Size Up Home Supply Again

Source : The Straits Times, Sep 9, 2008

Figures predicting ample numbers don't take into account delayed projects

WHAT a difference a year makes.

Just last year, all official hands were on deck to calm what was seen as an overheating property market.

To help keep soaring home prices in check, the Government released an unprecedented amount of data on the housing market.

It also deviated from usual practice to draw attention, in its quarterly updates, to the huge number of new homes in the supply pipeline.

This figure jumped by more than 10,000 units over the past year to reach almost 70,000 now.

To gauge how enormous this number is, just consider that it is about seven times the average number of new homes bought yearly since 2001.

The supply numbers were meant to reassure potential buyers that there were plenty to go round and they need not rush to buy.

Today, however, the property market is nowhere near as feverish as it was last year.

It is pertinent to ask whether this number is the best measure to guide potential buyers who no longer need assurance that there is enough in the pipeline but are now concerned there might be too many.

Developers have adjusted to the cooling market sentiment by putting off sales. So the Government should also adapt its calculation of supply figures to reflect these new conditions.

It could switch its focus to units already being built and supplement this data with information tailored for a wary market rather than an overexcited one.

The swift change in mood has been striking. Worries over runaway prices and property speculators have given way to a diametrically opposite problem: a protracted slowdown in the property market, sparked by the United States sub-prime mortgage crisis.

Home prices and rents are starting to dip and sales activity has slowed to a crawl. The only speculation taking place these days is about when property prices will crash for real, as no one can agree on whether the slowdown is a blip or the beginning of a downturn.

What is certain, though, is that the massive supply figure, originally meant to restore sanity to a frantic market, is now acting as a drag on already negative sentiment.

Citing these numbers, analysts, including Credit Suisse, DMG & Partners, Barclays and Nomura, have warned of a potential oversupply in coming years. This has formed the basis for their pessimistic outlook on Singapore's property market.

A more accurate reflection of impending supply is to focus on units that have already begun to be built, as opposed to those still on the drawing board.

Given the construction crunch and the fact that developers are delaying launches due to market gloom, homes that were planned during a more bullish time could now be postponed indefinitely.

This change alone would more than halve the banner supply figure that has etched itself in bearish minds.

According to the latest data released by the Urban Redevelopment Authority (URA) in July, the total supply of homes in the pipeline has jumped to 67,569.

But a closer look at the data shows that construction has started on only 31,176 of these units.

Another reason to highlight the figures under construction is that they tend to stay more stable from quarter to quarter, unlike the total supply number, which fluctuates according to developers' reactions to changing sentiment.

In the first quarter this year, the total number of homes expected to be ready next year and in 2010 alone was 30,296. Just three months later, URA revised this figure down by almost a third to 22,206 units, after developers submitted modified completion estimates in the light of delayed projects.

But the number of units actually under construction remained pretty much the same across the two quarters, at about 17,000 homes.

Making the change to focus on units under construction would be far from radical. In fact, before 2006, that was exactly what the URA did.

Apart from this, the URA should also divulge how many units have had their scheduled completion dates pushed back, and to which years.

This would throw light on the extent of delays in project completions, something the overall supply figure alone cannot communicate, and the current data only hint at.

The latest figures, for instance, show about 10,400 homes expected to be completed next year. But three months ago, there were 12,800. Have these missing 1,400 units been pushed back to 2010, finished ahead of schedule this year or taken out of the equation altogether?

The 2010 predictions fare even worse: The forecast for completions that year has been reduced from 17,500 units to 11,800 in just three months. When are these lost units expected to come on the market?

Another useful measure would be to break down expected supply by location, completion year and construction status.

The URA only provides the number of unsold units in each of three broad districts: the core central region, city-fringe areas and suburban locations.

If the URA could give this additional data by postal district, it would reveal valuable information about which areas might be in danger of oversupply. Quarter-on-quarter, it would also show how home supply is adjusting across different areas in reaction to demand.

Property consultancy CB Richard Ellis (CBRE) has already flagged a possible glut in the prime districts and in the East Coast, which have turned into major building sites after developers snapped up land there in the last two years.

The problem is that CBRE's supply figures do not gel with the URA's. But unless the Government releases more relevant information - and property developers cooperate to boost transparency - the question of supply overhang will continue to hang over the market for some time.