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16-09-2011, 01:23 PM
Worry more about risk levels and less about supply
TODAY
by Colin Tan
04:46 AM Sep 16, 2011
Judging from the feedback I have received, it appears that many did not quite know what to make of a property report released mid-week.
After being told consistently by the authorities - and by some others as well - that there is no reason to "panic buy" as there is more than ample supply in the private housing market, these people are surprised by this latest market report that says there is no oversupply. In fact, looking at the figures quoted by the study, the market is actually under-supplied given that the housing stock has lagged population growth.
Naturally, some are confused while others are disbelieving. You sense that they are not sure what they should now do.
Over- or under-supply - which is right? If you have been following property market news and analysis very closely, you will know that this is not the first such report to announce that there is no over-supply.
What the latest news reports on the study did not make crystal clear or did not emphasise unambiguously is that the "no oversupply" conclusion applies to the overall housing sector - not just to the private market.
We know that there is a significant housing shortage at the lower end of the market. This is why the housing authorities are ramping up new public flat supply to 25,000 units each year for this year and the next.
For those who have been actively scouring the property advertisements regularly, you will also know that there are still lots of choices available in the private housing market. So, in reality, not much has changed.
But taken as a whole, the study says there are fewer homes available than what is needed. But as I have indicated in an earlier commentary, it does not mean that our worries are over.
The mismatch will not disappear if there is no realignment of price levels to clear the surplus stock in the upper housing segments and alleviate the shortage in the lower segments. Some expect the impending recession, especially if many jobs are lost, to do this.
However, if for some reason, this realignment of price levels does not occur, the mismatch at both ends of the market will grow. The mismatch at the higher end will probably be mitigated by the high liquidity levels in the market.
Currently, high prices and supply are not a worry for investors so long as they can be convinced that they can sell onwards for even higher prices. This is why every seller - whether investor or developer - has to have a good storyline to sell. They need to differentiate their product - be it the iconic design, closeness to an MRT station or a prime location within an area which holds lots of promise.
At the other end of the market, more new flats will have to be offered and if we assume that the study findings are spot on about the extent of the under-supply, even more will need to be offered beyond next year. If you are not concerned now, you will be when the authorities announce the new flat supply for 2013 and beyond.
I am not saying this will surely happen but I am just arriving at my own conclusions from the housing shortfall revealed by the study. It was reported that the study does not expect a dip in prices because of the solid demand fundamentals - under-supply coupled with immigrant arrivals.
I am not too sure about the fundamentals cited as helping to prop up prices. As I see it, the under-supply is mainly in the lower housing tiers which the authorities are now rushing to correct.
But the prognosis that prices may not turn south any time soon may be realistic as there are still many investors out there with lots of cash looking for safe havens. Personally, I think this factor alone will be more than enough to offset any drop in demand from expected immigrant arrivals.
So you can expect prices to remain fairly resilient. So, you may now ask, has anything changed?
Yes, it has. With more buying and as more supply enters the market, either as completed properties or when they become available for sale off the plan, the risks levels will rise with the increased supply.
If I am an investor, I would certainly hope to have cleared all my outstanding positions by the time the current upcycle ends. Or I may just find myself standing between the devil and the deep blue sea.
Colin Tan is head of research and Consultancy at Chesterton Suntec International.
TODAY
by Colin Tan
04:46 AM Sep 16, 2011
Judging from the feedback I have received, it appears that many did not quite know what to make of a property report released mid-week.
After being told consistently by the authorities - and by some others as well - that there is no reason to "panic buy" as there is more than ample supply in the private housing market, these people are surprised by this latest market report that says there is no oversupply. In fact, looking at the figures quoted by the study, the market is actually under-supplied given that the housing stock has lagged population growth.
Naturally, some are confused while others are disbelieving. You sense that they are not sure what they should now do.
Over- or under-supply - which is right? If you have been following property market news and analysis very closely, you will know that this is not the first such report to announce that there is no over-supply.
What the latest news reports on the study did not make crystal clear or did not emphasise unambiguously is that the "no oversupply" conclusion applies to the overall housing sector - not just to the private market.
We know that there is a significant housing shortage at the lower end of the market. This is why the housing authorities are ramping up new public flat supply to 25,000 units each year for this year and the next.
For those who have been actively scouring the property advertisements regularly, you will also know that there are still lots of choices available in the private housing market. So, in reality, not much has changed.
But taken as a whole, the study says there are fewer homes available than what is needed. But as I have indicated in an earlier commentary, it does not mean that our worries are over.
The mismatch will not disappear if there is no realignment of price levels to clear the surplus stock in the upper housing segments and alleviate the shortage in the lower segments. Some expect the impending recession, especially if many jobs are lost, to do this.
However, if for some reason, this realignment of price levels does not occur, the mismatch at both ends of the market will grow. The mismatch at the higher end will probably be mitigated by the high liquidity levels in the market.
Currently, high prices and supply are not a worry for investors so long as they can be convinced that they can sell onwards for even higher prices. This is why every seller - whether investor or developer - has to have a good storyline to sell. They need to differentiate their product - be it the iconic design, closeness to an MRT station or a prime location within an area which holds lots of promise.
At the other end of the market, more new flats will have to be offered and if we assume that the study findings are spot on about the extent of the under-supply, even more will need to be offered beyond next year. If you are not concerned now, you will be when the authorities announce the new flat supply for 2013 and beyond.
I am not saying this will surely happen but I am just arriving at my own conclusions from the housing shortfall revealed by the study. It was reported that the study does not expect a dip in prices because of the solid demand fundamentals - under-supply coupled with immigrant arrivals.
I am not too sure about the fundamentals cited as helping to prop up prices. As I see it, the under-supply is mainly in the lower housing tiers which the authorities are now rushing to correct.
But the prognosis that prices may not turn south any time soon may be realistic as there are still many investors out there with lots of cash looking for safe havens. Personally, I think this factor alone will be more than enough to offset any drop in demand from expected immigrant arrivals.
So you can expect prices to remain fairly resilient. So, you may now ask, has anything changed?
Yes, it has. With more buying and as more supply enters the market, either as completed properties or when they become available for sale off the plan, the risks levels will rise with the increased supply.
If I am an investor, I would certainly hope to have cleared all my outstanding positions by the time the current upcycle ends. Or I may just find myself standing between the devil and the deep blue sea.
Colin Tan is head of research and Consultancy at Chesterton Suntec International.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/