Side Views

A two-tier private housing market? — Tan Chin Keong

MARCH 23 — The prime and mass-market private housing segments in Singapore are facing starkly different fortunes.

According to recent industry data, while the mass-market segment is still enjoying healthy demand and price increases, the prime segment seems to be suffering from waning demand as foreign investors exit the Singapore residential property market.

Take the January and February sales figures as a case in point. Prime property accounted for only 1 to 2 per cent of total developer sales, while foreign buyers made up only 4 to 6 per cent of the caveats lodged during the first two months of this year. We believe the additional buyer’s stamp duty imposed last December is one of the main reasons foreign investor interest in the Singapore residential market has shrunk significantly, thus resulting in the weak demand for the prime housing units in which they traditionally invest.

This development leads us to ask: will we see a decoupling of the two segments, resulting in a two-tier private housing market in Singapore? Will mass-market prices continue to trend up, while prime prices weaken due to a lack of foreign demand?

While a decoupling of the different segments of the Singapore housing market is rare, it did happen for a certain period during the last global financial crisis. From early 2008 to mid-2009, private residential prices fell significantly across the board — by an average of 25 per cent — while HDB resale flat prices trended slightly higher. However, we believe this decoupling and the strength of HDB prices were driven mainly by a shortage of supply, as the actual completion of HDB flats plunged from around 28,000 units in 2000 to only around 2,000 units in 2008.

Now, looking at the supply conditions in the mass-market private residential segment, we estimate that around 3,000 units were completed last year. We expect this to increase to around 4,000 units this year and 7,000 units in 2013.

The popularity of these properties, especially the so-called shoebox units, which really took off in late 2009 and early 2010, had resulted in the subsequent launch of a significant number of mass-market private residential projects. Factoring in a three-year construction period, some of these projects should be completed by late 2012 and significantly more in 2013.

In addition, looking at the Government Land Sales programme in the second half of 2011 and as planned in the first half of this year, the bulk of the land sales — an estimated 75 per cent by the number of units — is in the mass-market segment. This would ensure that the supply of mass-market private residential units would remain ample from 2014 onwards.

Taking these two factors into account — the narrowing price premium between prime and mass-market properties over the last two years, and the outlook for ample mass-market supply starting next year — we believe any decoupling of the two segments will be short-lived. This means that while mass-market private residential demand and prices are currently still doing well, any potential further weakness in the prime segment could eventually spread to the mass market. — Today

* Tan Chin Keong is an analyst at UBS Wealth Management Research.

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.

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