By Faris Mokhtar
(Bloomberg) — Singapore’s property boom has left the tiny island state with a record low number of new homes for sale, threatening to undermine government efforts to calm the market.
While property curbs have already begun to take effect, the shortage in supply, combined with resilient demand during the pandemic, may continue to fuel prices which surged the most in more than a decade last year.
It marks a turnaround from 2019, when Singapore had a glut of homes that weighed on a price recovery. Covid-19 restrictions have led to labor shortages that delayed construction, forcing home buyers to wait longer and increasing costs for developers who are also facing higher taxes and inflation.
“The low stock of available private homes for sale is expected to push up prices as demand for homes remains firm,” said Alice Tan, head of consultancy at Knight Frank in Singapore.
By the first quarter of this year, Singapore had 14,087 unsold units still under construction, the lowest since that data point was made available in 2006, according to Wong Xian Yang, head of research at Cushman & Wakefield Plc in Singapore. That’s a far cry from the overhang of 30,162 units two years earlier.
The number is unlikely to get a boost from government plans to release more land for sale this year, because that won’t enter the home market until 2023, said Christine Sun, senior vice president of research and analytics at OrangeTee & Tie.
“Therefore, the supply crunch may still prolong for a while.”
This year, about 7,000 to 8,000 new private apartments could be launched, according to analysts’ estimates. That’s lower than the average of 10,750 new units started annually between 2012 and 2021, Sun said.
It isn’t helping that developers face barriers to ramping up supply. Acquiring large parcels of land for residential development carries risks — they have five years to build and sell all units to avoid a levy that was recently raised to 35% from 25%, said Tan.
That may prompt builders to look for smaller land parcels or form consortiums to share development costs and risks in the near term, Tan added.
Following a surge in prices in 2021, Singapore’s government introduced measures to cool the housing market in December. To be sure, it has had some impact. Price growth is slowing and sales have been subdued in the first two months of this year. But analysts expect the curbs to be a short-term fix given the supply-demand issues. Home sales have already rebounded in March, signalling appetite especially among dwellers looking to upgrade from public to private units.
As their inventories sell out, there’s little pressure for developers to lower prices, said Wong. Aside from inflation and the labor crunch, an increase in the consumption tax — to kick in from next year — could contribute to higher prices, he said.
“Given limited supply and continued economic growth, overall private residential prices are expected to grow by about 2% to 3%, despite recent cooling measures,” Wong said.
While Russia’s invasion of Ukraine has roiled markets, that may not necessarily weaken investor demand for Singapore homes. The economic headwinds could instead spur investors to park their money in residential property — long seen as a safe-haven purchase due to the city’s political stability as well as developed legal and financial services, Sun said.
“Demand for private residential properties would continue to sustain,” Wong said. “Many still view private property as a vehicle for wealth preservation and wealth growth.”
©2022 Bloomberg L.P.