_Property Bites Episode 7: Private Residential Surplus
Speakers:
Hector Tan | hector.tan@sg.knightfrank.com | +65 6228 7337
Alice Tan | alice.tan@sg.knightfrank.com | +65 9476 6005
Edited Transcript:
Q: Can you begin by telling us about the Government Land Sales (GLS) programme, and how it affects our private residential market?
GLS is a 53-year-old initiative where the authorities release state land bi-annually for private developers to consider for tender.
It has been one of the key sources of land supply for the private sector’s participation to support Singapore’s urban development and economic growth
The launch of GLS land parcels for tender, especially for the past few decades has often been closely watched by private developers. It has also served as a bellwether of the government’s position in land supply policy at given period in time.
Q: In the latest edition of the November Househunt map that was published with Business Times. We see a number of major launches to come as well as some unsold units from previous project launches. Where are we now in terms of private residential property supply?
As at end of the third quarter, as per URA's statistics there was a total supply of over 50,000 (50,369) uncompleted private home units in the pipeline, compared with over 49,000 (49,090) in the previous quarter.
This supply comprises of both sold and unsold units. Focusing on the unsold inventory, it has come off slightly by around 1,500 units to over 26,000 units in Q3 compared to Q2 where we came close to 28,000 units.
It seems as though the unsold inventory is coming off slowly, these numbers accounts for both unlaunched and launched projects. Taking the househunt map into consideration, we observe new launches in locations that have not seen new launches for some time. These projects will interest homebuyers who look strictly at location and have an immediate need.
Q: How do you qualify the term supply and the concept of unsold inventory in real estate terms?
URA releases 2 different statistics, pipeline supply and unsold stock.
Pipeline supply consist of sold and unsold units, Q3 recorded more than 50,000 units in the pipeline supply. Unsold stock allows us to analyse stresses in the market, URA released a figure of 26,000 unsold stock. This consists of both launched and unlaunched units.
Here at Knight Frank we want to break this down and dive deeper to discover the true unsold inventory, taking into account projects that are due for development.
What are projects due for development? They include those in GLS, comprising of reserve lease sites that is triggered by the private sector due for upcoming tender. These also include sites that are under GLS, that will be released to the market at a predetermined tender closing date.
Other than these 2 statistics provided by URA, we should also look at the 3rd trench of supply. Which is Private Sector projects, that have been submitted but have yet to receive the planning approval.
Consolidating all 3 supply, the total unsold inventory as of Q2 2020 is roughly 32,000 units. This reflects 4,000 more units than the unsold stock statistics reported by URA. Including the projects due for development allows us to have a greater holistic approach to the overall unsold stock
Q4: With this surplus, is it likely that we will witness a new round of collective sales soon, say in the next year, as developers try to replenish their land bank?
The unsold inventory needs to be closely watched, which i believe the government is doing so. There is a total unsold inventory of 32,108 private residential units in Q2 2020, we need to question how long can we expect to fully absorb this unsold inventory.
Taking into account the new sales volume for this year, it has been 8000 units. Assuming we see the same number of units being sold the next few years. We could still foresee unsold inventory falling below 26,000 units by the end of Q2 2021.
Would this then trigger a new round of collective sales? I believe that once the unsold inventory reaches below 20,000 in roughly 2 years, we will see developers seeking to replenish their land bank?
Q5: Can homebuyers expect a drop in prices due to the supply surplus? Even with the surplus, there was not a significant change in the price index. Why do you think that is so?
Homebuyers generally take a wait-and-see approach, taking the current pandemic and market climate into consideration. Developers are also revisiting their pricing to obtain the optimal pricing to attract homebuyers.
There are certain residential projects that are doing surprisingly well despite the current outlook. These could be due to the special attribute it possess, such as location, project appeal, developer track record and more.
We can expect to have competitive pricing at the start of project launches, once sales targets have been met alongside encouraging sales rates. Developers are likely to increase prices.
This creates a FOMO (Fear of Missing Out) Trend observed since the reopening of the economy in June. Home buyers are quick to seize opportunities and this is sustainable for both buyers and developers.
I don't foresee prices dropping too much, as developers are absorbing high costs with the construction during the pandemic. Hence there isn't much leeway for developers to reduce prices to attract homebuyers.