Thursday, September 13, 2007

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Singapore Property Supply Crunch?

The key argument by vested parties for a continued increase in Singapore property price rests largely on "Supply Crunch".

Here is a typical example: According to Citigroup, the property supply crunch is likely to get worse despite government assurances that supply over the next few years is sufficient. They reckon that the foreign worker inflow will continue to overwhelm available residential units. Jobs growth in 2007 is keeping pace with the 176,000 jobs generated in 2006, of which about half were taken up by foreigners...

Conclusion: Demand outstrips supply so property price must continue to go up.

Argument like this, which has propelled many property investors to plunge into the property market, while persuasive at first sight, has serious flaws.

Firstly, it fails to see the price mismatch between demand and supply. While there may be a genuine supply crunch, if the price is beyond the affordability of those who need the housing, alternatives such as sharing of apartments, may reduce the actual demand well below that of the projected demand. One should not therefore underestimate the resourcefulness of the human spirit.
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Secondly, the projected demand is hinged on a continual robust economic growth in Singapore. With the threat of global recession intensifying each day, it is not inconceivable that Singapore's economy will be adversely affected, especially if the US economy goes into a prolonged recession. Jobs creation in Singapore may be substantially reduced, if not halted. In such a situation, it is likely that the Singapore government will want the limited number of jobs to go to its people. This will reduce number of foreigners to Singapore, which is what fuelled the housing demand in the first place.
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Thirdly, the argument of "Supply Crunch" does not take into account that the demand comes in the form of rental housing, rather than permanent homes for Singaporeans. The fact that 90% of Singaporeans already own their homes makes demand more elastic than it has been publicised through the media. Hence, we have a situation where the people who need the housing are not the people who form the majority of the buyers in the Singapore property market, which remains to be Singaporeans. Unless property price comes down to a level that makes good investment sense, Singaporeans are likely to stay at the sidelines as they are doing now (as reflected in the *dwindling number of property sold. Refer to graph below: The green bar shows the property price index and the blue bar shows the number of units sold).

As long as speculators are kept out of the market, which the Singapore government seems determined to do so, Singapore property buyers are likely to remain rational. They will not keep on paying higher and higer prices for property.
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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)