Monday, September 19, 2011

Can foreign professional demand take up Singapore private property oversupply?

You have probably seen this argument from property “experts” many times in different ways in the news: The property demand in Singapore will be robust and will easily take up the overall oversupply expected to hit the market from 2012 onwards. The anticipated demand is of course from immigration. So the underlying message is very simple. Hey you wait on the side lines for price correction. The prices will be flat or will not fall significantly.

I see several problems in this argument. First it is almost always coming from “experts” who either earns money when people buys property or prices goes up. So it would be naïve to expect that they will expect the price correction. But this is the least important problem. My main problem is their assumptions for future immigration.

Take a look at the assumptions made by one of those experts in the news first:

“Mr Cheong (Alan Cheong, associate director at Savills Research & Consultancy) adds that if Singapore were to bring in around 60,000 foreign professionals per year in the mid to upper segment income bracket, "this group could very easily take up the over 50,000 units that are currently left unsold by developers. Together with existing local and foreign upgrader/investor demand this group of buyers would also be able to absorb the annual Government land supply of 15,000 units coming on stream in future".[1]

There is something wrong with this assumption of 60,000 mid to upper segment professionals. He probably means P2 and P1 Employment Pass holders whose fixed salary is above 4,000 SGD per month and 8,000 SGD per month. But as of December 2011, there were  142,000 of them in Singapore.

 Let’s look at how much was the last known numbers from 2009 to 2010 where we have seen a record 14 per cent GDP growth:

“The number of Employment Pass holders has jumped by more than 20 per cent in the past year, from 115,000 in 2009, to 142,000 last year. For S-Pass holders, the number rose from 82,000 to 98,000.”
 Source : Singapore work pass salaries foreigner intake

The increase was only 27,000 people.  Add 12,000 from EPs who became PR (PR approvals of 2010 29,000 divided by 2.5) were on EP then you will have close to 40000 new foreigners on EP.

Now it is not realistic to expect the same growth levels of 2010 every year, we already know that it will not repeat itself in 2011 (it will be roughly one third of 2010 growth if nothing goes wrong). We also had 2 rounds of foreign intake criteria restrictions which will probably decrease the intake numbers.

Let’s look at the picture again:

1) Growth will most probably slow down significantly from 2009-2010 growth in 2011.

2) In 2011, 2 rounds of restrictions are introduced to tighten criteria of mid to high foreign worker intake.

Next few years will most probably bring much less than 40,000 professionals per year. Many of these will not be able to afford private property. It is very unlikely that 60,000 mid to high bracket foreign professionals will come every year. And it is unlikely the demand from them will be enough to take oversupply. 60,000 per year in this case, is not an assumption: it is wishful thinking. Or am I missing something here?

[1] - Private property demand not expected to ease up

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.

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