Is the Singapore Property Market in Trouble? Part 3

Since the best trilogies come in threes, I guess this will be the final one of the series. In part 1, I talked about the risk of additional cooling measures. In part 2, I discussed the risk of over-leverage and increase in interest rates. In this part I shall talk about the risk of over-supply in the market.

Risk 4: Risk of over-supply

Another reason why the property market may come down is over-supply of properties, or to be more specific, more supply of properties than demand. Economics 101 tells us that price is determined by the interaction of demand and supply. When there is more demand than supply, prices go up. Conversely, if supply exceeds demand, prices come down. In order to determine the risk of over-supply, we need to split it up into the different categories of housing.


In the last few years, HDB has not kept up with demand as our immigration policy was relaxed to allow more foreigners to become PRs and citizens. The increase in demand led to high prices of HDB flats and narrowing of the public-private housing price gap, which in turn led to higher demand for private property. In order to deal with this imbalance, Mr Khaw Boon Wan, the Minister of National Development, has committed to building enough HDB flats as required to match demand. Assuming that he is able to effectively match the demand, prices of resale HDB flats should come down quite a bit. Since supply is only increased to match demand, unless they grossly overshoot the targets or there is an exodus of citizens and PRs, prices should not crash. Besides, with the Built-to-Order system in place, flats are only built when there is enough demand for them, so over-supply should not be such a big concern.

Private shoebox apartments

Defined as apartments of less than 500 sqft, these tiny units have been in the news a lot recently, what with Mr Khaw talking about controlling the building of these type of apartments, and Capitaland’s Mr Liew Mun Leong saying that it was inhumane to build such tiny living quarters for people. While I disagree with the definition (I prefer to judge whether it is a shoebox by sqft per bed), I do agree that developers have been a little too exuberant about the prospects of such units, increasing the supply to an unsustainable level. Traditionally, these types of units have been built in the city centre, usually as studios or 1-bedroom units. This catered mainly to singles or couples with no children, working in the city. This is also not unusual among the big cities like London and New York.

However, developers drew upon the success of such units in the city that were able to get exceptionally high psf prices and rental, and transferred the concept wholesale to the non-prime area, marketing them as cheap, affordable investment properties with potentially high rental yield to the masses. I think the people who put down money based on such marketing could have been misguided. The apartments may be affordable with quantum around $500k, but usually far from cheap from a psf perspective. The high rental yield is also not easy to realise, as potential tenants will be able to get units twice as big for not much more. I believe that investors buying shoebox units in non-prime areas will be sorely disappointed with their performance. It is from this point of view that I think that shoebox units will face over-supply conditions, and lower prices in the years ahead.

Private super-luxury apartments

Setting the PSF record at $6,850 psf, the unit at the Marq boasted interior design by Hermes and a cantilevered private lap pool.

With the implementation of the 10% ABSD for foreigners, activity in this sector has slowed to a crawl. Foreign proportion of purchases has reduced significantly from 20% in 1Q 2011 to merely 7% in 2012. I think that it’s not that they can’t afford it, they just don’t like the idea of paying taxes to the government. As a result, supply has temporarily exceeded demand. However, with fewer new projects coming online, and developers having to give discounts to offset the ABSD impact, the imbalance should not be so overwhelming as to create a crash in prices due to increase in demand from domestic investors who only have to pay 3% ABSD. Foreign investors should also eventually come around and start buying again, as Singapore is still the best viable investment destination due to its safe and stable environment.

Other private apartments

According to Savills Research, the number of launched but unsold properties reached a record 8,245 units in May, including 933 EC units. However, we cannot simply look at this number and determine that there is over-supply. We need to dig deeper to find out where the empty units are, and why they were not taken up. It could simply be that certain locations were not ideal, developers have rushed to launch projects, or even that the developers are holding back units. Unfortunately, I can’t find enough data on this and thus it remains inconclusive for now.

Landed properties

Due to limited number of such properties, this category will never be in over-supply. Therefore, prices should be reasonably well-supported even with uncertain economic conditions.

En bloc activities

En bloc activity has slow down a lot due to the ABSD. Developers, as non-individual buyers of property, have to pay ABSD when buying land en bloc or through the GLS program, but can apply to have it waived if they intend to develop it. However, if they do not develop and sell all of their units within 5 years, the waiver lapses and they will have to pay ABSD. As a result, en bloc of large developments has all but stopped. For prime districts, developers are thinking twice even for smaller plots, as demand has slow down. Therefore, supply of new condominiums should slow down somewhat going forward.


Since this is the final instalment for the series, here is a quick recap on everything said previously:

Risk Likelihood
1. Additional cooling measures Unlikely since mass market buying for own stay or primary investment is pushing up prices
2. Dip in prices Unlikely to cause crash due to regulated low leverage
3. Increase in interest rates Unlikely for next 2 years due to slow global economy, but need to factor in since property is a long term investment
4. Over-supply Depends on sector, but most at risk is shoebox apartments in non-prime areas. In other sectors, there may be temporary over-supply but should stabilize in the mid-term

As far as I can see, the property market in Singapore looks to be rather stable in the next couple of years, with no big crash in sight. However, those banking on their HDB or non-prime shoebox units to go up significantly may be disappointed. The measures implemented by the governments like low leverage and seller’s stamp duty will prevent any big property blowout ala US or Europe, and at the same time slow down the market to prevent bubbles. At the same time, interest costs will remain low for some time, but property investors will do well to put in buffers for their longer-term holdings as interest rates will not stay low forever.

13 thoughts on “Is the Singapore Property Market in Trouble? Part 3

  1. You forget(or overlooked) that we are facing a greying tsunami. Expect more to downgrade or sell out and hence flood the market with vacant properties.

    If this is not managed well, Sin will be in trouble.

    1. Hi Naysayer, thanks for reading. It’s a good point you brought up, but I think that it will not have a big impact on the property market. First of all, I don’t believe the government will be so incompetent. If push comes to shove, if we need a top-up of the population, they should push through with loose immigration policies.

      Even if we disregard government policy and just look at the impact of aging to the property market, I cannot foresee that there will be a tsunami of old folks selling desirable properties. Let’s split the aging population into poor, borderline and rich, according to how able they are to afford old age, and see how it affects the housing supply.

      For the poor, unfortunately, most of those who need to liquidate their home for retirement have properties that are either not attractive or not available, like 2-room HDB flats. As such, perhaps the only choice this group has is to sell their flats back to HDB under the Lease Buyback Scheme. As for those with marketable properties, if they have children, they probably already have the property under joint names with them, who (I hope) take care of them. Otherwise, it will increase the supply, but I really doubt that the numbers will be that great.

      For the borderline cases, they may borrow against equity, but I really doubt that many will sell their homes if they can still afford to keep them. In the worst case, they may downgrade to a smaller flat or condo, but this doesn’t really increase the supply since they sell one and buy one.

      For the rich, they have no need to sell their properties, which are probably rent-generating anyway.

  2. Hi Naysayer,

    Thanks for reading and commenting!

    Whilst I do think aging demographics is worth noting, this issue has been flagged for special attention since the early 80’s, and I believe it’s something the government is constantly working on.

    While the baby boomers, defined as those born between 1947-1964, are hitting the 65-year-old threshold this year and the proportion of above-65s is set to increase by about 6% with each year, one should also look beyond the sheer quantum.

    The thing about demographic statistics is we can’t just look at one single indicator, ie. we need to look beyond the absolute numbers of eldery. These aging folks are not just faceless numbers, so whilst the number of seniors may be growing at a rapid pace, you’ll find that compared to their early predecessors, the baby boomers tend to be a much better-educated and financially-independent group of retirees.

    Perhaps my views are slightly skewed, as the baby boomers I meet through my social network and line of work tend to be either sharp astute investors/business owners or careful, cautious savers.

    However, in a baby boomers report prepared for MCYS in 2009, A/P Angelique Chan & Dr Yap Mui Teng also found that only 34% of baby boomers surveyed intended to move out of their current homes during retirement, with only 18% of such potential movers intending to sell their property to finance their retirement.

    As such, I would tend to overlook the “greying tsunami” in this respect. I would be keen to hear more from you if you have reasons to believe otherwise though!

    Best regards,

  3. Read Today Online.

    Singapore will lose respect if old folks are leaving.


    “A disturbing 27 per cent of respondents in a three-year study here have thought about relocating abroad post-retirement or were unsure about staying here.

    They cited our higher cost of living as a main reason, as reported in “‘Help couples age together'” (July 16). And these were people aged below 65 years.

    By 2030, one in five of us would be of that age or older. Each year, nearly 60,000 would join this group, close to twice the number of new births then.

    How prepared we are for the silver tsunami must be viewed not just against the backdrop of declining births but also the expected slower economic growth and higher cost of living, especially in healthcare.”

    “Our reputation as one of the world’s best places to work and live would be at stake if a quarter of our old folks are thinking of or leaving our country every year.”


    The silver tsunami has been identified as ground shaking when it happens in the next two to three decades. Many are unprepared for retirement. With inflationary pressures that wear out your savings, the expected high cost of living and a highly competitive and tight environment which compromises public services, I think the temptation to cash out a huge cash cow(one’s property) to better stretch one’s dollar, besides more breathing space, will be pervasive.

    Those with invested properties here too will want to exit in an impending falling market and prosper from it

    Why work,and suffer the stress of a mediocre lifestyle here, when your property is worth that much and could possibly buy you a “paradise” in a much lower living cost country?

    I am not that optimistic that we have that problem covered. We build as if there is no tomorrow.

    1. Hi Naysayer, while I agree with you that there may be some social issues associated with the aging population, I don’t foresee an effect of the same extent to the property market.

      Certainly it’s alarming that 27% of folks have considered immigration after retirement, but in the end the number will probably come up to much less. After all, despite our problems, we are still one of the safest and most stable countries in the world. For me, that deserves a premium.

      As for inflation, if you strip out housing and COE, you’ll see that basic necessities went up less than 3% with all the bad weather in the agricultural countries.

  4. Hi guys,
    We have many homes that breaches a million dollar or more. That’s a lot of money for homeowners to leave behind when they depart. Who is deserving of your property( or money – spend your money) when the time nears? We have many unmarried singles and married couples without kids who will be thinking of ways to dispose of their assets before meeting their maker. Even those with kids may share the same thought. I will be thinking how best to blow it all away(on self and loved ones) before singing my swan song.

    If 15 to 20%(easily) think along the same line, apart from those who sell/ offload for altruistic reasons, migration, etc, the number will be substantial enough to sink our economy – aka abandon ship – or create a pandemic in the market

    1. Hi Naysayer, I’m not convinced that there are all that many people who will be thinking about how to blow their entire wealth away before they die. Since we don’t know when we will head to that big farm in the sky, it’s highly unlikely that people will get rid of their house prematurely. Besides, I’m sure most people will have either family or a favourite cause to bequeath their residual wealth to. There are also much better ways to unlock their equity in their house without selling it, like reverse mortgages. This is a better way as you get to stay in the house rent-free, while getting pocket money every month from the banks, and at the same time they are able to benefit from an appreciating market.

      The problem, as you have mentioned previously, is that people are unprepared for retirement. They don’t know what is available to them and therefore go the route that seems the simplest to them. However, the simplest route is usually not the most effective. The only way to change that is through education. The challenge is in teaching people to manage retirement in a simple, understandable way that makes sense.

  5. “As for inflation, if you strip out housing and COE…” <- Did it occur to you that this will have direct impact on rising cost of transportation? And what about businesses that are impacted by higher operating costs as a result of these 2 factors? The only reason why "basic necessities" cost 3% more is because the govt has a player in every industry to help regulate prices.

    1. Dear Derek, thanks for your comment. Certainly COE price increases will affect car buyers, but other than forecast taxi fare increases due to higher COE, I cannot imagine how COE will impact transportation costs for the general population. Also, not many businesses are greatly affected by housing and COE. The only ones that I can think of are car rental companies and taxi companies. If you are talking about increases in fuel costs, this is already factored into the 3%.

      I’m not aware of the government directly regulating prices in every industry other than by tax regulation, but even if this was the case, it doesn’t really matter if inflation is well-contained.

  6. Reviewing my assessment after 3 years, I guess I’m only half right. The government did, in fact, put in the killer cooling measure of TDSR, and we are also currently facing a situation of over-supply in most categories. However, I was right about the market dipping but not crashing, and also interest rates staying put. If anyone’s interested in my predictions for the next few years, please leave a message and if there’s enough interest, I’ll do an analysis.

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