Singapore's residential property market has continued to confound sceptics, myself included, with its strong monthly new home sales of more than 2,000 units - including executive condominiums - over the last five months.
While recent project launches have set new prices benchmarks, demand has remained unquestionably healthy. This is especially surprising given the cooling measures already introduced and the expected ramp-up in supply over the next few years as both the Government and private sector analysts have signalled.
My own estimate is that total residential property completions, both by the Housing & Development Board and private developers, would jump from around 20,000 units this year to around 50,000 units in 2015.
To make sense of the current strength and resilience of the residential market in the face of rising supply, one explanation I can offer is the significant undersupply that had built up in the housing market over the last decade.
By my calculations, today's market could still be compensating for an estimated 90,000-unit shortfall at the start of the millennium, thanks to the mixture of housing policy and demographic transition in Singapore.
In 2001, the HDB adopted the Build-to-Order scheme which significantly slowed down the public flat-construction process, resulting in the plunge in total residential property completions from about 37,000 homes in 2000 to a low of around 9,000 homes in 2006.
While completions have since partially recovered to some 20,000 units last year, they could still be inadequate compared to the significant population growth that Singapore has seen over the last decade.
Between 2000 and last year, Singapore's population rose from 4.03 million to 5.18 million, implying an average annual growth rate of 2.3 per cent.
Assuming that the population-to-housing stock ratio remained unchanged at 3.9 as recorded in 2000, this population growth of 1.15 million would have required additional housing of around 295,000 units.
However, over the same period, Singapore's total stock of residential property increased by only around 133,000 units, net of demolitions, from 1.04 million in 2000 to 1.17 million last year.
Even if we factor in the vacant units during this period as a source of supply, they could not have been a meaningful contribution.
Vacant private residential units numbered only around 13,000 in 2000, implying a 7-per-cent vacancy rate. And while we do not have vacancy rate data for HDB flats, using the same 7 per cent - which is not too far-fetched given the ample supply of HDB flats back then - we get an estimated 59,000 vacant HDB flats in 2000.
Adding the combined HDB and private residential vacancies of 72,000 units in 2000 to the supply of 133,000 units from 2000 to last year, we get a total supply of around 205,000 units.
This would still imply a supply shortfall of around 90,000 units relative to the potential demand created by Singapore's population growth.
We believe it is this potential 90,000-unit shortfall that could be supporting the Singapore residential property market at the moment, and that has prompted the Government to significantly ramp up the supply of homes.
Overall, we estimate that a total of 140,000 to 150,000 residential units would be completed from this year to 2015. Assuming that Singapore's population growth rate slows down substantially to an average of around 1 per cent from this year to 2015 given the recent tightening of immigration policy, this would result in a population of around 5.39 million by 2015 (or an increase of around 210,000 in three years). Using the same population-to-housing stock ratio of 3.9, this population growth would require additional housing of around 54,000 units from this year to 2015.
Now, comparing this potential requirement with our supply estimate of around 140,000 to 150,000 residential units, we get a cumulative oversupply of around 86,000 to 96,000 units from this year to 2015. However, this oversupply may just fully compensate for the estimated supply shortage of around 90,000 units that had built up in the past 11 years.
My calculations here assumes that Singapore's equilibrium population-to-housing stock ratio remains unchanged from the 3.9 figure in 2000 (which the reader may or may not agree) and does not factor in other supportive drivers of higher housing prices (such as rising income or lower interest rates over the last decade).
Nevertheless, I hope the calculations and estimates here do help to partly explain the curious case of the current housing market resilience in light of the past shortage, which may have translated into pent-up demand that is now only being met.
Tan Chin Keong is an analyst at UBS CIO Wealth Management Research.
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