Home Invest Property Q and A: Is the current property market recovery sustainable?

Q and A: Is the current property market recovery sustainable?

Q and A: Is the current property market recovery sustainable?

Q&A: There are many new condo units coming up and vacancy rate remains high. Don’t you think that the property market recovery is not sustainable?

The above question came from a reader of SPK’s blog and it is indeed a very valid question. In URA’s earlier announcement on the 1H2018 Government Land Sales Programme, it mentioned that:

  • There are 18,000 unsold units that have gotten planning approval;
  • 20,000 units from enbloc and GLS sites that have not gotten planning approval; and
  • More than 30,000 units that remain vacant

Shocking numbers, isn’t it?

But let’s not worry yet. SPK shall explain his thoughts on the numbers and the market:

1. Not all future launches will be entering the market at the same time.

Based on URA’s figures, there will be a total of 38,000 new units that could enter the primary new launch market. JLL estimated that 20 projects will be launched in 2018, yielding 8,000 to 9,000 units and this is just 21% to 24% of the total new units that URA guided.  This is still considered low if we compare against the new unit launched during the boom years of 2010 to 2012, when there were 15,000 to 20,000 new units launched per year!

2. Demand is going to recover

Consultants are expecting new home sales in 2018 to hit 11,000 to 12,000 units. This estimate is not aggressive as during the boom years of 2010 to 2012, developers sold 15,000 to 20,000 new units per year. And if we compare this estimated 2018 sales with the expected unit launches, the demand will outstrip supply and we remain in an undersupplied primary new launch market for 2018!

3. Property is a sentiment and needs-driven purchase

Whilst SPK agrees that fundamentals are important in assessing an investment (and even more important for a big ticket like property), let’s admit that property is primarily driven by sentiments and needs. Just like how bitcoin can jump to such a high value when people continue to doubt its credibility.

Every Singaporean aspires to own a property one day. Be it for retirement planning, passive income, or trophy asset for showing off. This is where the psychological emotion of owning a property triumph over the rational side of the mind. As people continue to read optimistic news reports on the property recovery, that further ‘justify’ a property purchase at this stage, in fear of missing the current bull market wave.

Moreover, there is always couples who are getting married and setting up their new homes. They would be buying based on their needs and hence, they are less market driven.

One common aspect that these 2 groups of Singaporean buyers focus on is AFFORDABILITY. The decision to buy has already been made and what they need to do next is to find a unit that they like and they can afford.

At this stage of the market cycle, SPK thinks that fundamentals are no longer the key driver of the property market. Buyer psychology and affordability is the key thing to watch for.

4. Vacant units? So what?

Like what SPK mentioned in point 3. Affordability is the key. As long as owners can continue to pay their mortgage, is there a hurry to sell and offload?

SPK had mentioned in the earlier post about the potential black swans. If job market gets hit and people lose jobs, that is when they can’t afford to pay the mortgage and have to sell their units.

Keep Calm and Carry On Property Hunting!

This article first featured on Singapore Property Kaki blog.

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