Singapore's "dark condos" point to supply overhang

[greentea]

Interesting piece on condos remaining vacant despite high sales/leasing rates: http://btd.sg/1LGfuj0

The photos are here, and possible explanations (fewer expats, foreign buyers, HDB upgraders) here.

[opmi]

"Joseph Tan, executive director for residential developments at CBRE, suggests that at least half of these buyers would have planned to sell their HDB flats closer to the completion of the condos. But with the HDB market having been soft in the past year, those who don't need to sell their HDB flat to fund the purchase of the condo would have probably chosen to hold on to their HDB flat until prices improve before selling it and moving to their new condo."

I thought everyone is executing the sure-win strategy of living in condo & rent out HDB. Tragedy of the commons.

[Big Toe]

Since Jan 2009, we had ultra low interest rates, that is a quite long time.
Money will always flow to higher yielding investments, in Singapore, that translates to a residential property.
Even in this current market, it is still possible to get a rental yield of about 2-3+%, which beats borrowing costs slightly.
Plus the fact that the property is likely leveraged, which means it beats putting money in a bank hands down.(for now)

But many new property owners have not experienced a series of rate hikes and a record supply coming on stream.
It's going to be quite ugly if the pace of hikes is quicker than anticipated. We'll see how this plays out. The equation will look like this

Pace of rate hikes + supply of newly completed properties + land sale VERSUS
Withdrawal of cooling measures + Stable Employment

The way I read it is there is more negatives than positives. Unfavorable no matter how I look at it.
I cant be sure what or when the next crisis will strike, but a long period of low rates and easy credit may play a part in it.

[brattzz]

there's still the "gate-up" demand for these units, as long as it's politically digestible, gov will open the gates for more FTs to come in,
Don't think sg will continue the "gate-up", especially after 2016 GE.

So this "problem" is solvable... quantity issue, another 400K FTs should be able to take up these units..

[specuvestor]

Actually one of the less well-noticed problem of investment properties is under or lack of maintenance

It came to a head with one of the properties in Sentosa Cove not so long ago with weed and mosquito breeding, but it is a big social issue that Singapore has handled pretty well by enacting new laws to enable for example NEA officials to enter a premise without permission. People with short term memory forget about the Sengkang / Punggol 21 "seafront development" that had 100k units that was almost empty for a decade under MBT, after he was conned by the same sirens' song that supply was insufficient. Always the same tune yet...

That's probably roughly the scenario we are looking at in the next 3 years (will not be the same but it rhymes) but I think KBW is much smarter

[koh_52]

Since Jan 2009, we had ultra low interest rates, that is a quite long time.
Money will always flow to higher yielding investments, in Singapore, that translates to a residential property.
Even in this current market, it is still possible to get a rental yield of about 2-3+%, which beats borrowing costs slightly.
Plus the fact that the property is likely leveraged, which means it beats putting money in a bank hands down.(for now)

But many new property owners have not experienced a series of rate hikes and a record supply coming on stream.
It's going to be quite ugly if the pace of hikes is quicker than anticipated. We'll see how this plays out. The equation will look like this

Pace of rate hikes + supply of newly completed properties + land sale VERSUS
Withdrawal of cooling measures + Stable Employment

The way I read it is there is more negatives than positives. Unfavorable no matter how I look at it.
I cant be sure what or when the next crisis will strike, but a long period of low rates and easy credit may play a part in it.

Bro Big Toe san, your input is valuable , I like to read your post since Wallstraits times.

Property is always related to supply & demand, population increase or decrease, housing shortage or over-supply, super /ultra low borrow rate or rate hike, land scarce or abundant of land, good or bad location, liquidity (printing of fiat money like no tomorrow, inflation- money become smaller. also look like US Fed not dare to hike rate, currently my SOR is 1.46% I think it will take another 2 yrs for the interest rate to touch 2.5%-3%.

My guess, that property cooling measures are likely to be lifted by mid or 3Q 2016, however TDSR still remain. This TDSR is really effective it capped people purchasing power and stablised the demands.

However, property prices will drop another 10 per cent in next two years.
Now buyer is king, this weekend let look at the new preview launch 99 yrs LH of High Park at Jalan Kayu, price should be lower, aro $1,000 psf for a 2 bedders size. Since 3Q 2014, ppty price been tapering down by 5%-10% per annum.

Oops, but just out yesterday, Land price at Toa Payoh and Dundee Road going at $755 psf and $872 psf (ppr) so breakeven aro $1250 psf and $1375 psf, plus profit, tell me how to sell cheap.
The govt is doing a good job in regulating and deflation the property bubbles, so likely no burst, lah.

[corydorus]

Agree no burst with current economic climate.

When interest rates go up, chances are because economy overheating or doing too well. So is more to damp the expected higher demand. Borrowing cost more expensive but if measure relative to income hard to say overall. The situation property is bad is when there is recession and job losses. This will drive unplanned supply into the market. Planned supply control right now, government can always use population and housing supplies to manage together with adjustment to current cooling measures.

[BlueKelah]

Agree no burst with current economic climate.

When interest rates go up, chances are because economy overheating or doing too well. So is more to damp the expected higher demand. Borrowing cost more expensive but if measure relative to income hard to say overall. The situation property is bad is when there is recession and job losses. This will drive unplanned supply into the market. Planned supply control right now, government can always use population and housing supplies to manage together with adjustment to current cooling measures.

The real mover of property price is the availability of credit. What TDSR has done is put a cap on how much the bank will lend out. Since there is not much increase in wages over the short term, the bank will not lend out more.

So for majority of investors who are speculating on property, this will affect the available leverage to them. Thus crimping their ability to push prices up.

So over a period of time, until wages slowly start to rise or existing debt gets paid off, then only can buyers afford something more expensive.

IF the average joe cant afford the average new condo on his average salary, then the average developer will have to adjust their pricing to reflect the affordability.

One only has to look at Japan and USA for a lesson on how low house prices can go in a recession. Just like stocks, there is always risk of a significant correction in the short term when a bubble forms.