|
The Business Times, Wednesday 27th Aug, 2008
MONEY
MATTERS
Small
Change
S'pore housing:
Get the bigger picture right
THE media recently highlighted bearish analyst reports about the Singapore
residential market. One, I recall, predicted a decline of 40 per cent over
three years.
By JOSEPH CHONG
THE media recently highlighted bearish analyst reports
about the Singapore residential market. One, I recall, predicted a decline
of 40 per cent over three years. Another forecast plunging rents in 2009 and
consequent sharp falls in capital values. Perhaps this is why some owners
have chosen to sell prime freehold units at implied gross yields of 4 per
cent.
However, looking at the same data, I could not arrive at
the same dour conclusion. I could not arrive at the same conclusion because
I looked at data from other sources as well - in particular, HDB statistics.
Since HDB rules on owners leasing out flats have been liberalised, the
housing market is now a continuum. Indeed, on a per sq ft basis, rents
commanded by well-located HDB flats are now comparable to those for private
residential apartments, going by HDB and URA data.
The big picture in housing has always been driven by
supply and demand - total supply and demand, not just private residential.
If more households are created than housing units completed, there is upward
pressure on rents and capital values.
Let's look at supply first: A net 10,000 private
residential homes are estimated to be completed in 2009. HDB does not
publish completion data, but based on 2006 build-to-order data, only 2,400
units are estimated to be completed in 2009. In total, that's 12,400 housing
units.
Now let's look at demand: According to the HDB's website,
sub-letting approvals in 2007 totalled about 12,800, or 50 per cent more
than 2006. Yes, the HDB rental market is hot. For 2008, sub-letting
approvals are running 30 per cent higher than in 2007, or about 16,300
units. This is consistent with data from the Department of Statistics on
population and workforce growth in Singapore. The new (foreign) households
are not living in tents. If they cannot afford private housing, they rent
HDB flats.
We see that rental demand alone for HDB flats will
probably exceed total private and HDB housing completions of about 12,400
units in 2009. Although the world economy is probably going to feel
recessionary in 2009, Singapore will be somewhat insulated. This is because
of a number of large projects coming on stream will boost job creation
significantly in 2009. In particular, the integrated resorts (IRs) are
expected to have 20,000 employees and create 50,000 new jobs overall. Given
the nature of the IRs, I would expect a significant portion - perhaps 50 per
cent of their employees initially to be foreigners, thus boosting household
formation in 2009.
Nonetheless, I expect some softness in the private
residential rental market relative to the HDB in 2009, as the bulk of
completions will be private. For developments with adjacent completions,
rents will be restrained by competition. Indeed, we see this happening
already.
URA publishes comprehensive data on the property market.
I believe it would be helpful for the market if the HDB published similar
data, especially vacancy rates and building completion numbers. Even better
would be for the authorities to publish composite data that amalgamates HDB
and URA data.
Interestingly, despite the liberalised HDB rental market,
HDB rents have risen despite volume growth. Demand has clearly been very
strong. With average gross HDB rental yields of 6 per cent, or a net yield
of about 5 per cent, HDB upgraders buying private property have a financial
planning and investment choice. Upgraders who have the liquidity and risk
tolerance may want to look out leasing out their HDB flats and taking a
bigger mortgage, instead of selling their flats to finance the upgrade to
private housing.
The net rental yield of about 5 per cent versus mortgage
costs of about 3 per cent means a positive spread of 2 per cent. This 2 per
cent on $400,000 delivers an additional $8,000 a year, assuming rental
income does not rise with time. This would be handy in accelerating the
reduction of the overall mortgage principal. Over the life of the mortgage,
it could amount to more than $200,000 - a nice contribution to the
retirement nest egg.
.
The writer is CEO of financial adviser New
Independent. He welcomes feedback at : josephchong@ni.com.sg
This article is for information only.
Readers should seek independent advice before making any investment decisions
|
