It’s just an illusion

Source : Today - 3 Feb 2009

Analysts don’t expect supply glut as developers likely to defer construction of housing projects

WHEN long queues outside showflats disappeared overnight during the 1997 Asian financial crisis, the poor demand combined with a supply glut to exacerbate the slump in Singapore’s property market. A decade on, the supply side of the equation may be less dire, say pundits.

In an analysis of the “supply illusion” in the private residential market, real estate company DTZ said historical trends showed the actual completion of private residential projects tends to be fewer than projected. Actual completions from 1998 to 2001 were 42 per cent below projection, while those from 1999 to 2001 ranged between 50 per cent and 75 per cent, DTZ said in a press release yesterday.

A similar phenomenon could occur during this downturn. While official statistics show that more than 11,600 private residential units are scheduled for completion annually from this year to 2013, DTZ senior research director Chua Chor Hoon forecasts that only half the scheduled developments will materialise from 2011 to 2013.

“Based on historical trends, the projected completion supply is likely to be reduced further as only 53 per cent are under construction,” she said, adding that the 2009 Budget measures give developers flexibility in staging their construction plans.

Mr Donald Han, managing director of consultancy Cushman and Wakefield, estimates that the construction of more than 9,000 units has been deferred.

But there is a limit to how much project delays can prop up the market. Said Chesterton Suntec International director of research and consultancy Colin Tan: “The ability to delay projects will be tempered by the developer’s need - however little - for some revenue streams.”

This is particularly so as there is still a coming supply of completed property in the hands of private investors, he said. Of these, about 4,500 units bought under the Deferred Payment Scheme are scheduled to be completed this year.

Bullish sales projections

Still, some analysts seem optimistic about demand. Some are expecting 2009 sales to exceed last year’s dismal 4,300 new units, which was an 18-year low.

DTZ’s Ms Chua forecasts take-up this year to be between 5,000 and 6,000 new units, “with more likely to take place in the second half of the year as price expectations between buyers and sellers close”.

Not far behind is Mr Han, with a projection of 4,500 to 5,500, assuming the market picks up in the second half of the year.

Mr Tan, however, is less sanguine. He expects, in the absence of sharp price declines, lower sales than last year. With the gloomy economic climate and many developers still not lowering prices by much, this is “going to be a long-drawn affair”, he said.