Why property prices will remain high

Published on Jan 31, 2012

THE report ('Record number of homes to be built, further easing prices'; last Saturday) quoted experts forecasting a steep decline in home prices of up to 15 per cent this year. This was based on a drop in transactions last month and a record supply of 77,089 uncompleted homes at the end of last year, of which 39,184 remained unsold.


And in the public housing market, an overwhelming supply of 25,000 units will be released, on top of last year's batch of 25,000 units, which is unprecedented in recent years.


Despite the large incoming supply and cooling measures, which will put pressure on home prices, an excessive price fall is unlikely because of current strong fundamentals.


What is also vital to consider is the equally huge demand backlog in private and public housing.


Between 1995 and 2010, there was strong population growth amid an undersupply of housing. This led to a dire imbalance, which resulted in robust home transactions and escalating prices in recent years.


Based on official data, the population of citizens and permanent residents expanded by 758,200 in the 1995 to 2010 period. But the increase in available private homes within the same period was only 128,896.


Working on 3.5 persons per household, 758,200 equates to 216,628 households. So, as of December 2010, there was a housing deficit of 87,732 (216,628 minus 128,896).


This strong pent-up demand can easily absorb the 77,089 uncompleted homes in the pipeline until 2015. And this is not taking into account the housing requirements of new immigrants, who may need about 20,000 to 30,000 homes from now until 2015.


Last year, 107,000 foreigners were added to the population. According to some experts, a 1.8 per cent population growth will most likely support home price growth in a favourable environment.


Currently, the property market is well supported by favourable key fundamentals such as low interest rates, low home vacancies, future population growth and the spillover effect from an imbalance in the resale HDB market.


All these factors will contribute to a positive impact on the residential property market in the coming years.


In the absence of a severe global economic recession accompanied by massive job losses, a sharp property price correction is highly unlikely this year.


Wong Toon Tuan