Singapore property investors: Affected by Singapore Government land sales

Singapore Property Investors affected by Singapore Government land sales

Why is the government trying to release land for sale in the market when the property supply is still more than sufficient?

The Singapore government releases 223, 303 sq feet plot of 99 yrs lease hold land around Thomson road, opposite the Singapore Island Country club’s island golf course. (Source: The Business times, 24^th Sep 2009, Bids of S$300 to S$425 psf ppr seen for Upper Thomson plot, by Kalpana Rashiwala)

Has the Singapore government got the timing wrong?

Has the government got the timing wrong again? Mr. Mah has a track record of releasing land for sale in a hot market peak. The end effect is that it fetches maximum prices for the Singapore government. When government released land for sale, the property market crashed the last time round.

Here are the supplies in the pipeline for Singapore properties: -

SINGAPORE PROPERTY SUPPLIES IN CORE CENTRAL REGION

SINGAPORE PROPERTY SUPPLY IN REST OF CENTRAL REGION

SINGAPORE PROPERTY SUPPLY IN OUTSIDE CENTRAL REGION

Private housing demand

There are still a pipeline of 62,350 (URA, 2Q, 2009) of private condominium units in the pipeline from now till > 2013.

This is more than enough supply!!!

The supplies are just being SQUEEZED in 2009 and 2010 by the property developers creating an illusion of shortage.

Singapore consumes about 14,000 units of private housing during the peak and around 3500 units of private housing in 2008. On average Singapore consumes about 8,000 of private housing a year. This means, we have 6 to 8 years of supply in the pipeline.

There is NO SHORTAGE!!!

Any perceived shortage or actual shortage now are artificially created by Singapore property developers to inflate the market. They do so by deferring the properties to a later date and thereby squeezing the supply now. This creates a demand – supply imbalance that leads to a momentary demand run-up. Once momentum is built, the stocks in the pipeline can be moved.

Again, we do not see why the Singapore government should be releasing land when there is more than ample in the pipeline. During the last round of concessions due to severe economic environment, the developers are given a longer time to complete their properties. Surely this must now be reviewed else it can lead to land banking by the developers.

Total housing demand – HDB and Private

There are some 24,596 households formed in 2008. (Source: Singstat,http://www.singstat.gov.sg/pubn/reference/yos09/statsT-demography.pdf, 2008), this formed the latent potential demand for housing. If the need is there, but the newly married couples cannot afford it, it becomes a latent demand. If the need matches affordability (i.e. in HDB or in some cases Private housing), these translates into actual property demand.

Many of these newly married couples are most likely to be purchasing HDB properties.

There is extra demand from younger foreign expatriates or PR (which we have analyzed in foreign population demand), they are most likely to be purchasing a HDB which are slightly cheaper.

What is the effect of releasing land to Property developers?

By releasing land and not requiring developers to develop it within a given time frame will lead to land banking by property developers,  just like what we see now. There is so much demand in the pipeline for Private property.

So when Business Times gave a very bullish report on how the demand has dramatically run down supplies. We just do not see the logic why the government is not requiring the property developers to bring forward development plans.

And land sales now together with favourable  terms such as a long time to complete the property, will allow the government to reap a very good price during these peak market prices, but will add to supplies before the current supplies are run down.

This has the effect of handing over power to the property developers, allowing them to control the property supply to a large extend.

Property Developers do the dirty job for the Singapore government

When the property developers bid for land which has fairly “loose” conditions, this give them the ability to manage supply. By being able to manage supply, these developers control half the equation in determining prices.

How does Singapore government land policies affect Singapore property buyers?

Demand such as household formation do not change drastically year-on-year (people still need to get married and start families), and there is always a demand for private properties, which depended on the economic conditions.

Some possible scenarios: -

1. If supplies are scarce and affordability is not an issue due to rising incomes, property prices will rise.
2. If supplies are scarce but affordability stays the same, property prices quantum will not rise because people are not earning more. In this case, due to the squeeze, the property developers will build smaller units, leading to higher per square feet (PSF) prices.

Scenario 2 is what is already happening. A series of missteps either deliberate or accidental has a long term detriment to Singapore’s standard of living by making people pay more for lesser and lesser area.

Naturally we are against it, because by building smaller and smaller units, we will look more and more like hong kong. If we are going to be like hong kong, living in tiny houses or apartments, the dynamics and joy of living in Singapore will forever change and we will not be differentiated enough from Hong Kong in which to attract investments and senior professionals to relocate to Singapore.

What will happen to SMALL SIZE Singapore Condominiums units?

The trend has just begun for developers to build ever smaller condominium units. This is because income levels are not rising fast enough. In fact, income levels have only increased at a slow rate as Singapore is already considered an advanced nation whose salaries are already within the top tier worldwide.

In order to compete with other developers to win land bids, those whose winner bids are high would have to resort to building smaller units as incomes stay stagnant as there is a maximum sum a buyer can afford.

New pricing benchmarks that are set will encourage developers to build more smaller units. Those who buy smaller size condo units will likely see more competition for tenants or price pressure downwards when selling.

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