The current property glut issue in Singapore could take around four years to be eliminated, property experts told Bloomberg. The overhang could also exert a downward pressure on property prices in the midst of an uncertain economic outlook.
The Urban Redevelopment Authority (URA) revealed an overhang of 31,948 units as of 30 September, with sales averaging around 2,500 homes per quarter in 2019.
Should sales continue at the 2019 rate, it will take about four years to eliminate the backlog, according to Christine Li, Head of Research for Singapore and Southeast Asia, Cushman & Wakefield.
Developers want property curbs eased
This current glut has caused developers to call the government to ease property curbs, including by decreasing the 20% stamp duty for foreign purchasers and giving them more time to sell apartments before receiving penalties in the form of levies.
To prevent land hoarding, developers are given five years from the time of purchase to construct and sell every unit at a site, or risk paying a 25% levy to the government.
Chia Ngiang Hong, president of the Real Estate Developers’ Association of Singapore (REDAS), feels that the five-year limit is “too harsh” as it places a lot of stress on developers. He also said the government should instead extend the deadline to seven years for projects that have more than 1,000 units.
Given the gloomy economic outlook in 2020, sales might fall between 5 and 10% next year, said Christine Sun, Head of Research at OrangeTee & Tie. Nevertheless, she noted that property prices could still rise at a slower pace at 1 to 3%, “assuming the economy doesn’t deteriorate excessively next year.”
“Unwise” for the government to bail out developers: Li
According to URA data, there are more unsold units in the suburban areas of Singapore. As of the third quarter of 2019, there are 8,917 unsold units in prime districts, compared to 10,538 in suburban areas.
The cause of the current overhang can be traced back to the property boom and the en-bloc fever in 2017 and 2018. Property owners were collectively selling their apartment blocks to developers, who had bought them to redevelop the site at a profit.
And this “excessive exuberance” in buying en-bloc sites is the cause of the current over-supply, said Li. She also noted that it would be “unwise” for the government to bail out developers by easing cooling measures. Instead, she wants to see stricter limits imposed on en-bloc sales so that the buying frenzy will not happen again.
Li also warned against a bailout. “If this precedent of a bail-out is set, developers will not exercise restraint in acquiring en-bloc sites in future cycles, flooding the market with supply and relying on the government to rescue them again,” she said.
Property prices have been increasing since the cooling measures
While residential property prices dropped after the government put up a new round of curbs in July 2018, they have recently begun to increase again, rising 1.3% last quarter, according to the URA 3Q 2019 report.
“It’s prudent of Singapore’s government to monitor the domestic residential property market closely for signs of over- or under-heating, and calibrate the measures as appropriate to ensure a stable and sustainable market,” said Tay Huey Ying, Head of Research and Consultancy for Jones Lang LaSalle’s Singapore.
Stay tuned to PropertyGuru for more insights into the Market Outlook for the year ahead.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email firstname.lastname@example.org