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Residential market: Going against the tide
By Lee Nai Jia / DTZ | May 23, 2016 10:00 AM MYT
Tags: residentialSeller's Stamp DutyABSD

There has been much pessimism in the private residential market since the start of the year, with the release of a series of economic data suggesting subdued economic growth.

Mixed signals from China’s economy and a potential UK exit from the European Union added to the uncertainty, making buyers hesitant to enter the market as they anticipated a further decline in prices. News that the government would not be lifting the cooling measures during Budget 2016 also diminished investor sentiment. The confluence of factors led to sales volume falling to a level (about 13,500 units a year) reminiscent of the global financial crisis in 2008. Home prices have fallen 9.1% since the total debt servicing ratio framework was implemented in 3Q2013.

Nonetheless, there are signs that the market is stabilising to a new equilibrium and market activity is picking up. Private-home sales improved 10.4% to 14,172 in 2015. In 1Q2016, 2,833 private homes changed hands, up 7% y-o-y. While the increase in vacancies from 5.2% in 2013 to 7.5% in 2015 remains a concern, especially for the rental market, it has not reached the level experienced during the Asian financial crisis.


Suppressed demand

With the residential market considerably weakened, homebuyers are wary of the “oversupply” of homes, owing to more completions and slower sales. Statistics suggest, however, that their concern may be overstated. Based on past trends, the annual demand from first-time buyers working in Singapore is about 33,500 homes — assuming all are purchasing their own homes. Based on the assumption that half of the vacant units are already owned, the number of private unsold homes (pipeline and completed) and annual public housing comes up to about 37,000 units. If we include purchases from foreign investors and second-time homebuyers, it is likely that demand will equate with supply. With the economy expected to expand 1% to 2% and the low mortgage rates expected to remain, housing demand is unlikely to be curtailed by a lack of affordability.

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