Where is the demand for housing coming from?
Despite being one of the most expensive cities in the world in 2022, tied with New York City, Singapore continues to face an elevated demand for housing. Homeowners such as newly married couples fuels the demand for BTOs while HDB upgraders and new permanent residents looking for a way out of rising rents amps the demand for resale properties.
One major concern for those looking to purchase a new property is most definitely the price point, especially when the continuously rising prices ultimately resulted in another round of cooling measures being imposed, as discussed in our prior article here.
For those who are expecting lower property prices this year, the bad news is analysts are expecting that property prices will continue to rise. The semi good news is that prices will not rise as sharply as they did in 2022; due to one reason: a ramped up supply of BTO flats and private housing which ultimately helps to moderate property prices.
Projected 23,000 BTO flats to be launched in 2023
To continue to meet the surging demand for BTO flats, up to 23,000 BTO flats will be launched in 2023 alone. This includes approximately 2,900 to 3,900 BTO flats in towns/ estates such as Kallang Whampoa, Queenstown and Tengah to be offered this month, in February 2023. HDB also mentioned that they are prepared to launch up to 100,000 flats in total from 2021 to 2025 if needed, subject to prevailing demand.
More homes are also expected in Toa Payoh, where a school site has been earmarked for a potential high-rise housing development. This rezoned plot is located just a mere 200m from Caldecott MRT station, where future residents will definitely benefit from its close proximity to transport nodes.
While this would not immediately remove the demand for BTOs given the high number of applicants stacked up against each project, it will at least help to ease the demand a little and also aid in moderating the prices for resale flats.
Another piece of positive news for homeowners who are currently awaiting their BTO is that the proportion for the backlog of delayed BTO projects has gone down more than half, from 90% to 40%. This is then expected to be cleared in 2 years time. Of course, it is also important to remember that the waiting time from BTO to BTO differs based on the complexity of the project as well as its location.
New Launches in 2023
The supply of private homes under the government land sales programme has been ramped up to 6,300 units in 2022 and 4,100 units in the first half of 2023, with a predicted 30 to 40 more new launches to expect this year compared with last year’s 21 new launches with 4,500 to 5,000 units. This will potentially add 10,000 to 12,000 more new homes to the market with 10 of these aforementioned projects possibly hitting the market within the next three months.
The large increase in new launches compared to last year also shows promise in terms of their performance, especially since we are looking at limited options in the immediate term.
While we face an increase in housing supply this year, it most likely will not do much in satiating the supply crunch in upcoming years as seen from the table above. After 2023, you begin to see a continuous downward slope for private residential units with planning approval, falling 80% from around 17,000 this year to approximately 3,000 from 2026 onwards.
As new launches take a few years at the very least to be completed, it is imperative for developers to ensure these projects are launched by this year so as to ensure its completion by the time 2026-2027 rolls around, where supply is the lowest. The latest updated chart however does show a good amount of ECs with/without planning approvals that might help with the supply crunch then.
HDB housing supply similarly also takes a step down from 15,748 units obtaining their Minimum Occupation Period this year compared to last year’s 31,325 units. It then continues to fall further to 13,093 units in 2024 and 8,234 units in 2025.
Would prices for new launches be competitive compared to previous years?
The increase in supply for new launches this year may lead one to wonder if property prices will start to become competitive as developers go head to head with various projects. Unfortunately, rising development costs such as high land and construction costs coupled with low inventory leaves little room for developers to adjust and subsequently lower the prices for new residential launches.
OrangeTee’s senior vice president of research & analytics also mentioned that ‘strong employment sustains sellers’ pricing power and they will not lower prices too much.’. While rising interest rates may serve to dampen interests of some homebuyers, the overall expectation is that most homebuyers have the ability to meet bigger mortgage payments from higher interest rates.
One potential development to keep an eye out for is the Jurong Lake District site, which is expected to launch in June 2023 supplying office space and private housing in the medium term. This future mixed-use development will be progressively developed over the next five to 10 years, yielding approximately 1,760 private residential units, 150,000 sq m of office space and 75,000 sq m gross floor area for retail, hotel or community uses.
How will the increase in housing supply affect rental markets?
As mentioned previously, one of the demands for housing comes from those who are looking for a way out from rising rental costs, for e.g. new permanent residents. With the increase in housing supply, there is potential that rental growth will be moderated by the high number of completed private housings shown above, leading to a more stable leasing market.
Rents are projected to rise further in 2023. Some of the factors that could potentially contribute to rent growth include the 15-month wait-out period imposed under the September 2022 cooling measures, higher number of returning foreign workers/expats given the improvement of COVID-19 pandemic in Singapore, alongside locals who are looking for temporary lodgings while their new homes are being built. Work-from-home professionals looking for a conducive working space away from family are another small but non-negligible group of people who also contribute to this growth.
This also means that demand for rental units continue to remain high, at least for the first half of the year, as various groups of individuals find themselves in need of a temporary place, and higher rental rates may be imposed to make full use of this phenomenon. It is projected for rent growth to peak in the first half of 2023, and gradually slow down as price resistance starts to kick in and more new launches get completed.
All in all, this year sets out to be a unique year for both homebuyers and developers as supply increases significantly but starts to dwindle from 2024 onwards. While it seems like a good period of time to make your property purchases in view of the potential upcoming property crunch, it is important to remember one’s financial situation remains the most important factor of all when it comes to buying a home.