Launch delays, construction bottlenecks may lead to lower home completions than thought
With private residential rents shooting up 41 per cent last year, one big question is on the minds of property market watchers.
They are now busy trying to figure out just how many private homes will be completed in the next few years - as that will be a key factor affecting how private residential rents will move.
For each of 2006 and 2007, some 6,500-plus private homes received their Temporary Occupation Permit (TOP), meaning that the properties were completed and ready for occupation. This is lower than in preceding years as developers were more cautious in the 2003 to 2004 period due to weak demand for private homes then.
'As a result, developers initiated fewer projects and bought fewer Government Land Sale sites during the period,' an Urban Redevelopment Authority (URA) spokeswoman said in response to BT's queries.
Going forward, about 8,300-plus private homes are slated for completion this year, 13,400-plus units next year and around 18,500 units in 2010 - going by URA estimates as at end-Q4 2007, which were based on the latest quarterly update of completion dates declared by developers for their projects.
However, the actual number of private home completions in 2009 and 2010 may be much smaller because of construction capacity bottlenecks and developers delaying new launches, property consultants and analysts suggest.
Jones Lang LaSalle's head of research (South-east Asia) Chua Yang Liang says: 'One factor is whether developers decide to delay launching new projects, given current soft market conditions, especially in the high-end segment, where there may be oversupply concerns. If developers delay project launches, chances are they will also delay the start of their construction.'
The second factor is the bottleneck in construction capacity. This, in turn, will push back TOP dates of projects.
Dr Chua suggests a closer look at URA's latest numbers as at end-2007, which split the estimates for the number of private homes completed into two groups - based on whether they are in projects which are already under construction or in planned projects.
The 13,493 units slated for completion in 2009, for instance, comprise 11,026 units already under construction as at end-2007 and 2,467 planned units. Dr Chua argues it is almost a certainty that the 11,026 units already under construction will be completed in 2009.
For the units that are being built, 'there's no turning back barring unforeseen construction delays. As for those under planning, developers may have some free-play to delay their construction or the tight construction sector may lead to a delay in their completion dates. So there's for certain at least 11,026 units that will be completed in 2009', he adds.
For 2010, Dr Chua estimates that between 9,000 and 11,000 new private homes will receive TOP, lower than the headline estimate of 18,509 indicated in the latest official stats. 'Everyone will be monitoring the official completion estimates quite closely, quarter to quarter,' he says.
Dr Chua expects URA's overall private residential rental index to increase by 12-15 per cent this year, after surging 41.2 per cent in 2007.
Knight Frank managing director Tan Tiong Cheng expects private home rents to rise by about 20 per cent this year - roughly half the pace for last year, given that many private residential projects are likely to be completed only in late 2008 and 2009.
Lehman Brothers in a research report dated Jan 28 also projects private residential rents will by rise by 20 per cent this year and stay flat in 2009.
Citigroup in a Jan 25 report noted that the 8,364-unit TOP forecast for 2008 contained in URA's latest data as at end-Q4 2007 was 51 per cent higher than the 5,541 units forecast for completion in 2008 in URA's end-Q3 2007 data.
'With actual demolitions of en bloc developments still impending in the next 9-12 months, net supply will remain low. Construction capacity bottlenecks with competing infrastructure projects may cause completions to be lower than expected,' Citi Investment Research said.
The net stock of private homes increased by just 1,448 units last year - the smallest rise in at least 12 years.
Property consultants say that this was caused by a combination of a relatively low number of homes that received TOP in 2007 as well as demolition of properties that have been sold by en bloc sales in the past two years.
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