One of the most common & biggest concern when we meet up with our clients from Facebook is the Real Estate Oversupply in Singapore.
For example, one of the key questions they will ask is this:
“Will the developer drop the prices if they cannot manage to sell?”
To answer this question objectively, we must first look at the facts and figures.
If you are looking at today’s real estate market, here are some excerpts from a URA report published on 23 Jan 2020:
“Apart from the 32,272 unsold units (including ECs) with planning approval as at the end of 4th Quarter 2019, there is a potential supply of 6,050 units (including ECs) from Government Land Sales (GLS) sites and awarded en-bloc sale sites that have not been granted planning approval yet. These comprise (a) about 5,500 units from awarded GLS sites and Confirmed List sites that have not been awarded yet, and (b) about 550 units from transacted en-bloc sale sites5.”
Image & excerpt taken from: https://www.ura.gov.sg/Corporate/Media-Room/Media-Releases/pr20-06
Based on the above excerpts, it would be reasonable to conclude that there is a huge supply of unsold units.
However today, as a home buyer or property investor, we need understand a little deeper and analyse the entire picture.
After all, information such as news headlines are specifically designed to draw our attention.
Whenever we read about oversupply, we need to find out whether developers need to clear their supply now.
Let’s dig a little deeper.
One of the factors that causes oversupply in the market is the additional buyer’s stamp duty (ABSD) deadline.
Developers have to build and sell all units on residential sites within five years to qualify for remission of the ABSD on the land purchase price.
If they fail, they will have to pay the 25 per cent ABSD, with interest.
So the question is, how many developers are affected by Additional Buyer’s Stamp Duty (ABSD) remission timeline?
For a clearer picture, we should look at the no. of units affected due to the ABSD remission timeline.
Can you see that the unsold units are spread out and the highest number of units affected is in 2023?
This means that developers still have time to sell off all their units.
For example, we can use simple math to average out the number of units that need to be sold.
As mentioned earlier, there are 32,272 unsold units (including ECs) with planning approval as at the end of 4th Quarter 2019.
If we use 32,272 unsold units and divide it by 4 years.
Every year, we will need to sell 8068 units. Is that possible?
Based on the chart below, we can see that every year an average of 8000 units are sold.
In fact, last year there were close to 10,000 units sold.
But wait a minute, will there be new supply?
Ever since the government raised the Additional Buyer’s Stamp Duty rates and tighten the Loan-to-Value limits (For reference: https://www.mas.gov.sg/news/media-releases/2018/raising-additional-buyers-stamp-duty-rates-and-tightening-loan-to-value-limits), En Bloc sales have slowed down tremendously.
Furthermore, government land sales have also slowed down significantly. (For reference: https://www.businesstimes.com.sg/real-estate/government-holds-housing-land-sales-steady-amid-supply-demand-gap)
From all these data, we can see that government is promoting a stable and sustainable property market and they are monitoring the numbers closely to avoid any bubble from forming.
What does this mean for me as a home buyer or property investor?
The important question to ask yourself during this period is this:
Should we buy when there is oversupply or undersupply in the property market?
If you are reading this during the COVID-19 viral outbreak, you can also read this post: https://letstalkproperty.sg/covid19/
To better answer this question, let’s take a condo called The M as a case study.
Based on our estimated calculations, The M breakeven price is about $2198 psf.
During The M launch day itself, do you know how much psf they sold at?
During the launch day, they sold at near breakeven price!
Frankly speaking, do you think we can get this pricing if there is undersupply in the property market?
Just put yourself in the developer shoes.
If after the launch day, you have managed to hit a certain amount of sales, will you still sell at breakeven price?
Let’s take a look at the prices after the launch day.
As you can see, from the table above, the price did increase.
Why did I use this development as an example?
Because I myself bought a unit during the launch day.
If you ask me, I cannot predict whether a developer will drop or increase price.
All I can do is put myself in the developer shoes.
For example, if I have a record number of unsold units, will I sell the development at a lower price?
If the market has lesser unsold units, will I sell my units cheaper?
In conclusion
I believe the government knows the property supply numbers better than we do.
Like I mentioned earlier, the government wants sustainable growth for the Singapore property market.
The main thing when it comes to a property purchase is to PLAN WELL.
Ask yourself questions like:
What is the purpose of this property purchase?
Is it for own stay or for investment?
Can I sustain the instalments in the long run?
Am I over leveraging?
All these questions will be answered and planned properly during our 1-to-1 consultation.
Wondering if it’s the right time to buy, sell, or wait it out?
These decisions can be tough, and there isn’t a one-size-fits-all answer.
But don’t worry, that’s where we come in!
At Let’s Talk Property, we are here to provide clarity to you and guide you step-by-step in your real estate journey!
Whether you’re a first-time buyer or a seasoned investor, we hope to partner with you to create a clear plan that’s tailored to your unique needs and provide objective guidance to help you make the best real estate decision.
So, if you’re looking to buy, sell, or just want to chat about your real estate options, we’re here for you!
With our extensive on-the-ground experience, you can trust us to provide a top-notch real estate experience that’s both informative and stress-free.
Do contact us for a sharing session!
Speak With UsTill then,
Let’s Talk Property
Matthew @ 9007 9035
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