Report by JLL International
- Annual population growth has been cut from 3.2% to 1.2%, implying demand for housing of just 16,000 units a year.
- Yet, home completions in 2014 to 2018 is expected to be 50,000 a year. This is to compensate for low supply in 2006 to 2013. We expect most of the new supply in 2016 to 2018 to be the suburbs, with very little new supply of high-end residential arising from land sales from 2018 onwards.
- The Singapore government has cooled the market from 2010, impacting transaction and prices by 17 to 34%.
- Singapore Prime Residential prices have under-performed other global cities by 40 to 50%, and are now 80 to 90% cheaper than London and New York, 160% cheaper than Hong Kong.
- Affordability levels and sentiment are close to 2003 recession levels. Incomes have risen 90% from 2003 to 2015, while prime and mass home prices are 70 to 80% higher.
- Rents have corrected more than prices in the prime districts. Prime rents are just 10% above 2005 levels. We see limited downside given low new supply in the prime areas.
Prices started to fall from 2012, expected to bottom in 2017
- High-end price (-20%) market impacted by Additional Buyer Stamp Duties from 2011.
- Mass market (-12%) affected by Total Debt Servicing Ratio from 2013.
- We expect prime and mass prices to fall 5 to 10% more before recovering in 2017.
Stable economy unlikely to motivate policy loosening
- Cut back on population and job creation from 2012 affected GDP growth
- Government expects GDP to grow 1% to 2% in 2016.
- Wages continued to rise at 5% per annum in 2012 to 2015 and unemployment stayed at 2%. Inflation is expected to be -0.5% to 0.5% in 2016.
Housing affordability in Singapore has improved too.
- Due to the correction in Singapore residential prices, home price to income ratio in Singapore has fallen from 7.3 in 2010 to 5.6 times in 2015.
- In contrast, homes in London, San Francisco, Tokyo and Hong Kong have all become less affordable.
Prices and sentiment are close to 2003 recession levels
- Sentiment in 2014 to 2015 was as poor as 2002 to 2004, with less than 1000 resale transaction per year in the prime districts.
- Prime prices rose 7.2% over the last 12 years, slower than income growth. We estimate that home prices to income ratio is more favourable in 2015 compared to 2003.
Supply is high till 2018 but mostly in suburban areas
- Supply will grow by 50,000 units or 3.2% per annum in 2016 – 2018 (Private: 5.2%, Public: 2.5%)
- This is catch up as insufficient homes were built up till 2013.
- Most of the supply is being developed in the suburban areas. Public housing units make up 73% of total stock, from 80% in 2000.
Prime residential is compelling compared to other global cities
- Prime residential prices in London, New York, Hong Kong have continued to rise in the last 5 years. Hong Kong prices are 165% higher than Singapore. London is 92% higher.
- Prime home prices in New York and London were 10 to 30% higher than Singapore in 2010. In the last 5 years, these rose 20 to 25% while those in Singapore fell 20%.
Prime residential transaction cost in line with global ciites
- Cost of buying, holding and selling an USD 2m residential property ranges from 15 to 25% in global cities such as London, New York, Hong Kong.
- Cost including additional buyer stamp duty for Singapore is in the middle of the range.
- Cost of buying in Singapore is much higher than holding costs.
Population curbs could be loosened after infrastructure is built
- Population growth fell from 3.2% in 2006 to 2012 to 1.2% in 2015.
- Infrastructure investments will ease congestion. By 2017, the rail network will reach 230km, almost double the length in 2004.
- Potentially, Singapore could allow higher population growth from 2017.
Prime rents are just 10% above 2005 levels
- From the 2007 peak, prime and mass condo rents have fallen 40% and 23% respectively.
- Prime rents are just 10% above 2015 levels and are unlikely to decline further in the face of low supply in the prime areas.
- We expect suburban rents to continue to fall in 2016 to 2018.