Resilience or defiance

October 6, 2011 / By

The private residential price in Singapore, as measured by the Urban Redevelopment Authority Property Price Index (PPI), surprised the market when the flash estimates showed the index increasing by 1.3% in 3Q11. Although the overall rate of growth has been slowing for eight consecutive quarters, prices in the Outside Central Region (OCR) outperformed expectations with a 2.1% q-o-q increase, higher than the 1.7% recorded in 2Q11. Similarly, the average prices in the public housing resale market showed an even more stunning quarterly gain of 3.8% in 3Q11, surpassing the 3.1% recorded in 2Q11. The market is baffled by these rising prices despite the government’s numerous interventions since 2009.

Besides the fundamental imbalance between the increase in housing stock and population growth, the extremely low interest rate environment has but only further exacerbated this demand.

This stock and population growth imbalance has led to what I believe is substantial latent demand. While this “latent demand” is discretionary since these potential home buyers/occupiers are being housed somewhere, whenever the market shows signs of an easing either in volume or prices, these latent buyers emerge and support the market. Going by my analysis of transaction types in the private market, the proportion of secondary (resale) market activity to total transactions has surpassed that of the new sales (primary) market since 2009. This only confirms my thesis that the substantial latent demand in the market is slowly working its way through the system. There is housing need and no longer just housing demand. This stock and population growth imbalance is likely to support property prices going forward. Growth especially in the mass market (i.e. OCR) is not expected to surge and neither should we expect a sudden drop. Unless the Eurozone financial crisis takes another negative turn that sends further shock waves across Asia, I expect average islandwide private property prices to maintain their growth albeit at a moderate pace of 1-1.8% per quarter.

So what should the government do in the meantime? Nothing and just let the latent demand work its way through but continue to ensure a healthy supply of land to support long term population growth. The last thing we need is a constraint on national economic policy imposed by housing stock and population growth imbalance.

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