100,000 residential units coming in 2014-2015 and property prices

Yesterday, I have blogged about my views on expert reports that say the upcoming large supply on public and private houses will not result in property price corrections. As you may have heard already, in 2014 and 2015, 50,000 residential properties (both public + private) will be completed. This means 100,000 units in 2 years and the number is about 2.5 times the yearly average of last decade.

First problem I have covered yesterday was the exaggerated immigration expectations. Mr. Cheong expected 60,000 professionals per year who can effort private property while the boom time immigration of 2010 hardly passed 40,000 foreign talents in a year and majority of these mid to high salary bracket professionals cannot afford the ultra-high property prices.

Second problem, which I would like to comment about, is the perception of the current price levels. Even if there will be no oversupply in 2014 and 2015 due to these 100,000 units coming, these units will definitely do something: put an end to a nearly decade long undersupply! What the experts usually do not talk about (and maybe think about) is that current property prices are not “normal” or “supply-demand equilibrium” prices. Current prices are fundamentally the result of severe supply shortage and exaggerated demand by ultra-low interest rates. Since interest rates cannot go lower, even if they stay at this level, a supply ease will most probably affect the prices.

Reflections Keppel Bay under construction - Source: Wikipedia

All my comments are excluding a very likely near future economic bang event – the single event that wakes up investors who do not want to accept that the world economy has a huge problem to be really fixed not postponed by stimulus packages! Let’s assume no more economic woes and everything recovers from the current economic uncertainty. Still, interest rates will not go down more to feed the illusion of “affordable million dollar condo”. They are already zero per cent! Economy will not grow in double digits numbers in the next few years as it did in 2010. That was a post-recession recovery. And 30,000 – 40,000 mid to high level professionals will not come every year if economy does not grow as fast as 10+% and after these 2 rounds of work visa criteria tightening. And there won’t be the severe shortage of housing when 100,000+ new homes are expected in the next few years.

At this climate above, I think UOB Kay Hian’s scenario of 8-10% Singapore private property price correction in 2012 is more likely than Alan Cheong’s flat or increasing prices.

Disclaimer

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.