the starkest possible way, this supply is at the rate of 150 units per day. If you annualised this figure, it is 54,750 units a year.

Actually, the numbers could potentially be 15 per cent more if developers continue to turn out tiny but more marketable apartments. Of course, this would be assuming new supply continues at this rate for the next 12 months.

In comparison, the exceptionally good years in 2007 and last year achieved sales of more than 14,000 units each.

The latest news release from the Housing Development Board (HDB) says: "The Government will continue to monitor the property market closely and make available sufficient supply in the market to meet the demand for home buyers. If necessary, more supply can be injected via the GLS Programme" second half of this year.

Do we take this dare seriously? After all, they have been repeating this for the past year. The difference this time is that they have finally backed it with more than just a token supply.

The HDB said the supply of 10,550 homes for the first half of 2010 from the confirmed and reserve list is the highest in the scheme's history. When developers' sales for March was released on Thursday, some analysts chose to read the jump in sales negatively. They reasoned that when sales came in at around this figure previously, it triggered "cooling" measures from the authorities.

I would suggest, the greater threat facing investors now, is with the increased supply rather than the anticipated cooling measures which may only affect prices. Then again, not at all, if they continue to be merely symbolic.

Look at China. The authorities have been introducing measures which have far more bite but have not really succeeded in reining in prices.

They have raised mortgage rates, re-imposed a sales tax, introduced higher deposits for land purchases, banned banks from lending to builders hoarding land or holding back homes sales in anticipation of higher prices. All to no avail.

Property prices rose at a record pace in March. Residential and commercial prices in 70 cities climbed 11.7 per cent on average from a year earlier. Haikou, the capital city on the southern island of Hainan, had the biggest gain, with a 53.9-per-cent jump in overall prices. Sanya, also on Hainan followed with a 52.1-per-cent increase.

If 2010 turns to be another good year for the Singapore market, it would mean three exceptional years - besides 2007 and 2009 - in four years. Can the market truly digest three very good years of supply? Prior to 2007, the market was only absorbing an average of between 8.000 and 10,000 units per year.

Within the public housing sector, the HDB has indicated that it will put out about 12,000 units this year. It is already ahead of schedule. Judging by the number of Built-to-order flats (BTOs) it launched for the first four months, it is on track to finish with 14,000 or more. The Board has indicated that it will push out more BTOs if there is demand for it. This is more than the 11,000 over units it built between 2006 and 2008.

At this rate, will there be enough future HDB upgraders to support the lower end of the private housing market in three years time when all the private units sold in 2009 and 2010 start to complete?

Satisfactory answers must be found if the investments are not to be mere gambling plays.