One of the key steps in analyzing the property market is being able to understand the supply charts of private residential units. The data can be easily found in the URA website.
Below is the supply chart from the 3rd quarter of 2017:
According to the paragraph, there is an upcoming supply of 16,700 units to be completed in 2021.
However it is not reflected in the graph as no approval has been given yet. Assuming approval is given in 2018, it will take about 3-4 years to build and market.
Thats why the expected supply in 2021 could potentially increase up to 22,000 units.
Also take note of the potential property supply in 2020.
Let’s take a look at the 4th-quarter supply chart in 2015:
This data was released in Jan 2016, where the above URA chart indicated that 2016 would have the highest supply of private property units being released – about 26,000 units.
Back in 2015, I have already recommended to my clients to start buying a property mainly because of this reason – the imminent increased supply will result in property prices to be at their lowest (read: cheapest) point.
The article below is dated 22 April 2016:
In this Edgeprop article dated 18 Jan 2016, it seemed developers were aware of the increased supply – and started to relaunch at “trimmed prices”.
What was the benefit of buying a property when supply was at the highest point? This was the main benefit – you were able to enter the market at a “discounted” entry price.
Those who weren’t aware of the supply side news likely attributed the price fall to the cooling measures implemented by the government. But the truth was – there were also many other factors in play eg slowing economy and increased supply.
The Importance of the Seller Stamp Duty
In 2011, the government introduced the Seller Stamp Duty (SSD) to curb speculation.
In March 2017, the SSD was reduced from 4 years to 3 years.
Why the sudden tweak of the SSD from 4 years to 3 years?
This is my opinion – when the year 2020 comes, the property supply will actually reach the lowest point.
Those who purchased in 2016 will be able to sell in 2020. (4-year SSD).
While those who purchased in 2017, will be able to sell in 2020. (3-year SSD)
And the main reason why the SSD was tweaked was to ensure that the supply of units eligible for sale (without SSD) would be increased – instead of the possible 6,315 units available.
I believe the government’s SSD change was to encourage homeowners to sell in 2020 – in anticipation of the potentially low supply.
The “plan” is that the supply of private residential units will be expected to increase in 2021 and 2022.
What Does This Supply Chart Mean For You?
The potentially low supply in 2020 means this – that year will be a very good time to sell your private property.
2020 is also a key reason why many people are buying properties in 2017.
My expectations is assuming the demand doesn’t change a lot – this lack of supply is likely to pressure the prices of private property upwards – before it stabilizes in 2021 as supply increases.
I like to highlight these are just simply my observations (backed with some data) and I could be wrong.
But following the trend – the highest supply in 2016 resulted in a downward pressure of prices.
A 2020 low supply could pressure prices even higher.
2020 might be a good time to exit the market with your gains if you have made any.
This recent en-bloc sales frenzy is partly driven by developers who need to maintain a landbank. Developers are reading the market as:
- there has been reduction in the number of sites released under the Government Land Sales programme in recent years. The alternative is through collective sales
- growing demand due to increasing sales
But this supply – even when in comes in 2021 – is not near enough to oversupply the private residential market.
The goal of whatever measures the government takes is to ensure a sustained price growth that is aligned with the economic fundamentals.
Runaway increasing property prices is just as dangerous as plummeting property prices.
In any case, please remember proper financial planning and analysis is key to ensure you do not regret your future property purchases.
If you are in the market to purchase a property, I invite you to contact me if you have any queries regarding your potential options. We will sit down to discuss a detailed financial plan that will be suitable for you.