Monday, October 8, 2012

HDB Property Bubble In Singapore

MAS has just warned of a new property bubble in Singapore due to the prevailing and problematic low interest rates. Despite the ramp up of HDB flat supply, resale prices rose 2% as compared to 0.5% for private home prices. This worries me slightly as I just got a flat from one of the HDB Build-To-Order exercises.

To have a better understanding of a possible HDB property bubble in Singapore, I will first have to find out the demand for HDB BTO flats. For that reason, I went to the HDB website and compiled the total number of units and applications for September 2012 BTO and Sale of Balance exercise as shown below:

Examination on the HDB property bubble in Singapore - Demand

Since each household can submit only one application for either the BTO or SBF Exercise, I am able to compute the overall number of units and applicants. From the table above, we can see that after this round of HDB sales launch, there are still 18614 households who have not secured a flat. This number of 'homeless' households/couples is still significantly higher than the 6400 new flats to be launched in November 2012 and we are only talking about the 'leftovers' from the September's sales launch here. With that, we can safely say that the demand for HDB BTO is still strong. A significant portion of resale HDB flats buyers is the Permanent Residents(PR) as they are ineligible to apply for BTO flats. With the ever increasing number of PRs in Singapore coupled with 'downgraders' and desperate 2nd timers, demand for resale flats is likely to remain strong as well.

Examination on the HDB property bubble in Singapore - Supply
However, what concerns me is not the demand, but rather the ever increasing supply in both HDB flats and  private property which might soon burst the property bubble in Singapore. With the increasing number of both public and private homes, will there be an oversupply a few years down the road? I believe it will depend on Singapore’s economy and the global situations at that time.

Increasing supply, over-speculation and unjustified optimism might be some of the causes of a possible property bubble in Singapore. There is a certain element of investment demand among private home buyers as not everyone is buying for owner occupation. The potential risk is that a few years down the road, when these projects in the pipeline are physically completed, accompanied by higher interest rates and an economic downturn, demand for private homes will come off. Owners of these properties will then try to rent or sell them which consequently put pressure on rents and prices. HDB resale prices might be affected by the spillover effects of the bursting private property bubble in Singapore but then again, the 2008 crisis proved otherwise.