Private Housing Supply Shrinking As Prices Fall

Source : The Business Times, January 24, 2009

Developers delay projects' expected completion dates to beyond 2011

DEVELOPERS appear to be turning their backs on the property market, deferring more projects as property prices keep falling.

Private residential property prices fell 4.7 per cent last year. This, after rising over 30 per cent in 2007. On a quarterly basis, prices fell 6.1 per cent.



























And according to statistics from the Urban Redevelopment Authority (URA), the number of private residential homes expected to be completed between 2009 and 2011 is now also expected to be lower.

URA said that as at Q4 2008, there were 64,982 private residential units in the pipeline. Of these, about 31,000 units were expected to be completed between 2009 and 2011, lower than the pipeline supply of about 34,600 private residential units as at Q3 2008.

URA said that the decline in the pipeline supply was mainly because a number of developers had in Q4 2008, made adjustments to the expected year of completion of their private housing projects to beyond 2011.

DTZ senior director for research Chua Chor Hoon said that while developers have already been delaying completions over the last few quarters, the momentum increased in Q4 2008. She also believes that with the recent Budget announcements giving developers more leeway to delay completion of their projects, 'there would be further adjustments to improve the supply-demand balance'.

Still, she notes that 10,448 private housing units are expected to be completed this year, which is higher than the past 10-year average of 8,700 units. 'These projects are at the advanced stage of construction and cannot be delayed. These would add pressure on prices and rentals.'

While the property tax deferment on approved development sites is expected to cost the government $290 million over the next two years, Knight Frank director of research and development Nicholas Mak said that this will not have much impact on the supply pipeline - but only because many developers have already decided to do this. He does, however, believe that it will help developers bear the holding costs.

Barclays economist Leong Wai Ho added: 'I don't think these (Budget) measures per se will reverse the slide in the property market. The dominant factors in the near term are the increase in white-collar unemployment and falling household income.'

Poorer economic prospects are more likely to persuade developers to defer projects.

Already, of the 64,982 uncompleted units in the pipeline, 43,414 units were still unsold. These comprised 3,880 units that had been launched for sale by developers and 14,386 units which had the pre-requisite conditions for sale and could be launched for sale immediately. The remaining 25,148 units with planning approvals did not have the pre-requisite conditions for sale.

Prices of non-landed properties fell by 6.3 per cent in Q4 2008 compared with the decline of 2.5 per cent in the previous quarter. For the full year, prices of non-landed properties fell by 5.3 per cent.

Prices of non-landed properties in Core Central Region1 (CCR) fell by 6.5 per cent in the quarter while prices of non-landed properties in Rest of Central Region (RCR) and Outside Central Region (OCR) fell by 6.2 per cent and 5.9 per cent respectively. For the whole 2008, prices of non-landed properties in CCR, RCR and OCR fell by 5.6, 4.7 and 2.9 per cent respectively.

Mr Mak said that despite the mass market sector experiencing the slightest decline in home prices, a drop in prices in OCR reflected that buying interest for mass-market private homes has waned. 'Prices of mass-market homes were initially thought to be able to hold better than high-end private residential properties in 2008, as some buyers settle for mass-market private homes for lower-cost alternatives. However, the cautious homebuying sentiments have become so significant that some homeseekers chose to purchase HDB resale flats,' he added.

Rental decline accelerated, easing by 5.3 per cent in Q4 2008 quarter-on-quarter. Mr Mak noted: 'On a yearly basis, the 2 per cent growth rate in 2008, though still positive, is a far cry from the double-digit expansion observed in the last two years.'

Last year saw the total number of homes sold fall to 13,593 units, down from a record high of 40,654 units in 2007.

CBRE Research executive director Li Hiaw Ho notes that the fall in sales volume was seen in both the primary and secondary markets, with only 419 new homes, 965 resale homes and 203 sub-sales registered in the fourth quarter. 'The decline in sales momentum was indeed significant as both home-buyers and developers retreated from the market,' noted Mr Li.

For the whole year, the 4,264 new private homes sold was a record low, and made up only 29 per cent of the 14,811 new homes sold in 2007. Similarly, a total of 7,701 resale homes were transacted last year, compared with 20,980 sold in 2007. Sub-sales fell to 1,628 in 2008 from 4,097 in 2007.