In late September 2013, Singapore’s National Population and Talent Division (NPTD) announced that the population grew to 5.4 million as at June 2013, a 1.6% increase from a year ago and also the slowest rate of increase in the past nine years. Between 2004 and 2013, Singapore’s population rose at an annual pace of 2.9%, a rapid growth due mainly to the influx of non-residents (NR) ie foreigners. NR population more than doubled during those nine years from 753,400 to 1.55 million today, an increase of 8.4% per annum on average. The strong intake of NRs was to compensate for the low increase in resident population (citizens and permanent residents) as well as an aging resident population, in meeting employment requirements in a tight labour market.

While the population rose strongly between 2004 and 2013 (and even in the preceding years), there was a lag in housing supply. Total housing stock grew by only 11% from 1.1 million units in 2004 to 1.22 million units presently, not keeping up with the population expansion of 30%, from 4.17 million to 5.4 million during the nine years. The effect was an unprecedented demand for housing after 2009, fuelled by massive liquidity inflows and cheap borrowing costs leading to residential property prices surging 62% since mid-2009 and rising household debt.

The fear of an asset bubble led to policy makers imposing numerous rounds of market cooling measures to stem demand while increasing supply of private residential land and public housing units. Their cumulative impact on the market in the last few months seems to indicate a pronounced moderation in demand. Meanwhile, “QE tapering” will eventually be on the cards and as liquidity reduces and interest rates rise, housing demand is likely to moderate. The 3 month Singapore Interbank Offered Rate (SIBOR) is currently 0.38%, compared to annual averages ranging from 0.74% to 3.45% in the five years before the global financial crisis.

As population growth has been a key driver of housing demand, a slowing trend could stack the odds against demand for new housing further. It will also coincide with a significant completion in both public and private housing stock. In 3Q09, there were 32,173 private homes under construction while in mid-2013 the figure has risen 114% to 68,716. The supply of public housing has also been increasing to an average of 25,000 units per annum in the last three years.

In conclusion, we may be seeing the transition of the Singapore residential property from a period of undersupply and robust demand to another of strong supply and moderating demand. It is likely to appear less attractive to investors, including foreign buyers as they face the brunt of the cooling measures while downside risks to prices increase. We could also see reduced investment in residential sites by developers and more moderate bidding for sites eventually. As investment opportunities in the residential sector reduce, investment capital could flow towards the non-residential sectors or even overseas markets, especially for developers who are better diversified in their business.

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