Saturday, June 20, 2015

Housing glut to worsen before tapering from 2017: UOB report

Singapore’s housing glut will worsen in the near future as more public and private units come on stream and only start to ease from 2017, with the government potentially reviewing property cooling measures, a report by UOB Global Economics and Markets Research said.

Private completions surged 52 per cent year-on-year to a 20-year high of 19,900 units in 2014, which was significantly higher than the Urban Redevelopment Authority's (URA) projections at the start of the year, said the report.

The report by Elaine Khoo and Wesley Chong from UOB's country and credit risk management said that it expects 21,200 units to complete this year and a further 19,600 units in 2016 before easing materially from 2017.

Factoring in public housing supply, some 183,000 units will come on stream over the next four years, which will bring the overall housing stock from the existing 1.28 million to 1.47 million, representing a 14.5 per cent increase.

In previous years, the supply comprised mostly the high-end segment, but this is about to change - the number of homes in the fringe and surburban areas will account for more than 80 per cent of overall supply.

Near-term indigestion is expected particularly in the North-East (Sengkang, Punggol) where close to 14,000 new private and executive condominiums (ECs) are slated for completion in the next three years, excluding the bumper crop of new Housing Development Board (HDB) flats, said the research note.

With population growth forecast at only 1.5 per cent per annum over the same time period, oversupply pressures will persist, the report said, adding that population growth rates are projected to slow even further in the next few years, which would in turn weigh heavily on rents, particularly as the housing glut worsens.

Private vacancy rates have risen from a low of 4.6 per cent in 2010 to 7.2 per cent in Q1 2015 (24,000 vacant units). The research house said it expects this to increase further to a high of about 9 per cent, before dipping from 2017 onwards as supply tapers off.

By location, the high-end oversupply is reflected in above average vacancy rates for the Central Region (8.6 per cent in Q1 2015). Vacancy rates in other areas have also picked up, such as in the North, up from 2.6 per cent in Q1 2013 to 11.5 per cent in Q1 2015. In the North East (Punggol, Sengkang), vacancy rates have doubled in two years and could continue to trend up amid record supply.

While pockets of distress could emerge, the report said there is light at the end of the tunnel. This, as a soft landing scenario could be at hand with affordability restored by rising income levels and as supply starts to taper off from 2017.

The government has continued to hold back on land sales and also reduced the Build-To-Order (BTO) flat supply, having ramped up BTO programme in the last three years, noted the report.

Amid chatter that the government could remove some of the tightening measures this year, the report said it may make sense to tweak some of the stamp duty measures such as the additional buyer's stamp duty (ABSD) and seller's stamp duty (SSD), given that market speculation has fallen substantially.

Given our expectation of a 5 to 10 per cent correction this year, the government could potentially review the measures at year-end. Relaxation in SSD and selected reductions in ABSD rates particularly for Singaporeans may be likely, the bank said.

However, UOB believes anything short of a 10 per cent fall in property prices may not be enough to prompt a loosening of cooling conditions.

Historically, the government only reacted when faced with major external shocks such as the Asian Crisis (and the) dotcom crisis, which led to significant price declines (45 per cent peak-to-trough in the former and 20 per cent in the latter), it added.

Adapted from: The Business Times, 20 June 2015