MELVIN Tan, a 29-year-old Singaporean IT sales engineer, and his wife Katherine, a 28-year-old Malaysian logistics executive who recently became a Permanent Resident (PR), got married last July, and are looking to buy their first home. The couple is looking forward to the next HDB build-to-order (BTO) exercise in March, when 3,890 flats will be released in Bukit Batok, Punggol and Sengkang in Singapore. They are hoping to get a flat in Punggol, "partly because it’s a new town surrounded by parks and water, unlike the mature estates or the CBD", says Tan. "We would like a new place for our first home."
On learning that the government intends to increase the population in Singapore from the current 5.3 million to 6.9 million — a 30% increase — by 2030, Tan worries about overcrowding. The couple has been looking for a new home since last year, but found that most of the HDB flats in mature estates such as Tampines were beyond their reach. Tan is willing to consider some of the new estates coming up, such as Tampines North and Bidadari, although his first choice is still Punggol. Even with 700,000 additional homes in both new and existing townships to cater to the expanded population in 2030, Tan fears property prices will continue to go up. "It’s already so expensive," he laments.
Singaporeans are generally concerned whether the city-state has the land and resources to support a substantial increase in population, and the government’s Land Use Plan seeks to address this concern, says Knight Frank’s head of research, Png Poh Soon.
Currently, the country has about 1.2 million housing units, of which 0.9 million are HDB flats, another 10,000 are executive condominiums (ECs) and 280,000 are private housing. "To support the projected 2030 population range, we will set aside enough land to develop up to 1.9 million homes, an increase of 700,000 housing units from today," says the Ministry of National Development (MND) in its Land Use Plan released on Jan 31. Of these units, a total of 200,000 — 90,000 private housing units (including ECs) and 110,000 public flats — will be completed by 2016.
The current ratio of public to private housing stands at 76:24, if ECs are classified together with private condos, estimates Chia Siew Chuin, director of research & consultancy at Colliers International. As Singapore moves towards 2030, with greater affluence and a higher standard of living, she sees the ratio of public to private housing shifting to 70:30.
Chia foresees the average household size shrinking from 3.5 currently to 2.6 by 2030. "The resultant smaller household size would suggest that housing unit size might shrink further in the future as housing stock increases," she points out.
Do 700,000 homes by 2030 spell an oversupply?
An increase of 700,000 homes by 2030 translates into about 40,000 homes a year from 2013 to 2030, says Desmond Sim, associate director of CBRE Research. "This is in line with the current supply each year of 25,000 BTO flats and 15,000 private homes and ECs, which means that supply levels will remain steady. There is no apparent threat of an oversupply situation." He reckons the market will find "new support levels" with the recent property measures and the latest population targets.
There is some concern about the large number of private residential units (around 90,000 including ECs) being completed from now till 2016, especially if it coincides with an economic slowdown, says Ong Teck Hui, Jones Lang LaSalle’s national director of research & consultancy. This would have an impact on the rental market, "with possible knock-on effects", he adds. However, he sees it as "only a cyclical challenge", which would eventually correct with a recovery.
On the other hand, Morgan Stanley analysts Sean Gardiner and Wilson Ng are expecting vacancy rates in the private housing sector to hit "mid-teen levels" by 2016. This might mean a "pullback" in the confirmed list for government land sales in 2H2013, which could slow private housing supply from 2017. "It will potentially act as a circuit breaker for the virtuous circle the market is in, where supply begets demand," say the analysts in their Jan 29 report.
Do we need so many new homes?
Willie Tan, associate professor at the Department of Building, School of Design and Environment at the National University of Singapore, for one, thinks it may not be necessary to build 40,000 new homes annually. This is because among the non-resident population, there are the work permit holders, maids, foreign students, and dependents who do not require much additional housing as they live with their employers, in workers’ quarters or hostels, he reasons.
Tan is of the view that the current supply of new homes is largely to address "the acute shortage" that began when the average number of new HDB units built annually fell from 31,000 (from 1996 to 2000) to 11,000 (from 2001 to 2005) and 5,500 (from 2006 to 2010). "Generally, it’s better to maintain a steady flow of new units rather than the drastic stop-and-go supply," he adds.
Daiwa Capital Markets analyst David Lum is more bearish. He thinks the record home sales in recent years and the wave of housing-unit completions due from 2013 to 2016 are "unsustainable", and serve only to alleviate the supply constraints created by the generous immigration policy and influx of foreigners in recent years. After 2016, Lum expects a "return to normal", with sustainable private home sales possibly averaging no more than 10,000 units a year, assuming annual HDB completions of about 15,000 units.
"Therefore, market talk of future immigration as a major factor for taking annual home sales to new levels is nothing more than hype, in our opinion," writes Lum in his Jan 29 report.
New areas opening up, expansion of mature towns
To support a population of 6.9 million by 2030, Singapore will require 76,600ha of land, which is an increase from the current supply of 71,000ha. The additional 5,600ha required is equivalent in size to about 15 Marina Bays.
According to the MND, this will come from reclamation of additional land, development of reserve land, intensification of new developments and recycling of old industrial areas to achieve higher land productivity. For instance, it has identified East Coast, Changi, Sungei Kadut, Pasir Ris and around the Western Islands as areas with scope for land reclamation.
Better use of land can also be achieved by consolidating activities, such as military training, golf courses and farming to release land for other uses. For instance, the MND plans to take back land from golf courses when their leases expire. There are around 18 golf courses in Singapore today, and most of them have leases of about 30 years.
Plans are also in place to free up more prime land for redevelopment. New housing estates in the Central region will include the former Bukit Turf Club, Kallang Riverside and Bukit Brown. "When fully developed, they will offer attractive housing options close to the city and connected to MRT lines," says the MND.
Future new towns and estates include Bidadari, a former cemetery located off Upper Serangoon Road; the Tengah area off Choa Chu Kang; and Tampines North. "Bidadari will be sought-after, given its proximity to town and public expectations for new housing coming up there," says JLL’s Ong. "Tampines North will ride on the existing Tampines regional centre’s maturity, so it should see good demand as well. Tengah will be the newbie, but it will gradually gain acceptance, with plans for amenities and infrastructure in place."
And more housing units could also be built in suburban towns such as Bukit Batok, Bukit Merah, Choa Chu Kang, Clementi, Hougang, Queenstown, Sembawang, Tampines, Woodlands and Yishun, according to the white paper.
The government also plans to have parks in housing estates so that at least 85% of the residents and their families can live within 400m of a park by 2030.
The creation of commercial nodes such as the North Coast Innovation Corridor and the Southern Waterfront City, as well as the reintroduction of Seletar as another regional centre, with the growing aerospace industry, are things to watch out for, says JLL’s Ong. "While the North Coast Innovation Corridor is a long-term plan, it could see some heightened interest should the development of the Iskandar region gather greater speed," he observes.
Part of the government’s plan is to decentralise the workforce by developing commercial and regional centres outside the Core Central Region (CCR). This will reduce the massive commute in the mornings and evenings, thereby cutting down travelling time, says Nicholas Mak, executive director of research & consultancy at SLP International.
Are there buying opportunities for investors?
CBRE Research’s Sim sees the doubling of the MRT network by 2030 as having a positive impact on home prices. "This implies that land prices will remain steady, reinforcing property as an attractive investment for Singaporeans," he says. "Now is as good a time as any for genuine homebuyers."
The Southern Waterfront City as the next growth area will create new opportunities for homebuyers to own premium water-facing homes near the city centre, says Knight Frank’s Png. "It would be an extension of the CBD, further augmenting the key strategy to establish Singapore as the key financial hub of the region."
For contrarian investors such as Lim Boon Hui, a 40-year-old Singaporean, investing in private residential units in the CCR is even more compelling now. The CCR comprises the downtown core, Marina Bay, Sentosa Cove and the traditional prime districts of 9, 10 and 11. Lim, an engineer by profession, lives in a five-room HDB flat in Toa Payoh that he bought in 2004. In 2010, he invested in a newly completed three-bedroom condo in the Novena area that is currently rented out. He has been looking for another investment property in the prime districts. "I’ve been studying the market these last few years," he says. "Prices in the prime areas don’t tend to fall as much in a downturn, and they are the first to rise when the market recovers."
In fact, SLP’s Mak reckons this could be an opportune time for such contrarian investors to be hunting in the CCR. "There’s potential in buying in the resale market, as well as in newly completed condos with unsold units," he says. He predicts that prices in the CCR will weaken by about 5% this year.
However, in the long term, even with the new land use plans, Mak sees residential prices in the CCR remaining "the highest on the island due to scarcity, quality and prestige". One particular segment that will see its value continue to rise over time is landed housing, given the limited supply, he adds.
So, is this a good time to buy? Between 2012 and 2030, the increase in the resident population would be about 15%, but that of the non-residents would be significantly higher at around 68%, estimates JLL’s Ong. "The housing requirements of non-residents will increase tremendously, with accommodation to be provided ranging from basic housing to high-end residences," he says. He foresees investment demand increasing on top of demand for owner-occupation.
"Generally, the population target means increased demand for real estate, be it residential, commercial, industrial or other uses," Ong says. "The property market will read this policy positively, and sentiment is likely to be lifted, mitigating the effects of the cooling measures that were imposed recently."
Quality of life
There are some who are concerned about the quality of life with the population density increasing from 11,000 per sq km currently to 13,000 per sq km by 2030. "The population is going to grow exponentially, but there’s a limit as to the intensification of land use, for instance, when it comes to building schools and hospitals and also allocating land for parks and recreational areas," points out Mak.
Knight Frank’s Png sees the impending investments in land reclamation and in infrastructure developments over the next decade or so putting a strain on material and labour resources, which are increasingly a challenge for the construction industry. "Should these developments materialise according to the Land Use Plan, the possible inflation in material and labour costs would be an issue that contractors and developers would have to contend with in the near future," he says.
Indeed, infrastructure is likely to remain a major challenge, says NUS’s Tan. The tightening of the inflow of foreign construction workers on the back of an increase in the building of infrastructure and housing would also lead to a rise in construction cost, he adds. However, Tan expects home prices to remain affordable, "as long as interest rates do not spike". He feels interest rates will move up slightly over the next few years "because global government bond yields are too low to attract investors. But there won’t be a spike".
Singaporean Tan and his wife, Katherine, who are hoping to be future residents of Punggol and to start a family eventually, are worried about the impact that an increase in population and housing density will have on their lives and those of their children in the coming years. "I worry for our next generation," Tan says.
[Cecilia Chow is City & Country editor at The Edge Singapore.]
This story first appeared in The Edge weekly edition of Feb 25-Mar03, 2013.